The Role of Sukuk in Islamic Capital Markets
31
Box 2.2: IOSCO’s Approach to Regulating ICMs
…the conventional securities regulation framework and principles equally apply to the ICM, with
the addition of some form of Shariah approval or certification process. This augurs well for
the growth of the ICM as it implies that there is no need to formulate separate regulatory
principles for the ICM. By extension, IOSCO’s objectives and principles of securities regulation
can be applied to the ICM. Within this context, the ICM may be perceived as a class of products
within the wider securities market [emphasis added].
Source: IOSCO (2004)
For this purpose, most jurisdictions have adapted their existing laws and regulations to comply
with Shariah (Islamic law) by making the necessary amendments, instead of enacting new laws
and regulations specifically for the ICM or sukuk transactions. Consequently, a 2-tier
regulatory approach is applicable to sukuk in many jurisdictions:
 A single legislation to govern the debt capital market and facilitate the issuance of both
conventional bonds and sukuk.
 Specific guidelines to regulate the issuance of sukuk. In Malaysia, e.g. the SC had issued
Guidelines on Sukuk (August 2014), which were later superseded by Guidelines on Unlisted
Capital Market Products under the Lodge and Launch (LOLA) Framework (June 2015) and
Guidelines on Issuance of Private Debt Securities and Sukuk to Retail Investors (June 2015).
To further promote sukuk development, many jurisdictions have made changes to their tax
regulations, to level the playing field for bonds and sukuk. Tax incentives have also been
provided to further boost the sukuk market, attracting local and international issuers. Table
2.5 lists the various tax changes introduced by selected countries to facilitate sukuk issuance.
Table 2.5: Tax Changes to Promote Sukuk
Country Tax Changes
Malaysia  Tax neutrality is provided in the Income Tax Act 1967
 Stamp duty is exempted from Islamic securities issued under MIFC until 2020
 Administrative tax procedures are exempted from special purpose vehicles
(SPVs)
 Expenses incurred during the issuance of sukuk is tax deductible
 Liberalization of withholding taxes to attract foreign entities to issue or invest
in sukuk
Hong Kong  Sukuk is treated as conventional bonds in terms of tax payment
 Tax rebates are given to individual investors in retail sukuk
 Inland Revenue and Stamp Duty Legislation Ordinance 2013 have removed
the additional profit tax and stamp duty charges prior to sukuk issuance
Nigeria  All categories of sukuk issued are exempted from Companies Income Tax,
Personal Income Tax, Value Added Tax, Capital Gains Tax and Stamp Duties
 Sukuk holders are exempted from withholding, state and federal income, and
capital gains taxes.
South
Africa
 The government introduced tax neutrality laws for diminishing musharakah,
murabahah and mudarabah contracts in the Taxation Laws Amendment Act
of 2010 which recognizes these contracts to be equivalent to other
conventional contracts.
 In 2011, government sukuk was also recognized under the Act.