Islamic finance is firmly on the agenda following Assistant Treasurer Senator Nick Sherry's announcement of the terms of reference for the Board of Taxation's review of Australia's tax treatment of Islamic finance.
The review, which was announced on 26 April 2010, will include an in-depth analysis of Australia's current tax laws to ensure that, where possible, they do not hinder the provision of Islamic finance, banking and insurance products.
"Islamic finance is a rapidly growing part of the global financial system," said Sherry.
"The Islamic finance, banking and insurance market is worth almost $1 trillion and could reach as much as $5 trillion."
Sherry said that attracting more funds and investment from Islamic investors will help to develop business and boost jobs in Australia.
"This review is not about creating special treatment, but about creating a fair and level playing field for the provision of Islamic financial products into the Australian market."
Sherry recently returned from a trip to the Middle East where he explored the sector and was exposed to its "vibrancy and dynamism".
"There is no reason why we shouldn't address national tax laws that may be inhibiting local growth," he said.
"Our funds management sector also has much to offer the wholesale Islamic finance sector - so the review will address any issue on that front also."
The Board of Taxation intends to make recommendations regarding State and Territory laws which might impede Islamic finance, as well as review progress made by key jurisdictions in Europe and Asia with similar agendas, by June 2011.
"Ultimately, a guiding principle here is that the tax treatment of Islamic financial products should be based on their economic substance, rather than their form, wherever possible," said Sherry.
"Several other Western jurisdictions have made progress in achieving this - as have we - but now we need to move to the next level."
For a more detailed analysis of Islamic finance in Australia, check out next Friday's edition of Lawyers Weekly.