Tax treatment

Contents
Page
Glossary
2
Overview of Islamic Finance
5
Differences between Conventional and Islamic 
Finance Transactions - Examples
7
Islamic Finance Transactions: Financial Reporting 
Standards in Malaysia
10
Malaysian Tax Legislation
12
Tax Neutrality
14
Government’s Initiatives towards Islamic Finance
15
Tax Incentives
16
Common Practical Tax Issues - Example
18
Malaysian Institute of Accountants (MIA)’s Initiatives to 
Support the Growth of Islamic Finance Industry
20

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2
Tax Treatment on
Islamic Finance 
in Malaysia
Glossary
Bai’
A ‘sale’ or contract of sale. It sometimes precedes another term 
used to denote various sales-based modes of Islamic finance such 
as Murabahah, Istisna’ and Salam.
Bai’ Bithaman Ajil
(BBA) 
or cost plus profit margin 
financing contract
A sale where payment of the consideration is deferred, either in 
instalments over a specified period or in full on a specified date. 
It is commonly used in long-term mortgage loans on which the 
homeowner pays instalments for typically 10, 20 or more years.
Bai Al-Inah
• 
A contract of sale and purchase of an asset whereby the seller 
sells to the buyer in cash and subsequently buys back the asset 
at a marked up deferred price;
• 
A contract of sale and purchase of an asset whereby the seller 
sells to the buyer at a deferred price and subsequently buys 
back at a lower cash price.
Gharar
(Uncertainty)
An element of a contract which is unknown, uncertain, ambiguous 
or deceit. For example, sale of birds in the sky, short-selling.
Halal
Permissible. That is neither prohibited (haram) nor of doubtful 
permissibility (shubhah).
Haram
Prohibited. Examples of activities prohibited in Islam include the sale 
and consumption of pork and pork-related products, pornography 
and fornication, gambling and intoxicants. Some jurisdictions also 
extend the prohibition to the sale of tobacco and/or armaments.
Hiwalah
Transferring a debt from one debtor (transferor) to another 
(transferee). Once the transferee has accepted the transfer of the 
debt, the transferor would be released from any obligation.
Ibra’
Rebate.
Ijarah
(Leasing)
A contract whereby the lessor transfers to the lessee in return for a 
payment or series of payments the usufruct of an Ijarah item for an 
agreed Ijarah period, with terms mutually agreed by the contracting