On 26 April this year, the Federal Government asked the Board, headed up by Dick Warburton AO, to undertake a comprehensive review of Australia's tax laws to ensure that, wherever possible, they do not inhibit the expansion of Islamic finance, banking and insurance products.

The release of yesterday's discussion paper is intended to stimulate further discussion about the topic, which commentators have said has great potential in Australia, but which is being held back by unfavourable tax laws.

Under the review, the Board aims to identify current impediments in Australian tax laws to the development and provision of Islamic financial products in Australia; examine how other jurisdictions - including the UK, France, South Korea and Asian jurisdictions - are approaching Islamic finance; and make recommendations and findings that will ensure, wherever possible, that Islamic financial products have parity of tax treatment with conventional products.

Mallesons Stephen Jaques partner Alex Regan previously told Lawyers Weekly that despite Australia's favourable economy and distinct geographical advantage, the market for Islamic finance is still very much in its growth stages, with progress in the area proving to be painfully slow.

"Australia should be one of the top nations in attracting Islamic investment," said Regan.

"Other countries have leaped ahead because they have enacted laws to allow for Islamic finance to effectively be put in place [and] on an equal footing with conventional finance instruments, like normal loans or corporate bonds. Australia is only just now starting to turn its mind to that."

Regan said that one of the primary hurdles facing Islamic finance, and one which is under review, is that many Islamic finance projects involve the acquisition of tangible assets which must change hands on numerous occasions in order for the correct structure to be put in place, thus potentially attracting capital gains tax, withholding tax and stamp duty on multiple occasions.

Macpherson + Kelley partner Gerard Kennedy told Lawyers Weekly he is hopeful that governmental reviews, such as the Board review, will finally allow Australia to fully open its doors to Islamic finance.

"The Australian Government will most likely come to the party over the next couple of years, but at the moment there is a cloud over this tax situation which many parties are working to resolve," he said.

"This is where Australia wants to go. It wants to get major investment into the country."

The Board is welcoming submissions on the issues raised in the discussion paper until 17 December 2010.