Australia: Tax laws to be reviewed in context of Islamic finance

The Australian government announced on 26 April 2010 that the Board of Taxation would undertake a comprehensive review of Australia's tax laws to ensure that, wherever possible, the laws do not hamper the expansion of Islamic finance, banking and insurance products.

Acknowledging the rapid grow of Islamic finance as part of the global financial system, the Assistant Treasurer wants the review to identify anomalies in the Australian tax system that would hinder that growth and "to ensure that Islamic finance products have parity with conventional products, having regards to their economic substance."

Islamic finance is finance activity that is consistent with the principles of Islamic law or the Shariah, as set out in the Qur'an. The key principles of Islamic law are the prohibition of payment of interest ("riba"), the prohibition of excessive uncertainty and investments in certain sectors, the requirement of a genuine and tangible asset to underlie any investment and the sharing of profits and losses.

The Assistant Treasurer clarified that the purpose of the review is not about granting special treatment or concessions for Islamic finance or its providers, but to ensure that the Australian tax system does not inhibit or unfairly disadvantage Islamic instruments.