Prime minister announces Islamic finance incentives under Budget 2013 (By IFN)

Monday 1^st October 2012

MALAYSIA: Najib Razak, the prime minister, unveiled several key incentives for the Islamic finance industry during his tabling of Budget 2013 on the 28th September 2012, as Islamic banking assets continued to grow at a strong pace in the first seven months of this year. Initiatives announced under the federal budget for next year include a double tax deduction for additional expenses incurred in the issuance of retail bonds and Sukuk for 2012-2015. Individual investors will also be exempt from paying stamp duties on retail Sukuk and bond transactions. The measures follow stock exchange operator Bursa Malaysia’s introduction of rules on the listing of exchange traded bonds and Sukuk on the 27th September. The government also proposed a double tax deduction for expenses related to the issuances of “agroSukuk” for 2012-2015. “With the availability of instruments such as agroSukuk, it will raise capital for finance companies and agro-based farming while revitalizing the country’s capital and equity markets. We are confident that it will propel Malaysia’s ambitions to become a major hub for Islamic finance and particularly cross-border Sukuk issuance,” commented Abdul Jalil Abdul Rasheed, CEO of Aberdeen Islamic Asset Management. Industry players were largely positive on the incentives announced under the budget, noting that the tax breaks for agroSukuk will help boost Sukuk issuances by agriculture firms. However, speaking to Islamic Finance news on the sidelines of the IFN Asia Forum 2012, one banker questioned the relevance of the initiative. “How many agricultural companies are there in Malaysia which have good credit standing and are actually able to issue Sukuk?” opined the banker. Meanwhile, the government also released its economic report 2012/2013, which showed that the market share of Islamic banking assets grew 20.6% from the beginning of the year to July, accounting for 24.2%, or RM69.5 billion (US$22.17 billion) of Malaysia’s total banking assets as at the end of July. Takaful assets rose to RM18.3 billion (US$5.84 billion) during the seven-month period, accounting for 9% of total insurance and Takaful industry assets. Islamic financing made up 26.6% of total loans and financing as at the end of July; higher than the 25.9% recorded at the end of 2011. By 2020, Islamic financing is projected to account for 40% of total financing in the country.