The goods and services tax (GST) on takaful products: a critical Shari'ah appraisal

Year: 2017

This publication is part of the journal (2017-2)

Purpose – This paper aims to ascertain the Sharīʿah (Islamic law) stance on the imposition of goods
and services tax (GST) on tabarruʿ-based takāful (donation-based Islamic insurance) products in
Malaysia. The paper aims to do so by analysing the philosophy, purposes and structure of GST on
takāful products and comparing the imposition of GST on tabarruʿ-based takāful with its imposition
on conventional insurance while probing into the Sharīʿah texts and opinions of classical and
contemporary scholars about taxation in Islam.
Design/methodology/approach – The paper uses a qualitative research methodology. In addition to the
literature and text on websites, the information on how GST is applied in practice is also obtained
through interviews, discussions and documents from takāful operators. To determine the Sharīʿah
position on GST, reference has been made to classical and contemporary Sharīʿah literature,
including local and international Sharīʿah advisory bodies’ resolutions and standards.
Findings – This study finds that a strict interpretation of Sharīʿah does not allow for the
imposition of GST; however, there is still room for the government to justify it using a broader
interpretation  of maslahah (public interest). Takāful has become a need for the society and is
subscribed to by all income
gro·ups· , and not only by the rich. Hence, the government should consider exempting takāful
from GST. The basis of tabarruʿ in takāful does not provide conclusive Sharīʿah evidence for
takāful to be exempted from GST.
Originality/value – This research paves the way for the industry to propose further measures on GST
for takāful products such as the exemption of GST on the tabarruʿ amount or imposition of a zero
rate of GST on the relevant takāful fees and charges that are currently burdensome to consumers.
Keywords GST, tabarruʿ, takāful, Sharīʿah, insurance
Paper type Research paper

The Goods and Services Tax Act of 2014 (GST Act), which has been effective since 1
April 2015, led to the imposition of a tax on takāful (Islamic insurance) products in
Malaysia.  In  line with  the  tax  neutrality  approach,  takāful  is  treated  equally  to
conventional insurance on matters relating to taxation. This has brought about a
debate among stakeholders due to the difference in nature between takāful and
conventional insurance. Takāful represents a tabarruʿ-based service with mutual risk
being shared among the participants and the takāful operator acting as a manager of
the funds. Conventional insurance, on the other hand, consists of an insurance
premium being paid in exchange for coverage by the insurance company. This
research aims to investigate the Sharīʿah stance on imposing GST on tabarruʿ-based
takāful products.


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