Malaysian PM Unveils Economy-Boosting Tax Cuts

by Mary Swire, Tax-News.com, Hong Kong

03 September 2008

Malaysia's Prime Minister, Abdullah Ahmad Badawi, has unveiled plans to implement a series of economy-boosting measures in the country's 2008/2009 budget, which include hefty tax breaks for Islamic bonds, or Sukuk.

Speaking out last Friday, the Prime Minister announced that in a bid to encourage fiscal growth, the government will award fees and profits gained from non-ringgit Islamic bond deals distributed outside of the country a three-year tax exemption.

Coming into effect from 2009, the exemption will apply to the fees and profits on arranging, underwriting, distributing and trading non-ringgit sukuks.

Sukuks are securities that comply with the Islamic law and its investment principles, which prohibit the charging, or paying of interest.

Making sukuks tax-free will further enhance Malaysia's current position as the world's largest sukuk market. In June 2008, Malaysia accounted for 62.6% of global outstanding sukuk issuance.

In addition to this, the Prime Minister also announced the introduction of a double tax deduction for Islamic finance courses on offer at one of the Malaysian universities to compensate for the shortage of industry experts.

As well as announcing the tax-break plans, the Prime Minister also spoke about his intention to introduce a set of measures aimed at improving the country's welfare system - for example extending welfare aid to around 110,000 poor households, increasing the threshold for taxable incomes to exclude 100,000 workers and handing higher pensions and bonuses to civil servants equivalent to a month's salary.

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