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Debate on Policy Issues in the Field of Zakat on Islamic Bank Business

Abdul Ghafar Ismail (), Achmad Tohirin and Muhammad Ali Jinnah Ahmad
Additional contact information
Achmad Tohirin: The Islamic Research and Teaching Institute (IRTI)
Muhammad Ali Jinnah Ahmad: The Islamic Research and Teaching Institute (IRTI)

No 1435-3, Policy Papers from The Islamic Research and Teaching Institute (IRTI)

Abstract: Purpose – The purpose of this paper is to discuss zakat for business entities, in this regards Islamic banking institutions. There is a debate on whether or not business entities are obliged to pay zakat. However a sort of consensus has been concluded that a business entities owned by Moslems should pay zakat, at least for the Moslems’ owner. Design/methodology/approach – This paper is conceptual in nature describing why business entities should pay zakat based on the rationale that business entities play a role to create value added for the welfare of the community. Should zakat be applied to gross income, gross-profit, net-profit of the business entities or only the profit attributed the Moslem owner only or else. These are the unsettled area that deserved exploring Findings – Discussion in this paper attempts to shed lights on matters pertaining zakat such as zakat chargeability, and their calculation, determination of zakat base and zakat eligibility of assets and liabilities. From practices exposed in this paper, such as Bahrain, United Arab Emirates and Malaysia business zakat on the Islamic banks entities are implemented. In the first two countries zakatable items is clearly mentioned, i.e. the banks’ reserve, and retained earnings, while for Malaysia no specific items being explicitly mentioned but business zakat. Research limitation/implications – This paper proposes application of zakat on business entities, however consensus on this matter has not been established yet. Originality/values – The paper initiates a new policy issues on zakat implementation especially on the Islamic bank businesses.

Keywords: Zakat; nisab; net wealth; Islamic bank; business entities (search for similar items in EconPapers)
Pages: 15 pages
Date: 2015-01-19
New Economics Papers: this item is included in nep-sea
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