COMPARATIVE ANALYSIS OF BUSINESS ZAKAT COMPUTATION OF ISLAMIC FINANCIAL INSTITUTIONS IN MALAYSIA AND SAUDI ARABIA

Abstract

There has been an increasing need for principle-based financial reporting standards of Islamic Financial Institutions (IFIs) including business zakat reporting. In meeting the requirement of the shariah governance framework, business zakat computation is one of the aspects that must be disclosed and presented by IFIs on the face of their financial statements. The disclosure is vital in further promoting transparency and continuous development of IFIs within the tax and zakat environment. The objective of this study is to identify to what extent of business zakat computation among IFIs are in compliance with reporting requirements and rules in Malaysia and Saudi Arabia. In the light of the Malaysian regulatory and legal framework, a new policy document on Financial Reporting for Islamic Banking Institutions has been issued by Bank Negara Malaysia (BNM) in 2019. The Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) has published the rules for computing zakat by IFIs also in 2019. A qualitative research approach is adopted in this study by analyzing the annual reports for the financial year ended 2020 of four public listed IBIs in Malaysia and four public listed IBIs in Saudi Arabia. Content analysis procedure was conducted to identify the zakat expenses recognition, measurement for assets and liabilities for zakat, presentation and disclosure of zakat on business. The outcomes of this study highlight the similarities, differences and current state of business zakat computation of the IBIs in Malaysia and Saudi Arabia. Since Saudi Arabia has released the new zakat by-law in 2019, having a priori knowledge of this function will be helpful in assisting Malaysian IFIs towards promoting best practices and highest efficiency. Besides that, business zakat reporting would be able to provide a comparable and reliable financial information of IFIs.