Australian tax laws should be amended to attract Islamic finance and other forms of alternative finance to benefit the economy, says CPA Australia.
In a submission to the Board of Taxation, CPA Australia says Islamic Finance will ultimately boost the Australian economy and help establish Australia as a financial services hub in the Asia-Pacific region.
Paul Drum, head of business and investment policy, CPA Australia, said attracting capital and investment through Islamic finance is a huge opportunity for Australia and would ultimately be good for economic growth.
‘Australia has emerged from the global financial crisis with strong economic position and a good regulatory regime. With our geographic position we are well placed to attract this increasingly significant component of global finance, and we need to take advantage of that,’ he said.
‘As a net importer of capital it is essential that we establish the right framework to attract and maintain a wide range of capital and financial products. Achieving this will be key to addressing many of our key economic issues including the funding of major infrastructure projects.’
Islamic finance is based on the principles of Islamic law (Shariah) which prohibits earning interest and instead focuses on profit sharing based on the buying and selling of tangible assets such as property.
‘Islamic finance offers huge potential for Australia’s financial services sector, but tax laws will need to be amended to accommodate other forms of alternative finance.
‘Some of Australia’s tax laws have a very specific legal based application which can exclude forms of alternative finance. Taking a broader economic and macro approach to policy in this area will be more beneficial and provide better long term benefits for Australia. It’s also more consistent with how tax law has developed in other areas such as taxation of financial arrangements.’
The CPA Australia submission also suggests Australia could adopt a similar approach to the United Kingdom, where only minor legal and regulatory reforms were required.
‘To achieve all of this will require significant work to align the accounting and tax treatment of Islamic and other alternative financial products. This must be a priority and CPA Australia looks forward to contributing to this process.’