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Source: Reuters

Debate on Jakarta sharia banking tax bill nears end

Published: 10 Jun 2009 17:29:30 PST

JAKARTA, June 10 - Indonesia could decide by September whether to amend double taxation laws that make Islamic financial transactions costlier than conventional deals, a parliamentarian said on Wednesday.

The Indonesian parliament is debating a bill that would change the double taxation law. The tax hit holds back the expansion in Indonesia of the $1 trillion global Islamic financial industry, bankers and lawyers say.

"We will attempt to finalise the rules before the term is over, by the end of September," Melchias Markus Mekeng, a member of parliament told Reuters in an interview.

However, Mekeng said it was too early to say what the final taxation law would look like.

As the world's most populous Muslim nation, Indonesia is seen as a prime market for Islamic finance and the central bank has set a target for Islamic financial assets to make up 10-15 percent of national banking assets by 2015. They made up just around 2.1 percent last year.

"Laws in this country take a long time to pass, unless there's a real push from (President Susilo Bambang Yudhoyono), or the next administration," said Hanim Hamzah, a Malaysian Islamic finance lawyer. "If they're really serious about Islamic finance, then they have to push for this kind of law to pass."

Indonesia, Southeast Asia's biggest economy, has taken some steps to push its fledging Islamic market forward. In April, it launched its maiden sukuk bond issue worth $650 million.

It also passed laws last year to allow foreigners to establish sharia banks in partnership with Indonesian citizens or local entities and to allow commercial banks to convert their business into sharia-compliant banks.

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