The similarities between the foundation goals of SDGs and zakat resulted in a paradigm shift, and Indonesia is providing evidences of its occurrence.
The Government of Indonesia has launched the book ‘Fikih Zakat on Sustainable Development Goals’ strengthening the country’s position in leading zakat empowerment and providing fundamental instruments in the global level. The piece is an endeavour to reveal how to composite zakat and SDGs: (1) zakat as an instrument to help achieve the SDGs and (2) implication of SDGs spirit within zakat management. Finding the Islamic argument in the SDG concept is not an easy task given the meaning of fiqh is always referring to a process of deep understanding of Islamic law (Sharia). So is the SDGs as a man-made concept with different dynamics. The fact that both are human product puts niche where interconnectedness between the two does exist.
Body of knowledge and researches demonstrated zakat and the SDGs overlap in terms of the foundational goals of Islam (Maqasid al-Sharia). Agreeing with the premise, the 17 UN’s SDGs are relevant and perfectly matched with the Maqasid al-Sharia. The elaboration on such commonalities resulted in a zakat paradigm shift, which focuses on two aspects: productive approach and zakat institutionalisation. Moving from a focus on charitable giving to broader productive activities was also pioneered by the National Board of Zakat (Baznas) supported by United Nations Development Programme by joining forces on renewable energy project in Jambi, to build four micro hydro power plant installations. The initiative is intended to raise the proportion of people benefiting from electrification and to likewise bolster rural livelihoods. Observing the example of harnessing the potential of zakat for SDG-related practices, willingness to institutionalise zakat management has been taken into consideration by stakeholders, including the Government and private sectors.
Zakat redistributes wealth from the rich to the poor. But, the transfer of such charitable giving should not have adversely affected the consumption of the payer (muzaki).
Following a 38 percent average annual growth of zakat, infaq, and sadaqa (ZIS) accumulation between 2002 and 2016 as reported by Baznas, which is far outstripping GDP growth, the Government of Indonesia has started to consider zakat as an alternative financing for development. Instead of mimicking Malaysia’s impactful policy of tax rebate for zakat payer, the country is imposing a 2.5 percent cut on salaries received by Civil Servant (PNS). The new regulation is intended to boost zakat collection up to Rp10 trillion (US$740 million) where the potential of national zakat is forecasted Rp217 trillion (US$16 billion), yet only 3 percent was realised in 2017.
Zakat is a compulsory annual levy on wealth when it has reached a certain amount that by God’s order is to be given to the deserving people (ashnaf). Hence, zakat redistributes wealth from the rich to the poor. But, the transfer of such charitable giving should not have adversely affected the consumption of the payer (muzaki). The understanding of zakat as an inherent religious injunction for every eligible Muslim puts zakat in a private niche. This assumption that underlies the opinion on zakat arrangements by the Government is considered excessive.
The zakat commands are written in the Qur’an, among others At-Taubah (3): “Take alms from some of their possessions, by charity ye clean and purify them and pray for them”. The verse was revealed to the Prophet Muhammad in his capacity as a state leader. Zakat management at the beginning of history was done by assigning zakat officers. This mechanism lasted until the era of Abu Bakr Ash-Shiddiq’s (632-634) and even at the time of Umar Bin Khattab (634-644) zakat could have a remarkable impact on a zero-poverty rate or no zakat recipient (mustahik).
The above-mentioned fact explicitly reflected zakat managed by the state. In the context of non-secular ideology, if the state agrees to legislate religious affairs, zakat should be facilitated by the government. Comparing to the individual Muslim pilgrimage called hajj, the Qur’an does not order the state to take over the management and implementation of hajj. However, given the large number of pilgrims, chaos will arise if the process is not accommodated as it exists today.
Same implication is supposed to apply for zakat. The definition of zakat as a mustahik’s right over muzaki’s wealth will result in harm and problems in society, if it is not well-performed. Thus, zakat cannot be simply perceived as a personal matter. Therefore, the state is encouraged to take a role in it. Unlike the five-daily prayer and fast which are both relationship between humans directly to God, zakat incorporates human relationship with each other.
Continuous annual growth of ZIS indicates high public awareness to pay zakat through formal organisations or agents. However, a considerable gap between the actual and the potential amount collected is influenced by various factors. The presence of direct contact with mustahik could be one reason why muzaki choose to channel their zakat informally, which enables them to know where the funds will be utilised.
The zakat collection and distribution are ideally committed to the state. Consequently, Zakat may serve as a direct substitute for taxation that should be allowed to become tax credit as applicable in Malaysia.
The gap is also driven by the treatment of zakat towards tax. Law No. 17/2000 puts zakat as a deduction of taxable income. This policy leads to double payment: zakat and taxes. Another approach may occur when zakat is positioned as a tax credit (tax rebate). Moreover, the reduction of taxable income shall not apply if the taxpayer fails to show the proof of payment of zakat as obliged by the Directorate of Taxation.
To add zakat into an aggregate resource of a country, the zakat collection and distribution are ideally committed to the state. Consequently, zakat may serve as a direct substitute for taxation that should be allowed to become tax credit as applicable in Malaysia. This mechanism needs coordination between zakat and tax authorities. Indeed, such procedure is more likely to increase national zakat collection although on the other hand it will affect tax income.
According to the Global Report on Islamic Finance published by the World Bank and Islamic Development Bank (2016), zakat in Sudan is managed by government with an average annual growth of 19 percent or Rp3 trillion (US$206 million). Although the nominal revenue is lower than in Indonesia, the policy of zakat management by the state in Sudan can be said to be much better in terms of per capita collection.
Another consideration must be emphasised. If properly managed by the state where zakat applies tax-deductible like Indonesia, zakat funds should be separated from the collected taxes and other receipts, because zakat cannot be used to finance infrastructure projects. Noting that the infrastructure is beneficial to both the poor and the rich who do not deserve to receive zakat, unless specified only for the poor and other deserving categories.
About the Author
Greget Kalla Buana is an Islamic Finance Specialist at the United Nations Development Programme and graduated from Master of Islamic Finance and Management, Durham University, UK. His work experiences have always been in Islamic finance sector, such as Dompet Dhuafa, Islamic Banking Department of Indonesia Financial Services Authority, and UNDP where they established partnership with Islamic Research and Training Institute of Islamic Development Bank.