Ng noted that, "over the past few years, the range of financial instruments in Singapore has expanded. Leveraging on the depth and diversity of Singapore's capital market, … the growth potential for Islamic finance in Singapore is strong. As such MAS remains committed to further grow this important sector of our financial services industry."
He confirmed that, despite the lapsing of two tax incentives for Islamic finance introduced in the 2008 Budget, which, like all Singapore's tax incentives, have a fixed tenure – in this case, of five years, Islamic finance activities will continue to be incentivized alongside conventional finance activities under Singapore's other existing schemes.
"The lapsing of the two incentives is no reflection of MAS’ continuing commitment to develop Islamic financial services in Singapore," he concluded. "Singapore’s proposition for Islamic finance must be broader than just tax advantage. Singapore’s success as an international financial sector stems from its high standards of regulation; deep and liquid capital market, the presence of international buy side players, and a critical mass of financial intermediaries with expertise to address a wide range of financing needs. It is these strengths that allow Singapore to support the growth of Islamic finance."
The 2008 Budget enhanced Singapore's Financial Sector Incentive by granting a 5% concessionary tax rate on income derived from performing specific Shariah compliant activities, from April 1, 2008, to March 31, 2013 (both dates inclusive), and also gave a 5% concessionary tax rate to an insurer on income derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business, for the same period.
Those tax incentives have now expired, and the income tax rate on Islamic finance activities will now revert to 12%, rather than the normal corporate tax rate of 17% in Singapore. According to the Government, the tax treatment of Islamic contracts remains aligned to the treatment of conventional financing contracts to which they are economically equivalent .
However, others have remarked that Singapore is now lagging behind Malaysia, which is establishing itself as the major Islamic financial hub in the region, by going beyond the provision of a level playing field in the inclusion of tax exemptions for income derived from Islamic financial products and structures.