Wednesday April 4, 2012
Obliging to ‘zakat’ payments
Syariah-compliant companies, either fully owned by Muslims, or jointly owned by Muslims and non-Muslims, or fully owned by non-Muslims, all are liable to pay ‘zakat’. The grounds justifying this include the compatibility concept of the legal entity between the civil and syariah laws and the consideration of public interests.
The importance of zakat as a social policy is underlined by the fact that it has been mentioned 80 times in the Quran paired together with the obligation of prayer.
Obviously zakat, by and large, is a religious duty based on the individual capacity of Muslims as human beings. Islam recognises a person, male and female, after fulfilling a number of prerequisites, as a legal person or entity capable of receiving and carrying out certain rights and responsibilities.
As mankind progressed over time, with more complicated and tremendous economic activities, the concept of “legal entity” developed to transcend its traditional human defining element.
In the secular ambience of civil law, this was perhaps marked with the classic British case of Salomon v Salomon & Co Ltd (1897) where the House of Lords decided to the effect that a company is a different legal person from its shareholders.
The implication of the decision is far reaching as any given company now becomes a legal entity, “a legal person in its own right, with powers and liabilities as an individual but is distinguished from the members it may have from time to time, distinct from the shareholders and management.”
The above common law and civil concept of legal entity was adopted by our Malaysian law and incorporated in the Companies Act 1965.
The principle established by the Salomon case and as embedded in the Act has been applied, affirmatively or otherwise, in a number of Malaysian court cases, like in Hotel Jaya Puri Bhd v National Union of Hotel (1980) and People’s Insurance Co (M) Sdn Bhd v People’s Insurance Co Ltd. (1986).
The Companies Act regulates and governs Islamic companies as well. The Islamic Banking Act 1983, for example, defines “company” and “corporation” by the meanings assigned to them by the Companies Act.
This means that an Islamic bank, as a company or a body corporate, falls under the purview and jurisdiction of the secular Act. And by extension, the same holds true of other non-banking but Islamic-based companies and institutions.
How does this relate to zakat? As indicated earlier, zakat is based on the personal capacity of individual persons who fulfil the conditions of being Muslim, adult, free, and of sound mind.
Can zakat be imposed on companies as they are not human beings and those qualities are non-attributable to them?
In addition, is “legal entity” as understood by civil law acceptable to Islamic law, and thus the duty to pay zakat is applicable on companies? What’s the ruling if certain companies are jointly owned by Muslims and non-Muslims, or if these companies are fully owned by non-Muslims, or whose shares are held by them?
The 12th religious verdict (fatwa) issued by the Muzakarah of the National Fatwa Council in 1992 stipulates that companies involved in Islamic-based business activities fully-owned by Muslims are obliged to pay zakat. If the companies are jointly owned by Muslims and non-Muslims, then only the capital or shares owned by Muslims are subject to the alms-giving.
The fatwa, which had been adopted by several state fatwa committees, however, did not explicitly declare whether such a company might be regarded as a legal entity.
Though it may look an alien concept from the Islamic perspective, a careful reflection may lead to a conclusion that the same idea indeed exists in Islam – it’s a reality but yet without any specific coinage of terms.
The idea of “legal entity” may be gauged, among other things, from the concept of collective responsibility (fard kifayah) in the sense that if a person or a group of persons carries out certain religious instructions, the responsibility is “lifted” from the rest of the community.
Similarly, in criminal law, if a group of people come together to kill someone, if they are caught and proven guilty beyond any iota of doubt, the entire group is subject to the death sentence.
Both illustrations show that Islam recognises a unit of several people as a legal entity having the capacity of assuming certain rights and obligations. Therefore, we may say that by inference, the fatwa cited above in particular and the Shariah in general implicitly acknowledges such a concept.
The same fatwa obviously exempts the non-Muslim partners, owners and shareholders in companies dealing with syariah-authorised business from any duty to pay zakat. Is this in line with the spirit of Syariah to preserve, protect and enhance public interest?
Realising the missing link, an increasing number of syariah experts today argue that, among other things, since these non-Muslims are making tons of profits from activities, products or services related to people’s interests, it is just fair for the former to contribute back to the latter by paying a certain minimal amount of tax in the form of zakat.
This is analogous to a situation whereby if businessmen, regardless of religion, venture into economic enterprises yielding returns for their companies established in foreign lands, they are certainly under certain responsibilities to pay taxes enforced by the laws of these lands.