Whose Authority? Interpreting, Imposing, and Complying with Corporate Zakat Obligations in Indonesia

Abstract

This study focuses on the development of concept and practice of corporate zakat (obligatory alms under Islamic law payable by business entities) in Indonesia. The key issues are: who has the authority to (1) interpret and (2) impose corporate zakat in Indonesia; whether (3) the creation of this corporate obligation is viewed as legitimate by the corporations that become its target, and, thus, have prompted them to comply with it. This study is qualitative research that uses a case study of Islamic commercial banks in Indonesia as the main method of inquiry. It finds, first, the Council of Indonesian Ulama (MUI) has become the leading Islamic authority in Indonesia and it exercises its authority by making its Fatwā Commission the single door for fatwā production in Indonesia and, thus, acting as a reviewer of other ulama’s resolutions. Second, despite the MUI’s reluctance to issue a fatwa (religious edict) on corporate zakat, the Zakat Law of 1999 and 2011 proceeded without controversy. The state does not see itself in the position to enforce religious obligations and, hence, adopts the approach of voluntary payments in zakat administration in Indonesia. Third, making legal entities subject to zakat could have triggered resistance from the business sector because sharīʿa states that only natural persons are subject to zakat. Despite this, corporate zakat imposition through the Zakat Law has not triggered controversy within the business sector. The voluntary nature of zakat collection may have offset potential negative reactions. The lack of enforcement by the government may serve to reinforce ignorance towards the concept of corporate zakat. From the Islamic banking sector case study, it was found that the reasons why they comply with corporate zakat duty even though they are not legally compelled to are affected by a combination of two or three factors: (1) the type of business; (2) their attitudes towards the principles of zakat; (3) the size of the company and (4) benchmarking against other competitors. A combination of factors number one and two emerges as the most significant driver for Islamic commercial banks in Indonesia that choose to pay corporate zakat.