By Bernardo Vizcaino

JAKARTA, May 18 (Reuters) - Turkey plans to return to the sukuk market with an investor roadshow slated for the first half of this year, as the government forges ahead with plans to boost Islamic finance in the country, Deputy Prime Minister Mehmet Simsek told Reuters.

Turkey, now a regular issuer of sovereign sukuk, has also drafted a bill that would seek to harmonise tax treatment of Islamic finance contracts and encourage longer maturities in the sector, Simsek said.

"We would like to have tax regulations that treat participation bank instruments broadly in line with others, whether its sukuk or anything else," Simsek said on the sidelines of the annual meeting of the Islamic Development Bank (IDB) being held in Jakarta this week.

Discussions on the tax bill are currently on halt as the ruling AK Party elects a new leader this weekend, but talks could resume by June or July, Simsek said.

The government is also open to issuing sukuk with longer tenors beyond 5 years, a move that could provide a yield curve for other issuers to follow.

"We would love to, but much depends on the client interest. If there is demand we would like to extend maturities further, no question about it."

In March, Turkey setup three Islamic finance working groups to study issues ranging from extending maturities, taxation and product diversification in the industry.

The government is also narrowing down details for the launch of a so-called Islamic "megabank" alongside the IDB.

Those plans originally called for a bank to be launched jointly by Turkey, Indonesia and the IDB, but the two countries could now host separate institutions with regional mandates.

"That is likely where we are headed, no decision has been made but this is the more likely scenario where we have two megabanks, one in Indonesia and one in Turkey," Simsek said.

"We think the decision is likely to be made sooner rather than later and hopefully each country moves towards establishing this sometime this year."

A key role for the new institution will be to provide liquidity management for Islamic banks, known as participation banks in Turkey, as the sector still lacks many of the tools available to conventional banks.

Turkey wants Islamic banks to increase their share of the banking sector to 15 percent by 2023 from 5 percent currently, which will require not just new entrants but also strengthening existing ones, Simsek added.

(Editing by Kim Coghill) ((Bernardo.Vizcaino@thomsonreuters.com; Telf: +61293218168; Reuters Messaging: bernardo.vizcaino.thomsonreuters.com@reuters.net))