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Religion Stalls South Korean Islamic Finance Tax Reform

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

02 March 2011


Following opposition from religious groups in the country, South Korea’s government appears to have given up its attempt to obtain parliamentary approval for legislation to change the country’s tax code to accommodate the issuance of sukuk bonds.

As interest is not allowed by Shari’ah law, earnings on Islamic bonds are taken as profit, which is still subject to being taxed in South Korea. The introduction of a bill to offer the same tax incentives as are given to normal bonds - income and corporate tax exemptions for interest received on bonds denominated in foreign currencies – had already been shelved in 2009 due to opposition in the National Assembly.

While the government has been willing to try again to obtain approval for sukuk tax legislation, on the grounds that it wished to broaden the sources of corporate investment, opposition from Christian groups appears to have derailed the proposition.

Given South Korea’s commercial links with the Middle East, the possibilities for its corporate sector to obtain sukuk funding seemed to make commercial sense. Christian objections, even citing national security and terrorist financing fears, have, however, proved too strong.

TAGS: tax | investment | tax incentives | law | corporation tax | legislation | Korea, South | islamic finance

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