INSUFFICIENT DISCLOSURE OF ZAKAT INFORMATION - A CASE OF LISTED COMPANIES IN MALDIVES

Author: Ismail Nizam

Zakat is the third pillar of Islam. Zakat is a religious obligation upon every Muslim whose wealth reaches the nisab level. Zakat is not a simple issue. However, many people take the case of Zakat very lightly. The Holy Quran warns the people who do not pay Zakat in Surah At - Thaubah verse 35 as; ["On the Day when heat will be produced out of that (wealth) in the fire of Hell, and with it will be branded their foreheads, their flanks, and their backs.- "This is the (treasure) which ye buried for yourselves: taste ye, then, the (treasures) ye buried!"]. The Arabib word used in the verse for treasure is Kanz, which means wealth saved without paying Zakat. So, Zakat is a serious issue.

The purpose of this article is not to discuss Zakat in a theoretical aspect, but to highlight the disclosure of Zakat in the financial statements of the listed companies in the Maldives. As we know, the company or the shareholders have to pay Zakat on the wealth of the company (which is subjected for zakat) annually. If the company pays Zakat on its owners (shareholders) behalves the shareholders do not have to pay zakat. In the case of listed companies in Maldives, I have studied the financial statements of two companies (STO and MTCC). For the year 2009, the two companies have paid Zakat (as evidenced in the Annual report 2009 of the companies).

However, there is insufficient disclosure provided with regards to zakat. A full disclosure of Zakat must include the method applied in determining Zakat and what is the Zakat per share. In the case of the two companies, a figure named Zakah is included in the Notes to Financial Statements under the other expenses. This cannot be considered as enough disclosure. It is important to reveal the method used in determining the zakat paid so that shareholders can know that the company has paid the correct amount of Zakat.

The implication of inadequate disclosure is that the shareholders have to assess their Zakat due based on the published Financial Statements. This is not possible for each and every shareholder because of lack of proper knowledge of how to carry it out. Further, it is advisable that in case of corporation, the zakat be paid by the corporation on behalf of shareholders.

It would be very appropriate to make an ammendment to the Company Act so as to restrict the method of zakat determination to one selected method for the companies in the Maldives, and also to detail disclosure requirements for zakat in the Financial Statements. This is the way it is done in majority of countries. In the case of Saudi Arabia, companies have to follow one specific method (Net Growing Capital Method) for determination of Zakat. In Malaysia, MASB TRi - 1 provides guidelines on how to deal with zakat accounting.

The best is to develop a Zakat Accounting Standard and be enforced in the Company Act. A separate standard for zakat accounting is better because the conventional accounting standards adopted by the companies are not enough to assess the zakat properly.

Prophet Muhammad (PBUH) in the Bible

"Hikko Mamittakim we kullo Muhammadim Zehdoodeh wa Zehraee Bayna Jerusalem." [Old Testament, Song of Solomon, Chapter 5: Verse 16]

"His mouth is most sweet: yea, he is altogether lovely. This is my beloved, and this is my friend, O daughters of Jerusalem."

The above qoutation is from the Old Testament (in Hewbrew). Prophet Muhammad (PBUH) is mentioned by name. Muhammad is the name and im is added for respect in Hewbrew.

For more information, please go to the link: http://www.irf.net/index.php?option=com_content&view=article&id=205&Itemid=101

MUSLIMS AT WALK - WEST AT WORK

We Muslims are using the most expensive cars, planes, trains, computers, mobilephones and almost everything else, but they are not ours. Everything we use, we owe to the West. Non-Muslims manufacture them and export to us. It is true, indeed, that Muslims are using the most magnificient things for our homes and for ourselves. When we can buy the most luxurious cars (Rolls - Royce, Mercedes 500 or 700, Models S, M or L), why are we Muslims so behind in commerce? The ability to possess so much of luxury is a sign of wealth. But, what are we Muslims doing with them all? Are we not simply giving them to the West? Why are we Muslims not investing in real business and become successful entrepreneurs?

The income of all Arab nations (oil producing countries) is less than that of a single European country like Spain, and mind Spain is just at the bottom of those industrial countries. Why and how it happens? The reason is we are at walk, and they are at work! Even if we work, we do not do it professionally! There was a survey conducted in a certain Arab nation to find out the average time a government employee engages in work daily. It was found that on average employees spend only 27 minutes at work, rest of the time at coffee, reading newspaper, chatting with friends, etc. This is how we work!

WELCOME MESSAGE

Assalaam Alaikum,

Dear Readers,

Welcome back! I was away from academic world for nearly a year and decided to re-start. Here, I would like to inform the readers, followers and my students that this blog is a multi-purpose blog -- the main objective being spreading the knowledge of Islamic Finance. Other purposes are (1) a communication gateway between me and my students and clients and (2) my personal advertisements and these two are essentially secondary objectives.

Linking my commercial incentives to the blog is not meant to minimise my spiritual inclination to the mission of Islamic Finance, however. Islam looks at man as both economic and spiritual agent, where the two agency has to complement each other. In fact, Islam places much emphasis on commerce - for both this world and the world next.

Hence, I offer my affirmation that the Islamic knowledge I offer my readers via this blog, by no means, would compromise spirituality over pure economic motives.

Best Wihes!
Ismail Nizam