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Thursday, 5 April 2012

Malaysia: Syariah-compliant companies are liable 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.

(The Star Online / 04 April 2012)

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Malaysia to account for 60% of global sukuk issuances this year

KUALA LUMPUR: The total global sukuk issuance for both government and corporate is estimated at US$44 billion this year, with Malaysia accounting for 60 per cent or close to US$26 billion.
Last year, the global sukuk issuance totalled US$26.5 billion.
HSBC Amanah Malaysia Bhd's Chief Executive Officer Rafe Haneef said sukuk issuance in Asia was expected to be the highest this year, led by Malaysia.
Infrastructure projects in Asia, he said, were likely to be a significant driver of sukuk issuances.
"The sukuk market is already off to a strong start in 2012, and we are confident that there will be more in the pipeline given the Asian issuers and investors' increasing appetite for sukuk offering in both foreign currency and local currency," he said during a media briefing today on 2012 Sukuk Outlook.
Haneef said countries in Asia were taking proactive steps to boost and position their role in the sukuk market.
"Hong Kong has issued a consultative paper on sukuk laws seeking response from the market whether provisions drafted in the country were adequate to provide the right platform," he said.
If Malaysia wants to aspire to be a financial hub, there is a need for more US dollar sukuk issuances out of Malaysia, he also said.
He attributed the few number of US dollar sukuk issuances in Malaysia to lack of incentives among market players to go for sukuk issuances in US dollar due to plenty of liquidity in ringgit in Malaysia.
"The advantage of US dollar sukuk issuances in Malaysia will be that the credit of companies will be regularly monitored by investors abroad and this will enable support from international investors."
According to Haneef, the Malaysian sukuk market catered to investors who demand Islamic solutions while the sukuk market in Hong Kong and Singapore catered to investors who want to tap alternative sources of financing.
Meanwhile, the Director and Head of Debt Capital Markets, Global Capital Financing, HSBC Amanah Bank Malaysia Bhd, Wynce Low said Malaysia continues to spearhead the sukuk market. "More projects being rolled out under the government's Economic Transformation Programme (ETP) would boost the sukuk market here," Low said during the briefing.
With the Projek Lebuhraya Usahasama Bhd (PLUS) RM31 billion sukuk (world's largest corporate sukuk) and Tanjung Bin Energy Issuer Bhd's RM3.29 billion sukuk issued in the first quarter alone, Malaysia is headed for a record year in 2012, Low said.
"We believe Malaysia will continue to lead innovation and expand the sukuk market, following the highly successful dual tranche US$2 billion Sukuk Wakala issued by the government of Malaysia in 2011.

(The Star Online / 03 April 2012)

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