The potential of paying zakat on income: Evidence from an emerging economy

Abstract

Countries with emerging economies, especially those with the largest Muslim population, have great potential for raising zakat funds, but their realization is still limited (Karim, 2010). Optimization of income zakat payments is supported by sound financial literacy, corporate support, and carrying out Sharia financial planning (Sevriana et al., 2022). This research investigates the potential of income zakat payments by examining three influencing factors: Islamic financial planning, perceptions of company support, and financial literacy. The research data was obtained through a survey of company employees in paying income zakat. The data analysis method used partial least square structural equation modeling (PLS-SEM) with SmartPLS software. The empirical findings of the study prove that financial literacy significantly and positively affects Islamic financial planning in paying zakat income. Financial literacy does not significantly affect the payment of income zakat directly, but Islamic financial planning mainly involves paying zakat income through intervening variables. Overall, the three factors, namely, perceived corporate support, Financial literacy, and Islamic financial planning, can explain the amount of change in income zakat revenue by 63.9 percent. The limited knowledge of planning and Islamic financial literacy needs to be improved so that the optimization of zakat fund collection in Indonesia can be improved.