Taxation Framework for Sukuk in Malaysia and Indonesia

Abstract

AbstractThis research intends to explore and compare tax framework, particularly tax incentives provided in relation to Sukuk for both Malaysia and Indonesia. Tax framework and incentives on Sukuk is essential in promoting Sukuk growth. Malaysia and Indonesia are chosen as the countries of study because both are the leading countries in the Asia region for Sukuk issuance, according to the global Sukuk report [6]. This research adopts a qualitative method by comparing legislation and regulations on tax between two countries. However, this paper would not explore other aspects such as Shariah aspects, structures or process of Sukuk, which already abundant. A library research approach used, whereby secondary data utilized to gather information through literature examination. A gap analysis will be done to identify the current state of Indonesia tax incentives on Sukuk compares to the tax incentives provided by the Malaysian authority. This study finds that Malaysia offers substantial tax incentives in promoting Sukuk compared to Indonesia, as per the claim by several studies. Besides just imposing tax neutrality, Malaysia’s tax regime provides vast tax incentives to each Sukuk originator, issuer, Special Purpose Vehicle (SPV), and investor. Indonesia, on the other hand, provides specific incentives only to domestic and foreign investors. This research proposes that the Malaysian regulator maintain some tax incentives that significantly benefit Sukuk, especially Sukuk Ijarah and Wakalah, which have a significant impact since both structures are preferred among the issuer. This paper also recommends Indonesian regulator to provide tax incentives by taking Malaysia as a benchmark.KeywordsTaxationSukukMalaysiaIndonesia