AUSTRALIA is the latest country that is currently reviewing its tax laws relating to financial transactions to ensure neutrality for the treatment of Shariah-compliant equivalent products especially bonds (sukuk) and home financing.
Earlier this month, Australia played host to a high-level Malaysian Islamic finance delegation led by assistant governor of Bank Negara Malaysia (BNM), the central bank, Muhammad Ibrahim, and comprising not only representatives of the Malaysian regulatory authorities, but also senior members of the Islamic fund management industry, Islamic banks, legal and professional services firms, and academic institutions.
Indeed, the Malaysian delegation met with the Australian Treasury, financial services regulators and other Australian government agencies and financial services associations to discuss issues relating to mutual cooperation and facilitation of Islamic financial products in the Australian market.
Gary Johnston, global manager for financial services, of Austrade, the Australian government’s trade and investment agency, stressed that Australia’s geographic location presents access to a rapidly growing Islamic finance market. “Australia is known for its expertise in more complex financial engineering and experience in infrastructure, property, resources and agricultural financing - skills which are highly relevant in the manufacture and development of Islamic financial products. The Australian government is committed to building on Australia’s financial sector expertise and strong regulatory environment to promote Australia as a financial center for the Asia-Pacific region,” he added.
Australia’s economy has been less affected by the impact of the global financial crisis. The country is opening up to Islamic finance and is keen to attract investment and financing in key industrial areas. Government ministers in recent months have expressed a commitment to developing Australia as an Islamic finance hub.
The visit led by Ibrahim was under the aegis of the Malaysia International Islamic Finance Centre (MIFC), and builds on the meetings of Australian Minister for Trade Simon Crean with Malaysia’s financial services sector on Islamic finance during a visit to Kuala Lumpur in October 2009, and subsequent discussions with Malaysian Minister for International Trade and Industry Mustapa Mohamed in August this year.
The MIFC road show included two public seminars and a roundtable with the Australian government on Islamic finance and opportunities. There were two public seminars - one co-hosted by Austrade and Invest Victoria in Melbourne; and the other by Austrade and Industry & Investment NSW in Sydney respectively. Topics under discussion included Malaysia’s experience in Islamic finance, regulatory and supervisory implications, and opportunities in cooperation in asset management, retail products and sukuk origination.
The government roundtable was hosted by the Australian Treasury at the Reserve Bank of Australia in Sydney. The event was co-chaired by Ibrahim and Jim Murphy, deputy secretary/executive director, Markets Group, Australian Treasury.
The roundtable focused on how Australians could participate in Islamic finance (as potential users/industry players/students) and ways in which the MIFC community could facilitate in achieving this aspiration. According to Austrade, the government is committed to building on the country’s financial sector expertise and strong regulatory environment to promote Australia as a financial center for the Asia-Pacific region, including Islamic financial opportunities.
The issue of Australian tax treatment of Islamic finance instruments was identified as a possible hurdle. However, the Australian financial services industry has established a working group to review and recommend to the Australian tax authorities how this issue could be mitigated. The MIFC delegation also had several side meetings with relevant stakeholders from the financial services industry to discuss areas of interest, namely sukuk origination, Islamic fund and wealth management, legal, tax, listing of securities and human capital development.
Austrade’s Jakarta-based trade commissioner and industry team leader for financial services in ASEAN Patrick Kearins, who also attended the meetings, highlighted Malaysia’s mature Islamic financial services sector and welcomed the Islamic financial sector’s liberalization measures by the Malaysian government. “Malaysia has a full-fledged Islamic financial system operating in parallel to the conventional banking system. With over 65 percent of the population being Muslim, the government is keen to promote Malaysia as a stable Islamic finance hub in Asia. Opportunities for Australian businesses seeking to increase their presence have been enhanced after changes to liberalize Malaysia’s financial services sector and foreign investment laws were announced earlier this year. These included allowing foreign investors to own up to 70 percent of stock broking companies, an increase from 49 percent, and foreign fund managers to establish 100 percent foreign-owned fund management companies in Malaysia,” he explained.
Another potential boost for further expanding opportunities for Australian and Malaysian financial services entities is the ASEAN-Australian-New Zealand Free Trade Agreement (AANZFTA) which will come into force on Jan. 1, 2010.
Several Australian financial institutions are already involved in the Islamic finance sector in various capacities. Australia’s largest financial group, McQuarie Bank is providing a $100 million Murabaha facility as part of the capital raising exercise of Gulf Finance House, the Bahrain-based Islamic investment Bank. Similarly, LM Investment Management Ltd., a specialist global Australian income funds manager, earlier this year launched the first onshore Shariah-compliant real estate fund in the Australian market which is investing in a portfolio of real estate assets in different parts of Australia across a variety of sectors such as construction, industrial, retail or residential (retirement villages).
According to Ken Scott-Hamilton, general manager (Middle East), LM Investment Management Ltd., discussions on elimination of double stamp duty on Islamic property and real estate discussions are going on in the Australian Parliament in Canberra.
“Tax neutrality for Islamic products will certainly open up the market in Australia like it has in the UK. We have been hamstrung by the way we do any leveraging for this fund. I am confident that Islamic investors are going to be suitably interested in Australia as a market. My understanding is that only $600 million of assets are Shariah-compliant in Australia currently and most of these funds are equity-based. People are looking for alternatives.
Real estate-backed investment opportunities are going to be of significant interest. The region may see Australia as an emerging market but it is the 4th largest funds under management industry globally and we are quite sophisticated. I also see opportunities for sukuk over the next year. I think there will be significant interest and appetite from Australian companies wanting to do that,” he stressed.
