Islamic Law and Society in Indonesia

Corporate Zakat Norms and Practices in Islamic Banks

Alfitri

• Publisher: Routledge
• Year: 2022
• eBook ISBN: 9781000570403
• Edition: 1
• Topic: Social Sciences
• Subtopic: Regional Studies
• Index: Social Sciences

No corporation is enthusiastic about paying tax, yet Islamic banks in Indonesia voluntarily pay corporate zakat. Why? The book analyzes corporate zakat norms and practices in Indonesia by investigating how Muslim jurists have interpreted shar??a of zakat and how these have been imposed through the legislative and regulatory framework. It also presents original case studies based on sociolegal field research on the reception of the new obligations in the Islamic banks that choose to pay – and choose not to pay – what is effectively a new tax.

The book argues that the dynamics of shar??a interpretation, imposition, and compliance in Indonesia are too complex to be defined using the binaries of the religious versus the secular, public versus private, or tradition versus modernity. The corporate zakat context has revitalized the existing governance strategy in Islamic legal tradition and created a shared Islamic law vision between Islam and the state. Consequently, this fusion generates a mixed legal and religious consciousness toward corporate zakat.

Addressing broader discussions on Islamic law and modernity, the book will be of interest to academics working on Asian and Comparative Law, sociolegal studies, anthropology of Indonesia, business studies of the Islamic world, Islamic/shar??a economics, Islamic law and politics, Islamic legal studies, Muslim society and Islam in Southeast Asia.

1INTRODUCTION

DOI: 10.4324/​9781003183112-1

In Islamic doctrine, zakat is farḍ, which means that it is a religious duty whose observance will be rewarded and whose neglect will be punished by God in the hereafter.¹ Islamic law requires individual Muslims to give a certain amount of their wealth to specific beneficiaries, predominantly the poor. It is like a tax on Muslims’ wealth, which is imposed as a moral obligation. It is also one of the five canonical obligations incumbent upon Muslims. Confirmation of corporate zakat’s mandatory status at the international level was developed late in the 1980s using fatwā (plural: fatāwā), i.e., the interpretations of sharīʿa² to respond to the contemporary situations.

Requiring legal entities such as companies to pay zakat, however, is a controversial regulatory move. Thus, different opinions on its status as an obligation in Islam range from not requiring it to requiring it with conditions. Theoretically, then, the enforcement of a zakat obligation in Indonesia by the state would raise concerns about both the government’s authority to do so and the legitimacy of the policy itself.

In Islamic history, Muslim dynasties and states have enforced zakat’s general obligation by serving as the collector and distributor of zakat funds. Zakat is a form of worship in Islam and state revenue that is integrated into state fiscal policy.³ Despite Muslims being the majority population of Indonesia,⁴ the country is not an Islamic state as far as the 1945 Constitution is concerned. Islam is not mentioned as the religion of the state, and there is no repugnancy clause of the kind that makes sharīʿa the law of the land and requires state law to conform to sharīʿa. The authority to make Islamic law in Islam is vested in Muslim jurists/ulama, while in the modern nation-state, it resides in the state’s legislative or judicial organs. Thus, there seems to be tension between Islam and the state regarding legislative authority in promulgating Islamic law. In Indonesia’s case, the tension revolves around the question of authority: who gets to determine what the law of the land is and who gets to make Islamic law? This tension is heightened in cases like the imposition of corporate zakat, mainly where the state is the legislator, but ulama have not yet confirmed the corporate zakat obligation’s legal status.

Through the enactment of Indonesian Law No. 38 of 1999 and its replacement, i.e., Law No. 23 of 2011, zakat become an aspect of Islam that is officially administered by the Indonesian state. However, the law is mainly a procedural framework for Muslims who want to observe this religious duty. It does not impose an obligation on Indonesian Muslims to pay zakat but is limited to establishing and supervising zakat agencies, both state-run and non-state organizations.⁵ In the corporate zakat obligation, the imposition of corporate zakat means that it is a duty imposed by Islam, not the state. For example, in art. 2 of Law No. 38 of 1999, “[e]very citizen of Indonesia who is Muslim and is able [to pay zakat] or a legal person owned by a Muslim has an obligation to pay zakat.” Article 1(2)(5) and 4(3) of Law No. 23 of 2011 maintain this clause. Law No. 38 of 1999 also does not include penalties or other coercive mechanisms to compel zakat payment for either natural or legal persons.⁶ However, Law No. 23 of 2011 provides sanctions for unauthorized zakat collectors who collect, distribute, or utilize zakat funds: imprisonment and/or monetary fines (art. 38 and art. 41).

Given the debate about the corporate zakat status, the Council of Indonesian Ulama (Majelis Ulama Indonesia; hereinafter MUI) as a forum of cross-Islamic social organizations of Indonesian Islamic scholars issued a decision, stating that MUI considers it as an obligation. However, MUI has not yet promulgated that decision as a fatwā. The decision was reached during the 2009 Ijtima Ulama (gathering of scholars) of the all Indonesian Fatwā Commission of MUI and Islamic organizations (hereinafter Ijtima Ulama). MUI decreed that a company that meets the requirements of a zakat payer is liable to pay zakat, whether in its capacity as a legal person (shakhṣiyya iʿtibāriyya) or as an agent (wākil) of the shareholders.⁷

Zakat levied on legal persons, more widely understood as corporate zakat in Indonesia, is a contemporary phenomenon in Islamic countries that adopt sharīʿa as state law, such as in Malaysia and Saudi Arabia.⁸ In classical Islamic jurisprudence, however, zakat’s obligation is imposed on every Muslim who is free, bāligh (has reached the age of majority), sane, and owns wealth equal to the minimum threshold of items subject to zakat through complete unencumbered ownership.⁹ The obligation of zakat may arise from business profits owned in common by Muslims, but zakat is due on each Muslim shareholder, and it becomes zakat on his/her wealth.¹⁰

The National Zakat Collection Agency (hereinafter BAZNAS) reported that corporate zakat payments had been made since as early as the 2000s, especially by the Islamic financial sector. The phenomenon of compliance has been present in Islamic commercial banks even before the Zakat Law in 1999 and the Ijtima Ulama’s decision in 2009. The trend of corporate zakat payment is also increasing lately.¹¹ If this is the case, questions surrounding the conception of corporate zakat, both in Islamic law and Indonesian law, and its implementation in Indonesia need to be investigated.

This book deals with the complex interaction between the Islamic legal system and modern Indonesia’s social, political, and economic realities. Specifically, it focuses on the Indonesian state’s attempts to modernize zakat norms through the independent legal reasoning (ijtihād) of contemporary Muslim jurists, incorporating the norms into state law and the subjects’ responses toward corporate zakat obligation. This book is different from previous books on Islamic law and society in Indonesia because it offers a holistic perspective on how a modern state claims authority in the formulation and implementation of Islamic law. To this end, it employs an empirical legal approach. First, it is based on painstaking fieldwork that traces the origins of the corporate zakat idea in Indonesia by interviewing all the actors involved (e.g., religious scholars, lawyers, corporations, and government officials) and the way they compete for legal authority. Second, it also examines relevant archival material, including banks’ public financial data related to corporate zakat payments. This approach gives us an insider’s view of how the contemporary Islamic norm of corporate zakat is formed and how the subjects view such norms’ legitimacy, primarily as the state regulates them. It also attempts to uncover the processes of sharīʿa governance within Islamic banks that have prompted them to buy into the new scheme, even though neither the legislation nor the Islamic jurisprudential basis for doing so is strong. Moreover, it examines how Islamic banks’ compliance with corporate zakat enhances the perception of their commitment to justice, equity, and social well-being among their stakeholders, mainly when corporate zakat is classified as if corporate social responsibility (CSR).

This work contributes to a growing body of socio-legal studies of the Islamic law that do not take for granted the dichotomy of secular versus religious, public versus private, or tradition versus modernity in the development of Islamic law in Indonesia (see below section for further discussion). It primarily focuses on the corporate zakat norm’s creation, imposition, and compliance within Islamic commercial banks. The developments in zakat law and regulation will be situated in the broader context of Islamic law and Indonesia’s society. This book’s findings are significant for other aspects of Islamic law regulated by the state in Indonesia and speak to the ongoing debate on Islamic law and society worldwide. First, this book is one of the very few empirical studies that explore how Islamic norms are formed and who have the right to “make the rules” concerning Islamic economic activity. Understanding how corporations are persuaded to engage in social philanthropy is an important policy issue throughout the Islamic world because it unlocks significant welfare resources for the state. The challenge is how to underscore current public policy with Islamic legitimacy. That a non-Islamic state has been able to do this in Indonesia is remarkable. Second, it effectively solves the mystery of why Islamic corporations have bought into the new scheme, even though – as we have mentioned before – there is no firm basis for complying with corporate zakat obligation from both Islamic law and legislation in Indonesia. It tells how the government enrolls ulama to effect this public policy goal and how the ulama use this opportunity to enhance their influence and prestige. This book provides a new perspective on sharīʿa governance within Islamic financial institutions (IFI), an area that has been dominated by models developed in Islamic states.

Zakat, Law, and the State in Indonesia: An Overview

Even though Muslims are the majority in Indonesia, the Constitution of Indonesia 1945 (1945 Constitution) does not reference Islam as “a” or “the” national religion whose doctrines must be obeyed by the state. In particular, sharīʿa is not mentioned as a source of legislation. The effort to bring sharīʿa into the 1945 Constitution during the preparation of Indonesian Independence by some Muslim leaders who sat in the Investigating Committee for Preparatory Work for Independence in 194...

Table of contents

• Cover Page
• Half-Title Page
• Series Page
• Title Page
• Copyright Page
• Dedication Page
• Contents
• List of tables and figure
• Preface
• Acknowledgments
• 1 Introduction
• PART I Context
• PART II Law in the Book
• PART III Law in Action
• Glossary
• Acronyms
• Annex I: Decisions of Ijtima Ulama and Their Status
• Annex II: Corporate Zakat Payment in Dompet Dhuafa 2000–2010
• Annex III: Corporate Zakat Payment in Baznas 2000–2010
• Index