LABUAN – The Labuan International Business and Financial Centre (Labuan IBFC), although modelled and adapted after other international financial centres, is always envisioned to benefit from overall growth and economic development in the region.
And today, it has become a centre for players in niche financial services such as aircraft and oil and gas leasing services, reinsurance and captive insurance, said Bank Negara Malaysia Governor, Datuk Muhammad Ibrahim.
Bernama reported he said that Labuan was initially given the flexibility to accept domestic business to give it a head start, .
“It was never the intent to make domestic-based business a focal point. And yet, at present, almost half of the insurance business here originates from Malaysian risks, he said at the Labuan Industry Annual Dinner 2016 here Thursday night.
Similarly, for the banking sector, he said, over half of bank deposits here were derived from Malaysians.
Muhammad, who is also the chairman of Labuan Financial Services Authority (Labuan FSA), said loans to Malaysians had more than doubled in the last five years from US$5.9 billion in 2010 to US$12.9 billion in 2015.
“The loans now account for 40 per cent of Labuan’s total loans outstanding.
This increased reliance on domestic business runs contrary to the central theme of Labuan IBFCs global ambition. The reinvention of Labuan going forward should not lose sight of its original vision,” he said.
On the talent front, he said, despite greater operating flexibility and lower regulatory costs, significant investments to develop local capacity and human capital had not materialised.
For many institutions, the outfit here merely consists of a name and skeletal staff, with full-fledged presence in other parts of the region. Hence, while business is booked in the centre, dealings and technical support are provided by regional offices where the experts reside.
This is not what the founders of Labuan IBFC envisioned and certainly detrimental to the best interest of Malaysia. Industry players should seriously rethink about leveraging on the strength and opportunity here to review Labuans business strategies,” he said.
He said a tax review exercise was currently in the works to harmonise the tax regime of Labuan IBFC with the national tax system.
“This will better align the centre with international efforts to arrest tax evasion and profit shifting, whilst preventing leakages of tax income accruing to the nation for transactions involving residents,” he said.
With this review, he said, tax rules and regulations that are more leveled with the onshore market for transactions involving residents.