ZAKAH & CSR explained!

Can one consider Zakah as CSR Fund or vice versa? This is an interesting
and somewhat puzzling debate that many Muslim businessmen are engaged in
today. To start with, Zakah is one of the five pillars of Islam and a compulsory
levy on wealth and income, once they exceed a certain amount termed nisab
(the minimum amount liable to Zakah). It is therefore considered as one the acts
of worship in Islam which has economic and social ramifications.
There is a clear distinction between Zakah, tax (including income tax) and
Corporate Social Responsibility Fund (CSR). Tax is based on a contractual
relationship between a state and an individual or a company, whereby taxes are
paid in exchange for services provided by the state such as security and other
public services. CSR on the other hand, is a mandatory policy for Companies to
pay 2% of their book profits towards programmes aimed at the social and
environmental development of the country.
However, one of the common misconceptions is today that Zakah is
charity. Charity is a voluntary act while according to the Qur’an Zakah is a right
of the poor on the wealth and income of the rich. It is not a charged income as is
the case for tax, but a purification exercise of one’s wealth as a religious duty
and obligation.
It is worth noting that the payment of tax does not discharge one of the
duty to pay Zakah. In some jurisdiction such as Malaysia, the amount paid as
Zakah is deductible from income tax. This creates equality between Muslim
Zakah and income tax payer and non-Muslim income tax payer. In Saudi
Arabia, non Saudi corporations are subject to corporate income tax at a rate of
20%, while all Saudi companies are subject to Zakah only at the rate of 2.5% of
their equity. The argument whether whether Zakah amount paid to authorized
non-profit organizations should be deducted from taxes is based on the principle
of justice that requires the state to treat its entire citizen evenly.
 As regards CSR, one may argue that it has some common goals with
Zakah. However, distinction has to be made between Zakah & CSR since
besides apparent similarities there are a number of differences between them?

The main distinctions are: first, one of Zakah’s essential features is that
the specific intention of fulfilling Zakah (an act of worship) is obedience to
God. In Islam, one will eventually be judged according to his/her intention But
the historical experience of Muslims since the time of the Prophet, pbuh, has
been that it is always collected and distributed to qualified recipients by the
government while individuals are still required to distribute it on their own if
the government does not undertake the collection and distribution of Zakah.
Second, Zakah has its own specific class of recipients as defined by God. It
includes eight categories; the poor, the needy, those employed to collect Zakah,
those whose hearts are to be won, the captives who need to be liberated, those in
debt, in the sake of Allah (e.g. any activity that brings about benefits like
education, hospitals, and similar social activities that serves all individuals in a
society), the wayfarer (e.g. a poor displaced person).

It clearly appears that Zakah has spiritual and ethical objectives in

addition to its socio–economic aims. Therefore, although CSR programme is
aimed at improving socio-economic conditions it cannot be assumed that Zakah
and CSR have the same objectives although they overlap when the funds is used
to support the poor and needy.
There are several major issues that arise when considering the distinction
between Zakah & CSR and whether CSR can be considered as a substitute to
Zakah. Some of these issues are:
Zakah is only for
Muslims, a number of Muslim jurists, including Sheikh Al-Qaradawi
agree with the permissibility of giving Zakah to non-Muslims. Dr.
Monzer Kahf, a prominent Muslim economist argues that the Quranic
verse does not confine the category of poor and needy to Muslims.
Hence, according to him Zakah may be given to Muslim as well as non-
Muslim poor and needy, of course the severity of poverty and need would
be a determining factor in priority of distribution.

r, Allah mentioned the

expenditures of Zakah in this verse, starting with the Fuqara' (the poor)
because they have more need than the other categories, since their need is
pressing and precarious. Should the CSR programme be categorised in
the same order if it is recognised by the government? It is worth noting
here that seven of the eight categories mentioned include some form of
poverty and need, the only exception from poverty is the salaries of
workers who are hired on their merits not poverty and paid market rates.
However this category is restricted to a maximum of one eighth of the
distribution.

Zakah computation is
essentially a percentage of wealth and saved or retained income with
certain more details when it comes to livestock and agricultural produce.
Paragraph 24 of the Bank of Mauritius’ Guideline for Institutions
conducting Islamic Banking Business states that an Islamic Bank
 Institution shall disclose obligations towards the payment of Zakat as a
business entity. Additionally, it shall disclose the Zakat obligations it is
required to meet in pursuance of any authorization given to it in that
respect by the shareholders or depositors.

The benefits and objectives of zakah are not specifically mentioned in the
Quran. It only states that the objective of taking Zakah out of wealth is
purification and sanctification. Yet, the main objective of Zakah towards the
achievement of socio-economic justice is not disputed because it is apparent
from the use of funds and categories of recipients as stated in the Quran.
Although the last point above shows that the reaping benefits to the community
are more than CSR contributions, but the argument of extending Zakah to socio-
economic infrastructure through the CSR is a moot point. It is for approved
Zakah Institutions to address this delicate issue. Until then, Zakah payable as a
deductible item from CSR contribution remains an unsolved issue.

Dr. Muniruddeen Lallmahamood

Global Management & Business Consulting Ltd

Tel: 2902255 email: info@gmbc-ltd.com