Nasim Shah Shirazi Islamic Research & Training Institute Member of

Nasim Shah ShiraziSenior Economist

Islamic Research & Training InstituteMember of the Islamic Development Bank Group

Enabling Environment for Zakah

Indonesia: Zakat Act 2011

Pakistan: Zakat Ordinance, 1980

India: No formal institutional or regulatory framework

Bangladesh: Zakat Fund Ordinance, 1982

Malaysia: Administration of the Religion of Islam (Federal Territories) Act 1993 and similar Acts for individual provinces

Singapore: Administration of Muslim Law Act, 1999

Brunei Darussalam: Laws of Brunei, 1/1984, Religious Council and Kadi Courts,

Islamic Research and Training Institute

Member of the Islamic Development Bank Group

Institutional Structure for Zakah Management

Indonesia: Dual system with state and private institutional actors



President

Minister of Religious Affairs

BAZNAS

UPZ UPZ

LAZ LAZ

Muzakki and Mustahiq


India: Private actors (individual and institutional) with no role for state




Private Collectors (Individual & Institutions)


Pakistan and Bangladesh: Dual system with state and private actors (individual and institutional)




Department of Zakat

Individuals NGOs



Malaysia, Singapore & Brunei Darussalam: State agency as the sole entity responsible for zakah management



Sultan/President


Islamic Religious Council/ Majlis

Zakat Office Agent

s

Agent


Zakat Collection: What the Laws Say

Zakat payment is

Mandatory: Malaysia, Singapore

Partially Mandatory (for specific financial assets):PakistanReasons for weak enforcement: Absence of muzakki database, Unwillingness of zakat officer to list down those who fail to pay zakat, Shortage of staff and Inadequate authority to zakat officer to investigate any failure

Voluntary: Indonesia, Brunei Darussalam, India, Bangladesh



Zakat Collection: What the Laws Say

Defining of Zakatable Assets: Indonesia, Pakistan

Defining Zakat Rates: Pakistan

Provides for exclusion of a Muslim from zakat liability based on declaration that he follows a different school of fiqh



Zakat Distribution: What the Laws Say

Allocation of zakat among Asnaf:

Priority in Distribution: Indonesia (productive activities only after the basic needs of mustahiq are fulfilled)

Definition of mustahiq with emphasis on tamleek:Pakistan

A decision of Majlis: Malaysia, Singapore & Brunei

Absorption of operational expenditure:

Entirely by zakat mobilized without limit (Indonesia)

Partially by govt budget and by zakat mobilized (Brunei Darussalam & Pakistan)



Accountability & Governance of ZIs: What the Laws Say

Collection and distribution by “authorized” amil: Indonesia, Malaysia, Singapore, Brunei Darussalam

Utilization of such funds is in conformity with Shariahas also with the intention of the donor(s): Indonesia

No Commingling of zakat funds with other charity funds: Indonesia

Mandatory reporting requirements to apex body: Indonesia



Accountability & Governance of ZIs: What the Laws Say

Elaborate administrative sanctions, revocation of amillicense for violations of provisions: Indonesia

Financial & physical punishment for fraudulent practices: Malaysia, Brunei Darussalam, Indonesia

Penalty to be decided by Majlis: Singapore

Removal of erring member: Pakistan, Bangladesh



Enabling Environment: Fiscal & Other Incentives

Tax Rebate: Zakat paid is a deduction from tax payable: Malaysia

Tax Relief: Zakat paid is a deduction from taxable income: Indonesia, Pakistan, India* (Tax is reduced by “zakat paid” times the tax rate.)

Assets for which zakat has been deducted at source shall be excluded from taxable wealth: Pakistan

No land revenue on land on the produce of which zakat has been charged: Pakistan

*zakat to Non-profits treated as donations and qualify for tax benefit



Summary of Good Practices for Zakah Sector

Government may be responsible solely for regulation and leave mobilization to private bodies

Where state is sole collector with agency agreement with private corporate entities, there should be no competition between the two

Zakah regulations should be dynamic with scope for continuous reforms

Zakah payment should be made compulsory with effective deterrents against evasion

Zakah payment should be allowed as a deduction to income tax payable and not just to taxable income




Corporatization is desirable as it enhances convenience for Muzakki; improves transparency

Accountability and good governance are key to sustainability and growth in zakah mobilization; require ensuring separation of zakah funds from other forms of charity; flow of zakah funds to designated beneficiaries by Shariah and by the Muzakki

Effective deterrents against misuse of zakah proceeds and violation of Shariah mandates relating to application of zakah funds must be in place




Effectiveness in zakah management requires ensuring that zakah payment does not encourage dependence and leads to economic empowerment

Priority rules of distribution require fulfillment of basic needs (relief and rehabilitation) of ultra-poor first and avoidance of carrying or investing any surplus

Efficiency in zakah management requires ensuring that cost of zakah mobilization is pegged below one-eighth of funds mobilized.



Enabling Environment for Awqaf Sector

Indonesia: Act of Republic of Indonesia No.41 on Waqf, 2004

Pakistan: Provisional Waqf Ordinances 1979

India: Wakaf Act, 1995

Bangladesh: Waqf’s Ordinance 1962

Malaysia: Administration of the Religion of Islam (Federal Territories) Act 1993 and similar Acts for individual provinces

Singapore: Administration of Muslim Law Act, 1999

Brunei Darussalam: Laws of Brunei, 1/1984, Religious Council and Kadi Courts,



Institutional Structure for Waqf

Indonesia



President

Ministry of Religious Affairs

BADAN WAKAF

Waqif (Endower) Mawquf Alaihi (Beneficiary) Nazir (Manager)

(Endower)

Ulema Council


India



Ministry of Minorities Affairs

State Waqf Board(s)

Waqif (Endower) Mawquf Alaihi (Beneficiary) Mutawalli (Manager)

(Endower)

Waqf Administration

Central Waqf Council


Pakistan




Chief Waqf Administrator (Province)


(Endower)

Waqf Administration (Province)


Bangladesh



Ministry of Religious Affairs

Waqf Administrator


(Endower)

Waqf Administration

Waqf Committee


Malaysia and Brunei Darussalam



Sultan


Islamic Religious Council(s)/ Majlis

Waqif (Endower) Mawquf Alaihi (Beneficiary)


Singapore



President


Islamic Religious Council/ Majlis

Waqif (Endower) Mawquf Alaihi (Beneficiary)

Mutawalli (Manager)


India, Pakistan and Bangladesh:

Shared history

Permit private management by mutawallis but concentration of authority in state agency (absolute in case of Pakistan)

Emphasize preservation

Neglect or rule out developmental possibility (e.g. cap on leasing period of 2 years in India; exclude cash waqf); Perceived as obsolete, inefficient and costly

Outcome: development of existing waqf rare; no new social waqf; philanthropic projects in secular domain




Malaysia, Singapore and Brunei Darussalam:

Shared history

State religious council as the sole entity responsible for waqf management

Static and obsolete laws with severe restrictions on new waqf

State control may not necessarily hamper creativity and innovation and awqaf development:




Indonesia:

Continuous reform in laws

State regulator with private mutawallis responsible for waqf management

Emphasize preservation as well as development

Explicitly encourage cash waqf

Remove uncertainties through comprehensive coverage of relevant issues



Good Practices for Awqaf Sector (Macro)

Proactive regulations ensure continuous reforms

Individual as well as institutional role in making and managing waqf encourage new waqf creation

Private financing of waqf development should be permitted for finite and limited period ensuring the perpetual character of waqf, thus balancing the apparently conflicting concerns of preservation and development

Additional financial as well as non-financial costs with waqf (as compared to trusts and foundations) must be avoided to provide a level playing field



Good Practices for Awqaf Sector (Macro)

Issues relating to remuneration and accountability of mutawallis should be explicitly addressed with effective deterrents against misuse of waqf assets

Expressed and documented Intention of waqif regarding intended application of waqf proceeds must be respected and complied with

Emphasis on cash waqf encourages new waqf creation; investment of waqf funds should be permitted in financial as well as real portfolios while avoiding highly speculative investments

Waqf was always meant to be in voluntary sector and should be allowed to remain so.



THANK YOU



Documents

Nasim Shah Shirazi Islamic Research & Training Institute Member of