JAKARTA. On account of the higher costs of sukuk issuance compared to conventional bonds, tax incentives are needed to boost sukuk sales, the Financial Services Authority (OJK) has said.

"For a country, the higher costs associated with issuing sukuk is not much of a problem but corporations are more sensitive to this matter. Unfortunately, the OJK does not have the right to issue tax incentives," OJK sharia capital market director Fadillah Kartikasasi told thejakartapost.com, recently.

Fadillah urged the government, particularly the directorate general of taxation, to amend the tax law to help boost sukuk issuance.

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According to Fadillah, sukuk’s structure is relatively more complicated than conventional bonds, which made rating sukuk more expensive.  

“Because of this, many corporations are not considering sukuk as a financial instrument,” she said, adding that only a few rating agencies understood the rating process.

The OJK has been pushing for incentives for the last three years but progress has been slow, Fadillah added.

She also claimed that sukuk could be a supporting instrument for infrastructure development, which is being intensified by President Joko "Jokowi" Widodo.

"But they are again and again choosing [conventional] bonds over sukuk. In Malaysia, when they first started developing Islamic finance, a percentage of sukuk had to go to state-owned enterprises [SOEs] debt," She said.

The sovereign (state) sukuk has flourished with higher issuances every year, from 2013 to 2015 there was average issuance growth of 21.65 percent each year. In 2013, 2014 and 2015  issuance amounted to Rp 53.18, 75.54, and 97.92 trillion.

Meanwhile, corporate sukuk grew 6.68 percent per year on average, with 2 percent lower value than sovereign. In 2013, 2014 and 2015, the issuance value stood at Rp 2.20, 0.96 and 1.53 trillion, respectively.

In 2008, the issuance value of sovereign and corporate sukuk was not significantly different, with Rp 4.69 and 2.32 trillion respectively. But in 2009 when sovereign sukuk issuance skyrocketed 252 percent to Rp 16.55 trillion, corporate sukuk issuance dropped 47.37 percent to just Rp 1.52 trillion. It reached the lowest point in 2010 and 2011 with Rp 0.8 and 0.1 trillion in issuance, before bouncing back.

"Global corporate sukuk was affected by the 2008 AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) statement that some sukuk did not comply with sharia principles, but it bounced back," University of East London professor in Islamic finance Siraj Sait said.(Anton Hermansyah)