Islamic Finance : Australia Reacts Belatedly. And Impetuously?

The global expansion of Islamic finance, finance activity consistent with the principles of Islamic law (Shariah), now witnesses Islamic financing operations conducted by most major banks around the World. Many nations have taken the view that there are opportunities thus arising from Islamic financing that warrant providing a supportive regulatory regime. With the structuring of finance transactions to ensure that the return to the Islamic investor is in a form other than prohibited interest, additional tax imposts can arise that can prejudice the transactions. Countries that consider themselves as, or aspire to be, global financial centres, in particular, see a need to remove these tax law impediments. Australia is one such country that has taken the view that there is a need for tax reforms to accommodate the nuances of Islamic finance. This paper explores the Australian tax issues associated with Islamic finance and outlines the Australian response to date. It will be suggested that whilst reforms to accommodate these arrangements are imminent there has been a failure to consider critical threshold questions before embarking on a reform agenda