Strengthening Corporate Zakat Policy in Indonesia

Zakat is one of five pillars in Islam. As the biggest Moslem population country, Indonesia should consider zakat as potential pathway to reduce poverty. At the state of stable economic condition in which companies periodically earn profits, zakat entity plays an important role in prosperity improvement. However, the regulation of business zakat in Indonesia is insufficient. Regulation of Zakat relies solely on Zakat act No.23-year 2011 that doesn’t cover the issue of business zakat. Another regulatory body is the Indonesian Accounting Institution that established sharia accounting standard, namely PSAK 101 which obliged sharia entities to provide business zakat report. Furthermore, the Indonesia Stock Exchange has launched Indonesia Sharia Stock Index (ISSI) and Jakarta Islamic Index (JII) for entities that trade sharia stocks in the capital market. The aim of the research is to discuss the form of policies to support business zakat application in Indonesia. Literature survey is mainly used as methodological approach to conduct this research. Fiqh literatures and sharia accounting standard are explored to support regulation of business zakat in Indonesia. Policies by regulatory bodies with regard to business zakat are also discussed in order to support business zakat implementation in Indonesia. Empirical data from corporates that are indexed by ISSI or JII in Indonesia Stock Exchange are collected to provide the potency of business zakat. This paper initiates policies to be applied in supporting business zakat implementation in Indonesia.


INTRODUCTION
Until recently poverty is an overwhelming problem in Indonesia whereas the rich enjoy some positive economic growth. Unequal prosperity in this country need to be addressed so the number of the poor can be reduced gradually. According to the Millennium Development Goals (MDGs), the target of poverty reduction in Indonesia was up to 7.5% from total population, unfortunately the goal has not been reached. From the statistics of Indonesia, Given that Indonesia is a country with huge Moslem population, using zakat as a strategic program might be well appreciated by the citizens. Some regulations concerning zakat are established by the government of Indonesia, however business zakat is not yet included in the regulation. The zakat act no.38 which was established in 2003 was amended by zakat act no.23 in 2011 (RI, 2011). The later act supports the improvement of zakat management; however, only individuals (who possess the required nishab) are obliged to pay zakat. In Zakat act No.23, companies are not subject to the law; as a result, zakat potential is not in its optimum level. If only companies were obliged to pay zakat, more fund would be collected and distributed.
On the other hand, a regulation concerning the report of presentation of zakat fund has been established by the association of Indonesia Accountant (IAI). Such regulation exists in the statement of financial accounting standard (PSAK) No.101. It is stated in the standard (paragraph 10 point e and f) that sharia entities are obliged to present set of financial reports includes "Consolidated Statement of Sources and Uses of Zakat and Charity Fund (qard)" (IAI, 2017). However; recognition, measurement, and calculation of zakat is not an issue in the standard.
It is known that the activity in capital market showed growing number of sharia stocks trading. The Indonesia Stock Exchange (IDX) reported an increasing number of sharia-based products in 2016 which reached 61% of total listed stock (Hermansyah, 2016). The IDX has launched the ISSI/JII index for sharia stocks traded in the capital market (later it may be stated as ISSI/JII companies in this paper). However, it is not clear whether or not companies trade sharia stocks are classified as sharia entities. As a result, it is 60 IQTISHADIA 12,1 likely that companies trade sharia-based products do not comply with PSAK No.101.

Meanwhile, both the government of Indonesia and the Indonesia Ulema
Council (MUI) have not established any regulation concerning business zakat. In addition, companies are not bound by regulation nor by fatwa to pay zakat. The absence of regulation and fatwa of business zakat result to companies that neglect to pay zakat.
This research is looking for the best model of integrated regulation in supporting the implementation of business zakat in Indonesia. Another target of this research is to calculate the potency of business zakat of companies listed at the ISSI/JII index. This paper is organized as follow: a review on fiqh of zakat is firstly presented, in which it discusses some opinions from Moslem scholars. Some previous studies with regard to business zakat are also discussed in this section. The next section discusses implementation of business zakat across countries. The methodology approach is explained afterwards. Furthermore, the possibility of business zakat implementation in Indonesia is briefly discussed. The calculation of business zakat potency is also conducted. An alternative step to implement business zakat is displayed in the final section.

Fiqh and Zakat
In the terminology of Quran and Sunnah, zakat is defined as part of wealth that has to be spent in the will of Allah (M. Imran Ashraf Usmani, 2000). Furthermore, whether or not firms are subject to zakat has actually been discussed in the first conference (muktamar) in Kuwait which was held on the 30'th of April, year 1984. Scholars in the Muktamar agreed to decide corporates as subject to zakat (Hafidhuddin, Zakat Dalam Perekonomian Modern, 2002). The decision was made considering the concept of legal personality where the firm has right of ownership like using the assets, selling them, and to make those assets available for attachment by its creditors. Like a person, a company is an artificial personality and has its own life, existence, duties, liabilities and obligations. A company also has right to enter a contract, to own its own properties, to delegate authority to agents, to sue or being sued in its own name (Kraakman, 2009). Furthermore, concept of separate patrimony (as stated in the website of http://www.simarddesrochers.ca/ newsletter/the-separate-patrimony-of-a-legal-person/739) may also be considered, where shareholders, members or managers of a corporation are not personally liable for the corporation's obligation. In addition, based on 62 IQTISHADIA 12,1 the premise above, firms might be obliged to pay zakat even if without any permissions from the shareholders (Wijayanto, 2007).
Considering fatwa from the first Muktamar in Kuwait, it is assumed that applying business zakat is allowed as long as some conditions (as follow) are fulfilled: 1. The existence of regulation of zakat obligation for companies 2. The article of association of the firm mentions the statement regarding zakat payment 3. General meeting of shareholders agrees to make a commitment in regard to zakat payment.
4. As in separate patrimony concept, the shareholders agree to allow the board of directors (who act as a firm) to manage the zakat payment (Hafidhuddin, Panduan Zakat Bersama Didin Hafidhuddin, 2003)

Application of business zakat in some countries
Some countries have pointed out firms as subject to zakat. However, only few countries have made business zakat compulsory, they are including: Saudi Arabia, Pakistan and Kuwait. Furthermore, some researchers found that business zakat has been implemented only by firms in Islamic bank sector.
In many countries zakat law is somewhat general in nature and sets out the specific regulation to be formulated by designated organization (Obaidullah, 2016 In order to calculate zakat potency of the ISSI/JII companies, the list of companies released by the National Sharia Board (DSN) is gathered from the IDX website. The net profit of the companies was then multiplied by 2,5%, so that potency of business zakat can be estimated. Empirical data from Islamic banks in Indonesia were also gathered to inform application of business zakat report.

Findings on business zakat's regulation in Indonesia
Considering the growing issue of business zakat in the world, implementing zakat on business is a plausible program in Indonesia. Support from regulatory bodies is an important factor to implement the program. Here are some findings about current regulations of business zakat in Indonesia:

Government of Indonesia through the establishment of the law of business zakat.
Currently, law of zakat no.23 has been promulgated by the Indonesian's government in 2011. According to Beik (2012), this type of regulation is

Strengthening
Corporate Zakat classified as partial model because zakat payment is not legally obliged (Firdaus, Beik, Irawan, & Juanda, 2012). The zakat act primarily discusses the issue of zakat management, directs zakat institutions in the area of collecting, distributing and reporting of zakat, sadaqah and infaq fund.
It is stated in the general provision of the act, chapter 1, article 1, item (5

Supervisory Agency (BAPEPAM) and the Indonesia Stock
Exchange (IDX) through the establishment of regulation in stock market in regard to business zakat.
As an official agency established by the government, the BAPEPAM issued the capital Market Law No.8 year 1995(BAPEPAM, 2015. Chapter VIII, article 69 of the act presents two important points as follow: (1) Financial reports that are submitted to BAPEPAM must be prepared in accordance with generally accepted accounting principles (2) Notwithstanding the requirement in item (1) BAPEPAM may establish accounting rules with respect to the Capital Market The statement at point 1 above shows that each company having transaction in capital market must present standardized set of financial reports. In addition, it implies that the sharia entities must present their financial reports in accordance with the PSAK No.101.

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Besides, the IDX has issued two types of sharia indices namely sharia Islamic index (ISI) and Jakarta Islamic index (JII). In order to support sharia transaction in the IDX, the director of the IDX and the MUI has taken plausible action to issue a regulation called fatwa of National Sharia Board (DSN) in 2011. The fatwa No.80/DSN-MUI/III/2011 entitled "Implementation of Sharia Principle in the Mechanism of Share Trading at Regular Stock Exchange". The fatwa briefly discusses technical guidance in doing sharia stocks transaction, so it is guaranteed that the auction mechanism is suitable with sharia principle. Unfortunately, neither the Fatwa nor the legal foundation discusses business zakat issue (Sadewa, Rahwani, & Andriani, 2015). There is an opportunity to charge corporates trading sharia stocks to fulfill its social responsibility namely zakat.

Findings on Estimation of Zakat Potential by using the ISSI/JII companies
As discussed in the previous chapter, the ISSI and the JII index has been launched for corporates that meet certain criteria by the DSN which were then allowed to trade sharia stocks in the capital market. The listed corporates are evaluated every 6 months to determine if they still meet the certain conditions or not. Of the total 355 ISSI companies that are listed in the first period of year 2017, 64 corporates are excluded either because of data unavailability or loss occurred.
By including the ISSI/JII companies as subject to zakat, the zakat potential is estimated using this formula: 2,5% x net profit. The sum of net profit was calculated at 983 .583.745.663.529 rupiahs which was then multiplied by 2,5%. Finally, the potential of business zakat of companies listed at the ISSI index in mid of May 2017 was calculated at 24.589.593.641.588,20 rupiahs. The amount of zakat potential of corporations listed at the ISSI index shows that Indonesia might address the poverty problem using business zakat program.

An alternative concept in Integrating Regulation on business Zakat
According to Beik there are two types of zakat implementation, namely wajib shar'i and wajib siyasi. Wajib shar'i is a religious obligation. Notwithstanding the absence of zakat act in the country, every Moslem must obey the obligation of zakat payment. Meanwhile, wajib siyasi is legally obliged. In the later type of zakat implementation, the zakat act exists, and punishment may be applied to those who neglect the obligation (Irfan Syauqi Beik, 2010).

Strengthening
Corporate Zakat It is probably a plausible move by the Indonesia house of representative to mandate companies that trade sharia stocks to pay zakat. By issuing the regulation of business zakat, one of conditions that has been approved in the first Muktamar in Kuwait is fulfilled (Hafidhuddin, Panduan Zakat Bersama Didin Hafidhuddin, 2003). It's probably not an easy step to create such regulation. However, Indonesia needs to start to implement the idea. The first thing we might be able to do is by inviting Moslem scholars to discuss business zakat issue. As a result, the fatwa concerning business zakat can be launched.
It is seen that The Indonesian Ulame Council (MUI), has started to discuss the issue in 2009. The discussion then resulted to an agreement among the participants to religiously oblige companies to pay zakat. The agreement, however, was not result in Fatwa. Hence, the congress is a good starting point in implementing business zakat in Indonesia.
Furthermore, tax regulation also needs to be taken into consideration.
By integrating regulation of zakat and tax, business zakat payment might be tax deductible. As a consequence, companies that have paid zakat might deduct its profit by zakat payment so that tax liabilities will be reduced.
Meanwhile, as previously discussed, there are companies that trade sharia stocks in the IDX. The IDX has launched two indices for this type of companies namely Jakarta Islamic Index (JII) and Indonesian Sharia Stock Index (ISSI). It is seen through the IDX website that to be classified at the ISSI index two conditions need to be fulfilled namely business criteria and financial criteria. The business criteria are served based on the lawful (halal) 12,1 of the business, both halal on the substance (product) and on the process.
While the financial criteria oblige company to have not more than 45% ratio of total debt to total assets and the ratio of non-halal income to total income is limited to 10 % only (Sadewa, Rahwani, & Andriani, 2015).
The IDX website also provides fatwas and regulations that have been  (Indonesia Stock Exchange, 2014). Unfortunately, both the regulations and the fatwas concern on the technical practices only, none of them discusses the philanthropy obligation. In contrast, charity and philanthropy is the third pillar in Islam, namely zakat. Considering zakat as one of pillars in Islam, adding philanthropy issue in the fatwa is a plausible action. Hopefully, Business zakat is not only a discussion but also an implementation in Indonesia.

Estimation Of Zakat Potential by using the ISSI/JII companies
As discussed in the previous chapter, the ISSI and the JII index has been launched for corporates that meet certain criteria by the DSN. The corporates then allowed to trade sharia stocks in the capital market. The listed corporates are evaluated every 6 months to determine if they still meet the certain conditions or not.
It is seen that at the first period of year 2017 there are 335 companies and 30 companies listed at the ISSI and at the JII index respectively. However, only the ISSI companies is included in this research because it is likely that companies that listed in the JII index are already listed in the ISSI index. Of the total 355 ISSI companies, 64 corporates are excluded either because of data unavailability or loss occurred.
By including the ISSI/JII companies as subject to zakat, the zakat potential is estimated using this formula: 2,5% x net profit. Our discussion with some scholars results to an agreement that some issues need to be tackled in order to oblige such companies to pay corporate zakat. The first problem is difficulties in identifying the owner of the companies.
If the company is fully owned by Moslem, obligation to pay corporate zakat is a relevant idea. On the other hand, if company is also owned by the non-Moslem, the idea to pay corporate zakat is somewhat impossible.
Another issue is the assessment of corporate zakat. Currently, some firms in Syariah Industrial Banking in Indonesia have paid its corporate zakat. The Indonesian Islamic Banks using profit as basis of the calculation. In contrary, some researchers stated that using profit as basis of corporate zakat assessment is not handling the issue of corporate zakat in a comprehensive manner (Obaidullah, 2016). Obaidullah agree that using current assets as basis of zakat assessment is more rationale. In fact, using assets as basis zakat will result to higher amount of zakat payment which will likely be resisted by companies.

Accounting standard in Indonesia regarding business zakat
Business zakat regulation need also be viewed from the reporting issue. Consistently, in 2017 similar result was showed by Islamic banking in Indonesia. From 13 Islamic Banking, only 11 Banks or 84% presented zakat report in their financial report.

Reporting of business zakat in
One possible reason is probably because of some gaps in the standard.
The first point is seen in the statement of Conceptual Framework for the preparation and presentation of Islamic financial institutions. The last sentence of paragraph eight stated: "Conventional entities having sharia transactions do not necessary to prepare a complete set of sharia financial report but only to report sharia transactions as stated in the sharia accounting standard for conventional financial report," (IAI, 2017)

Strengthening Corporate Zakat
Furthermore, paragraph 24 of the framework stated that the balance (tawazun) principle essentially discusses the balance in some aspects, namely: material and spiritual aspect, private and public aspect, financial and real aspect, business and social aspect. The last aspect implies that in doing sharia transactions, companies do not concern on business profit only but also consider philanthropy issue. In addition, the objective of the companies is not to concern to the shareholders only but for the community's prosperity as well.
Considering the statement in the paragraph 24 above, such companies have to apply the tawazun principle. In addition, obliging companies that trade sharia securities in the capital market to pay zakat is somewhat feasible.
By implementing business zakat program, the ISSI/JII companies may share their profit to the needy. Different with tax, as stated in the Quran (At Taubah:60), the beneficiaries of zakat fund are divided in to 8 categories. As a consequence, the benefit of zakat payment may directly goes to the recipient.

CONCLUSSION
To summarize, in order to create a comprehensive regulation model concerning business zakat, some actions might be taken in to consideration: It is necessary to religiously obliged companies to pay zakat by issuing Fatwa with regard to business zakat. However the fatwa needs another set of regulation. Evidence from Saudi and Kuwait can be taken in to consideration, where the government established rules to oblige zakat for companies that is fully owned by Moslem.
The current zakat act No.23 year 2011 needs to be abrogated by inserting a new article that clearly obliges companies to pay zakat. However, punishment on this matter is probably not necessarily. Following Beik's view, Indonesia may stay in the model type II of zakat implementation, the partial model. Integrating zakat and tax regulation will also beneficial hence the amount of tax payment will be decreased. By paying zakat, companies would be allowed to deduct their profit so that the amount of tax liabilities would be reduced.