Islamic Fund Management
88
Tax Framework
To promote the role of Islamic finance in the economy, Malaysia’s tax framework has
undergone several amendments. Lawmakers have introduced different amendments to
address the tax treatment of Islamic financial products, bringing about changes to the Income
Tax Act 1967, the Stamp Act 1949 and the Real Property Gains Tax Act 1976. These initiatives
had been undertaken to remove tax discrimination between the application of conventional
and Islamic instruments. Today, Malaysia’s tax-friendly framework stands as a core pillar that
supports its conducive eco-system for Islamic finance.
Demand Side
Strong base of institutional investors: Malaysia has one of the deepest capital markets in
South-east Asia, characterised by its broad base of institutional investors. According to the
figures quoted by the SC, approximately 97.8% (or RM167.08 billion) of domestic investors in
Islamic funds, which amounted to RM170.83 billion as at Dec 2017, had been sourced from
corporates, statutory bodies and government agencies.
Initiatives prompted by the GOM such as: (i) tax relief for PRS (up to RM3,000 per year); (ii)
tax relief for children’s education savings through the National Education Savings
Scheme/Skim Simpanan Pendidikan Negara (or SSPN) (up to RM6,000 per year); and (iii) EPF
withdrawal for investment in approved unit trust funds have slowly increased participation by
retail investors. The scheme to allow EPF members to transfer part of their savings to
approved unit trust funds was announced in May 2015.
In Malaysia, Muslim investors have a choice of investing directly in Tabung Haji while
bumiputras (Muslim citizens and locals from Sabah and Sarawak) can invest in government-
backed Amanah Saham Berhad (ASB) funds that have good historical dividend payout track
records. For 2017, Tabung Haji and ASB announced respective dividend rates of 6.25% and
8.25%. For the same period, the EPF declared a dividend payout of 6.90% for conventional
funds and 6.40% for Shariah-compliant funds. Given the stable performance of Tabung Haji,
ASB and the EPF, retail investors have a choice of maximising their investment returns through
these institutions; the dividends received are also tax-exempt.
Strategic support from the GOM and regulators to develop the Islamic fund management
industry: In January 2017, the Islamic Fund and Wealth Management Blueprint was launched,
followed by the Guidelines on SRI Funds in December 2017. The string of policies and
frameworks that have been issued by the SC over the last decade depicts its prominent role in
facilitating the initiatives that have been outlined by the GOM under the 11th Malaysia Plan
2016-2020 and CMP2. In attracting the attention of the private sector, retail and institutional
investors, fiscal stimuli have been offered to provide the necessary push. The concerted efforts
of the government, regulators and market players have contributed to turning Malaysia into
the world’s second largest Islamic fund management industry, with most numerous Shariah-
compliant funds globally.
Attractive tax incentives to develop personal wealth management: The tax incentives
listed earlier in along with personal tax relief for individuals, underline the
government’s commitment to educating and supporting the development of personal wealth
management. The spill-over effects from this momentum is slowly raising the number of retail