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Tuesday, 8 April 2014

The basics of zakat in Malaysia

What is zakat in Islam?
Muslims around the world are required to make zakat or tithe payments. Whilst many of you are probably well-versed with Zakat; this is a basic guide for those who aren’t so sure about the zakat.
The purpose is to assist the less fortunate, as all of the collected payments will be distributed to different channels and handed to those who need it most. Under the Syariah Criminal Enactment Law of each state, Muslims in Malaysia could actually serve jail time or be forced to pay a hefty fine for skipping their zakat payment on purpose. Here’s a rundown on the basics of paying zakat in Malaysia.
Types of zakat
Zakat fitrah
There are two major types of zakat; zakat fitrah and zakat harta. Zakat fitrah is a small levy imposed on each Muslim and MUST be paid every year without fail, regardless of age, income, or wealth. Usually, Muslims settle their zakat fitrah during the Ramadhan (or fasting) month every year. The fee is nominal and costs less than RM10. But just how much is it in your state? It all depends on the price of rice grains (one pack is equivalent to 2.7kg)! Allow us to elucidate; in the olden days, zakat fitrah was not paid using money. Rather, people pay their using rice grains, and these were then distributed to the poor. Now, the cost of grains in each state varies from RM4.50 to RM8.00 (in 2013).
Zakat harta
The second type is zakat harta. Zakat harta is divided into several categories: Zakat on earning, zakat on business, zakat on savings, zakat on gold & silver, zakat on KWSP / EPF, zakat on farming, and zakat on livestock. The most relevant type of zakat harta for Malaysians would be the zakat on earnings, simply because if they have been employed for more than a year and rewarded an income that’s above the required amount, they are then obliged to perform their zakat on earnings.
Unlike zakat fitrah, zakat on earning is not mandatory to all. Just like our income tax, it is essential only after a person’s wealth has reached a certain amount. This amount is called nisab. In general, the nisab for zakat on earning is equivalent to the price of 85 grams of gold and differs according to the state.
As the name suggests, zakat on earning is calculated from a person’s earning (much like the income tax). Generally, all Muslims are mandated to give 2.5% of their income. So for example, if the ‘earnings’ (the wealth, income, and other items that are included in the calculation) for the year is RM20,000 (more than the nisab amount), 2.5% of that is the zakat amount (RM20,000 x 2.5% = RM500). The types of earnings included are such as a person’s salary, any freelance or professional services, and income from rental.
Had kifayah
Zakat has its own reliefs and rebates that allow the payer to deduct certain items from the calculation. This deduction is called Had Kifayah (the minimum limit of income adequacy for an individual or a family) and the amount for each item is determined by each state’s Islamic Religious Council. The types of expenses that will be deducted from the zakat calculations include self, wife, children, accommodation, education, transportation, medical, parents, and EPF (deducted from income because it has its own zakat treatment).
Zakat as a tax rebate
Zakat comes with one special perk, and that is the tax rebate. Zakat payment will help reduce the income tax tremendously as it falls under the tax rebate category, and in some cases, this rebate is sometimes enough to reduce the income tax to RM0. For clueless payers out there, a tax rebate is a reduction in your tax expense after you have calculated your tax for the year, and it differs from tax relief which reduces your chargeable income (donations and charity work falls under the tax relief category). So, for example:
Roslyna’s income tax in 2013 : RM650
Roslyna’s Zakat in 2013 : RM350
Because zakat is a Tax Rebate, Roslyna’s income tax in 2013 is RM650 – RM350 = RM300.
Zakat payment can be seen as a way for Muslims to appreciate the wealth that’s bestowed upon them and to help those who are less fortunate.
Balkish Rosly is an Investigative Journalist of, an online consumer advice portal which aims to help Malaysians save money through smart (and most of the time painless) savings in their daily banking, technology, and lifestyle spending habits.
(Free Malaysia Today / 07 April 2014)
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Abu Dhabi Bank Taps Expats With Barclays Buyout

Abu Dhabi Islamic Bank PJSC (ADIB) is seeking to bring a boom in Shariah-compliant lending to an expatriate population that dominates the Arab-world’s second-biggest economy.
ADIB agreed to buy the conventional retail assets of Barclays Plc (BARC) in the United Arab Emirates for 650 million dirhams ($177 million), the Abu Dhabi-based lender said in a statement yesterday. Islamic banking assets in the country surged about 15 percent in 2013 compared with less than 10 percent for non-Shariah compliant lenders, according to Adnan Yousif, a board member with the Union of Arab Banks.
The deal is the second of its kind for ADIB, which bought a stake in Egypt’s National Bank of Development in 2007. The second-biggest Shariah-compliant bank in the U.A.E. will add 110,000 new customers in a nation where about 80 percent of the more than 8 million population are expatriates. Islamic banking assets worldwide are forecast to more than double to $2.7 trillion by 2017, according to PricewaterhouseCoopers LLP.
“Local retail is far safer, but after the shakeout of the crisis the expat population is more stable,” Emad Mostaque, a London-based strategist at Noah Capital Markets, said by e-mail yesterday. ADIB has been a corporate-focused bank so “having a larger retail footprint will be positive for balancing it’s loan book,” he said.

ADIB wants to expand into the expatriate market segment “without disrupting the existing customer base,” it said. The bank’s 2013 profit rose 21 percent to 1.45 billion dirhams, beating the median estimate of five analysts surveyed by Bloomberg, after total banking assets in the U.A.E. expanded 13 percent, according to central bank data. The data doesn’t distinguish Islamic from non-Shariah assets.‘Perfect Fit’

Shares in ADIB added 82 percent last year, the most since 2005, amid an equities rally in the U.A.E. Abu Dhabi’s benchmark index rose 63 percent. The deal to buy Barclays’s operations is “a perfect fit” as part of the bank’s strategy to expand into the expatriate market, it said. The acquisition is subject to central bank approval. Shares in the lender climbed 1 percent to 7.1 dirhams in Abu Dhabi today.

No Global Network

Barclays’s U.A.E. customers will notice a difference during the transition, according to Murad Ansari, a Riyadh-based analyst at EFG Hermes, even while they won’t experience any disruption.
“They’re moving from a bank that offered an international service to ADIB, which doesn’t have the same global network,” Ansari said by phone yesterday. Barclays has offices in more than 50 countries, while ADIB operates in five, according to the banks’ websites.
“So long as Islamic banks offer similar products to traditional ones, with good service, customers will come to you, even if they’re not Muslim,” the Union of Arab Banks’ Yousif, who is also chief executive officer of Albaraka Banking Group, said by phone yesterday. “There will be no complications when they make the assets Islamic. ADIB has done this before in Egypt and it went smoothly.Barclays joins Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, and Lloyds Banking Group Plc in exiting consumer and commercial-banking business in the U.A.E. HSBC Holdings Plc (HSBA)bought Lloyds operations for $769 million in 2012, whileAbu Dhabi Commercial Bank PJSC (ADCB)acquired RBS retail banking assets in 2010.
(Bloomberg / 07 April 2014)
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