ZAKAT ADMINISTRATION, DISTRIBUTION AND ECONOMIC GROWTH A study in the Federal Territory of Malaysia. Sorfina Densumite and Mohammed B.

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5 ZAKAT ADMINISTRATION, DISTRIBUTION AND ECONOMIC GROWTH A study in the Federal Territory of Malaysia Sorfina Densumite and Mohammed B. Yusoff i

6 PREFACE The Federal Territory of Malaysia comprising of Kuala Lumpur, Putrajaya, and Labuan are governed directly by the federal government of Malaysia. Kuala Lumpur is the national capital of Malaysia, Putrajaya is the administrative capital of the federal government, and Labuan is an offshore financial centre. Both Kuala Lumpur and Putrajaya are located in the state of Selangor, while Labuan is an island in the South China Sea off the coast of the state of Sabah of East Malaysia. Kuala Lumpur was declared as the first federal territory of Malaysia in 1974, followed by Labuan in Putrajaya is the administrative capital of the federal government became the third federal territory in In this book, the Federal Territory of Malaysia refers to the three federal territories: Kuala Lumpur, Putrajaya, and Labuan. This book is concerned with the zakat administration in the Federal Territory of Malaysia emphasizing more on the management of zakat collection and distribution, and how it contributes toward the improvement in the well-being of the people in the Federal Territory. The book is organized in the following manner. Chapter 1 explains the concept of zakat while Chapter 2 provides the details of the laws and the practices of zakat collection in the Federal Territory of Malaysia. Chapter 3 discusses the groups who are qualified to receive zakat under the Islamic law and analyses the performance of zakat distribution in Malaysia, particularly in the Federal Territory. Chapter 4 presents the model and the estimation techniques to examine the impact of zakat distribution on economic growth in the Federal Territory of Malaysia and the discussion of the results. And finally, Chapter 5 summarizes the findings and their policy implications. ii

7 Sorfina Densumite Mohammed B. Yusoff Center for Conflict Studies Department of Economics and Cultural Diversity Kulliyyah of Economics and Prince of Songkla University Management Sciences Pattani Campus, Thailand International Islamic University Malaysia 15 February 2013 iii

8 TABLE OF CONTENTS PREFACE TABLE OF CONTENTS ii iv CHAPTER 1 INTRODUCTION ZAKAT AS A RELIGIOUS TAX ZAKAT ADMINISTRATION IN THE FEDERAL TERRITORY 2 CHAPTER 2 TYPES OF ZAKAT AND RATES OF PAYMENT INTRODUCTION ZAKAT RATES FOR GOLD AND SILVER Nisab and Rates General Rules ZAKAT FOR CURRENCY Nisab and Rates General Rules ZAKAT FOR PEARLS AND PRECIOUS STONES Nisab and Rates General Rules ZAKAT FOR THE PRODUCTS OF GOLD AND SILVER Nisab and Rates ZAKAT FOR TREASURE TROVES Nisab and Rates General Rules ZAKAT FOR THE SPOILS OF WAR Nisab and Rates General Rules ZAKAT FOR TRADE Nisab and Rates General Rules ZAKAT FOR DOMESTIC ANIMALS Zakat for Pasturing Camels Nisab and Rates Zakat for Pasturing Sheep and Goats Nisab and Rates Zakat for Pasturing Oxen 23 iv

9 Nisab and Rates General Rules of Zakat for Domestic Animals Zakat for Pasturing Horses Nisab and Rates ZAKAT FOR AGRICULTURAL PRODUCE Nisab and Rates General Rules ZAKAT FOR SILK AND HONEY Nisab and Rates General Rules ZAKAT FOR THE ID UL-FITR Nisab and Rates General Rules TYPES AND RATES OF ZAKAT IN THE FEDERAL TERRITORY MALAYSIA Zakat Collection in the Federal Territory Zakat Payment Channels Information Technology Development Promotion of the Zakat Collection CONCLUSION 46 CHAPTER 3 ZAKAT DISTRIBUTION INTRODUCTION RECIPIENTS OF ZAKAT Hardcore Poor (Faqir) Poor (Miskin) The Zakat Officials (Amil) Those whose Hearts are Reconciled to Islam (Muallaf) Slaves and Prisoners (Al-Riqab) The Debtors (Al-Gharimin) For the Path of Allah (Fisabilillah) The Wayfarer (Ibnu Sabil) ZAKAT RECIPIENTS IN THE FEDERAL TERRITORY Zakat Distribution in the Federal Territory General Criteria of the Recipients Had al-kifayah Had al-kifayah Computation Zakat Distribution Programmes Monthly Financial Assistance Housing Assistance 61 v

10 Treatments for Chronic Diseases Haemodialysis Treatment Economic Development Education Development Development of Tahfiz Institutions Financing Activities of Religious Institutions and NGO Disaster Assistance Assistance to Hospitals Creating Zakat Distribution Centre Promotion of the Zakat Distribution Development of Human Capital Darul Kifayah Complex Dar Assaadah Complex Darul Hannan Kindergarten Federal Territory Islamic Kindergarten Development in Information Technology MAIWP Real Estate Properties Investment Federal Territory Taqwa Foundation Yayasan Taqwa Wilayah Persekutuan CONCLUSION 78 CHAPTER 4 ZAKAT AND ECONOMIC GROWTH INTRODUCTION LITERATURE REVIEW THEORETICAL MODEL Zakat Macro-Model Empirical Model METHODOLOGY Sources of Data Estimation Methods Unit Root Test Cointegration Test Vector Error Correction Model (VECM) Granger Causality Test EMPIRICAL RESULTS AND DISCUSSION Unit Root Tests Cointegration Tests Vector Error Correction Model (VECM) Granger Causality Tests 96 vi

11 4.6 CONCLUSION 97 CHAPTER 5 CONCLUSION INTRODUCTION RESEARCH FINDINGS POLICY IMPLICATIONS 100 BIBLIOGRAPHY 101 vii