Australia could be a regional leader in Islamic finance but tax issues are holding the sector back domestically, advocates say.

The worldwide Islamic finance industry is estimated to be worth US$3.5 trillion (NZ$5.5 trillion) by 2024, according to a report launched in Australia on the state of the global Islamic economy.

Because the Koran forbids charging interest, financial transactions in the Muslim world have to be structured differently, with assets typically transferred to the financier so they can receive profit instead.

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That’s more difficult in Australia because stamp duty means such transactions are effectively double-taxed, said Andrew Johnston, the head of Islamic finance at law firm Sparke Helmore.