The government is considering changes to the Inland Revenue Ordinance and Stamp Duty Ordinance to promote a local sukuk market.
“The proposed legislative amendments seek to level the playing field for common types of sukuk vis-a-vis their conventional counterparts in terms of profits tax, property tax and stamp duty liabilities. The relevant legislative amendments would also help to attract sukuk issuers using our Islamic finance platform,” said Professor K C Chan, the Secretary for Financial Services and the Treasury of the SAR.
The turn of events will please many market players that have longed for a consultation.
A lack of Islamic bond-friendly legislation has hindered the creation of a sukuk market in Hong Kong, despite Chief Executive Donald Tsang’s strong support for the development of an Islamic financial centre in the city.
The only sukuk Dim Sum that hit the market was a Rmb500m (US$79m) three-year 2.9% issue from Khazanah in October 2011. The deal was off Khazanah’s existing sukuk issuance programme set up in Malaysia, and, more significantly, the underlying assets are in Malaysia. So, no Hong Kong tax or stamp duty applied.
Hong Kong’s plans to develop a sukuk market are well behind Singapore, which has put in several measures to encourage issuance. Despite such moves, however, that market in Singapore has not flourished.
Sukuk dealers point to the wildly successful markets in Malaysia and an absence of a large Islamic fund market as barriers. Other Asian countries have also considered moving into the sukuk markets, including South Korea, Japan, Thailand and Australia, but none has gone beyond mere talk. Hence, Hong Kong’s move to consult the market will be seen as a step in the right direction.
“The structuring of sukuk often involves transfer of underlying assets and setting up of special purpose vehicles, which may give rise to additional tax and stamp duty implications and uncertainty under the existing laws, putting sukuk at a disadvantage when compared with conventional counterparts. Amendments are therefore necessary,” Chan said.
Allowing discussions on the budding market is a step in the right direction.
“The consultation exercise seeks to gauge market views on the proposed legislative amendments with a view to ensuring that they are practicable and able to meet the latest market development needs,” Chan added. “The legislative exercise would be conducive to the development of a sukuk market in Hong Kong. This will in turn help diversify our financial platform and consolidate our role as an international financial centre.”
Market participants and other stakeholders are welcome to send their comments to the FST Bureau on or before May 28 2012. After that, the government expects to finalise the legislative amendments and introduce the bill into the Legislative Council in the next session.
