The ways in which people manage their wealth and financial affairs have developed rapidly in the 20th and 21st centuries. New types of assets have emerged, and various forms of companies with independent legal entity have been created. Accounting and auditing have changed in line with these developments, becoming more complex and sophisticated. Therefore, the concept and calculation of zakat on property, income and various businesses including financial institutions also need to be developed in parallel. Numerous national and international conferences have been held to determine the precise approach to calculating zakat for modern companies. Various criteria have been suggested by Sharīʿah scholars and contemporary accounting experts to guide the calculation of zakat, with resulting differences in application.
This research focuses on methods of calculating and distributing zakat in Islamic financial institutions (IFIs) in Malaysia. It reviews the zakat calculation methodologies suggested by the local and international standards to identify the best practices. It also aims to identify the IFIs’ practices in Malaysia and to assess first whether they are in harmony among themselves and, secondly, with the local standards, international standards and global best practices. As such, the research shall enable a coherent understanding of the theory and practice as well as identifying any inconsistencies or
The research adopts a qualitative method supported by simple data collection and analysis. The international standards, zakat calculation manuals, resolutions of contemporary Sharīʿah advisory boards, and Sharīʿah standards are analysed. The research also examines the latest available financial statements of 16 Islamic banks and ten takāful operators as at 2018 to identify the zakat methodologies adopted by the IFIs in Malaysia. The research then takes a step forward in analysing the main issues related to the differences in zakat calculations and proposing solutions to overcome the identified issues and strengthen the zakat calculation practices. The proposed solutions were highlighted and presented before the industry players, scholars and academicians during the 13th International Shari’ah Scholars Forum (ISSF2018) held on 1-2 October 2018 in Kuala Lumpur and the 12th Muzakarah Cendekiawan Syariah Nusantara (MUZAKARAH-12) held on 3-4 July 2018 in Phuket, Thailand.
This research paper consists of three main sections:
Section 1: Zakat calculation methodologies. This section investigates the suggested methodologies found in the relevant standards and guidelines. The discussion starts with the international guidelines and standards and then proceeds to the Malaysian ones. Although this research focuses on Malaysia, some guidelines issued by other countries are investigated to benefit from their experience and evaluate whether the guidelines adopted in Malaysia are consistent with those of other countries.
Section 2: Zakat reporting of IFIs. This section addresses the practice of the IFIs in Malaysia in calculating reported zakat. It compares the calculation methods among the IFIs and evaluates whether or not these practices are in line with the issued guidelines. A total of 26 IFIs are covered in this section.
Section 3: Issues and analysis. This section analyses the zakat calculation practices in further detail and discusses 11 issues that are found to be relevant and important for the zakat of IFIs in Malaysia. Many of them might also be relevant to other countries. The section also lists recommendations for each issue.
The research concludes with a summary of the key research findings.
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