A key South Korean parliament panel on Wednesday decided to put on hold until early next year a vote on a government proposal to allow domestic companies to sell Islamic bonds, or sukuk, a finance ministry official said. The Ministry of Strategy and Finance had proposed a revision to the tax code with the aim of treating sukuk as a bond so that South Korean issuers of sukuk could enjoy the same tax advantages as those applied to conventional bond issuers.
"The finance committee decided (on Wednesday) to handle it during a February (2010) session," said the official in charge of taxation affairs, while refusing to be named. Islamic finance does not allow lending in return for interest, and so borrowing via instruments such as sukuk typically involves the sale and purchase or lease of specific assets. South Korea's government previously said it hoped domestic companies to diversify their funding sources by entering into the Islamic finance markets such as Malaysia from as early as the beginning of 2010.