How to deal with taxation for Islamic Finance Products

Written by Gerry Octaviano

In order to design tax regulation for Islamic Finance products required the people who are expert in both (tax and Islamic Finance). It will not work if only expert in tax or only Islamic Finance.

Those people should know the purpose of Islamic Finance which to boost the real economy and downsized the financial economy.

I am so disappointed once I knew mostly (more or less 80%) Islamic Financial Institutions earned income from murabahah (which similar to conventional but fixed rate - more towards for consumption) instead of parnership (mudharabah or musharaqah).

The prevailing tax regulations shows that Islamic Financial Institution in substance similar to the conventional products. Indonesian Tax Authority ("ITO") does not impose any tax on the Islamic Finance scheme with the reason it is simply to fulfill Sha'riah principle.

Those people who expert in both (tax & shari'ah) should be hired by Government to design the proper tax regulation and Islamic Banking with Bank Indonesia in order the purpose of the Shariah can be fulfilled.

Allah Wa'Alam.