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UAE Islamic finance mission visits Australia

Wednesday, Jul 15, 2009

Gulf News

Dubai: The first Islamic financial services mission of the UAE to Australia ended successfully and the Dubai Export Development Corporation (EDC) is expecting new business opportunities for the Islamic finance sector as a result of the trade mission.

The delegates sought to encourage changes in Australia's federal taxation which will allow Islamic financial products to be treated at par with conventional financial products.

The UAE's Islamic finance companies met with the Treasury officials in Canberra to discuss the current rules governing its financial services and incorporate Islamic financial products.

"One of the important aims of this mission is to initiate a dialogue between the UAE's Islamic finance firms and the Australian authorities so as to discuss changes that will allow Islamic firms to be established in the country and to be treated on an equal footing with conventional financial firms," Engineer Saeed Al Awadi, Chief Executive Officer, EDC, said.

"Australia, with a Muslim population of about 400,000 and growing at 20 per cent per year, is an attractive market for the UAE's Islamic finance firms. It is estimated that the annual household purchasing power of Australian Muslims is in excess of A$3.3 billion [Dh9.58 billion]," he added.

With a federation of six states and two territories, Australia levies state and federal taxes hence, Islamic financial firms have to pay both. Products such as Murabaha mortgages tend to pay stamp duty, the most important tax at the state level, twice - at the time of purchase and then when the loan is paid off. This adds to the borrower's burden and makes Sharia-compliant financial products uncompetitive.

However, some states in Australia such as Victoria have approved the State Taxation Act (Amendment) Act 2004, through the State Legislative Assembly and Legislative Council, which abolished double stamp duty on Islamic home finance.

Other Australian states are also considering making similar changes to their state taxation in order to accommodate Sharia- compliant home finance.

Al Awadi said: "These challenges are being faced in most countries abroad. In 2005 and 2006, the UK government headed by the then Chancellor Gordon Brown introduced a legislation to incorporate Sharia compliant products into the UK financial services framework.

"Although, the UK does not mention Islamic fin-ance it nevertheless used such contracts to base the changes in taxation. For example, the Finance Act 2005 under section 47 defines a purchase and resale contract which happens to correspond to a traditional murabaha contract. In a similar manner, a Sharia-compliant deposit is treated as a profit share return or in an Islamic context a Mudarabah contract.

"As a direct result of these changes, the UK now boasts two Islamic banks and a number of banks with Islamic windows. We hope to achieve similar modifications within the Australian financial system through our recent trade mission, eventually introducing Islamic financial products down under."

Kym Hewett, Australian Senior Trade Commissioner in Dubai, said: "I am keen to see the positive experience the delegates on the initial mission translate into a great level of understanding on Islamic finance products and deeper level of engagement between financial institutions in Australia and the UAE.

"Austrade's relationship with EDC continues to evolve since our Tradelink Partnership signing in 2008."

Staff Report

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