Islamic finance in Australia: interest or not interest? That is the question

Dabner, Justin (2012) Islamic finance in Australia: interest or not interest? That is the question. New Zealand Journal of Taxation Law and Policy, 18 (1). pp. 12-31.

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Abstract

In contrast to countries such as Malaysia, Singapore and the United Kingdom, Australia has reacted belatedly to the phenomenon that is Islamic finance. Nevertheless, there is no evidence that the delay is the result of a deeper consideration of the issues. The terms of reference provided to the Government's Board of Taxation mandated reforms to the tax system to level the playing field between Islamic and conventional finance on the assumption that this was in the national interest. However, the indications are that the necessary threshold questions were not first addressed, including:

• Do Islamic finance arrangements generate returns and payments that might be properly described as, in economic substance, interest, or rather, in lieu of interest?

• If the returns and payments are, in economic substance, interest, then is it appropriate (or necessary) to amend the tax laws to facilitate artificial arrangements directed at eluding the Islamic moral code?

• If the returns and payments are to be properly viewed as in lieu of interest, then is it appropriate to embark on tax reforms to treat them as interest given that this amounts to a specific tax concession not available to the general body of investors? This necessitates a number of further enquiries.

Only after an open consideration of these issues should attention turn to the particulars of the reforms to the tax regime, if any, which might be implemented.

Item ID: 25451
Item Type: Article (Refereed Research - C1)
Keywords: taxation, Islamic finance
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ISSN: 1322-4417
Date Deposited: 26 Mar 2013 23:41
FoR Codes: 18 LAW AND LEGAL STUDIES > 1801 Law > 180125 Taxation Law @ 100%
SEO Codes: 94 LAW, POLITICS AND COMMUNITY SERVICES > 9499 Other Law, Politics and Community Services > 949999 Law, Politics and Community Services not elsewhere classified @ 100%
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