Shariah View on Consumption Tax: Malaysian GST and SST …MALAYSIAN JOURNAL OF CONSUMER AND FAMILY...

MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS

28

Shariah View on Consumption Tax: Malaysian GST and SST as Case Studies

Mahadi Ahmad1, 2Saba’ Radwan Jamal Elatrash2, Burhanuddin Lukman3

1International Shariah Research Academy for Islamic Finance (ISRA). [email protected] 2Ahmad Ibrahim Kulliyyah of Laws, International Islamic University Malaysia

[email protected] 3International Shariah Research Academy for Islamic Finance (ISRA)

Abstract A consumption tax is a levy on the purchase of goods and services made by consumers as a source of revenues for the governments. This research aims at investigating the Shariah point of view on the compatibility of imposing a consumption tax like the GST and SST on goods and services purchased by consumers. The research used a qualitative method and relied on Islamic primary, secondary sources, relevant laws of Malaysia and other relevant materials. The findings of the research showed that tax is permissible with conditions, but consumption tax is not encouraged in Islam, whether on goods and service bought by the end-users except if the government is compelled by necessity to resort to it.

Keywords: consumption tax, SST, GST, Imam al-Haramayn

1.0 Introduction

Goods and Services Tax (GST), and Sales and Service Tax (SST) are

consumption taxes levied on purchases of goods and services, unlike the income

tax, that is levied on people’s incomes like salaries. The focus of this paper is on the

consumption taxes levied on goods and service and not the income tax, which is

regulated by the Malaysian Income Tax Act 1967. This paper seeks to determine

whether the Shariah permits application of Sales and Service, collectively referred to

as SST. Historically, the Sales tax in Malaysia was first enacted in 1972 and while

the Service tax was enacted in 1975. But the old SST were repealed and replaced

with the GST in 2014 as a single Act that administers both goods and service taxes.

However, on 1st June 2018, a new government declared the GST zero-rated

(Minister, 2018). Subsequently, the government repealed it on 8th August 2018

(ThestarOnline, 2018). Sequel to the repealing, the government re-enacted Sales

Tax Act, 2018 and Service Tax Act 2018 in August and took effect on September 1st,

2018.

Just like the GST, the new SST also fixed the threshold of RM500, 000 as the

minimum amount of business turnover, above which the taxable business will be

subject to SST (Royal Malaysian Customs Department, 2018). More importantly, a

glaring dichotomy that sets the two types of tax systems apart, is that while SST is a

single levy tax of 5%- 10% on sale and 6% on services (Royal Malaysian Customs

Department, Guide on Understanding SST, 2018, para., 3). For example, Under the

current Service tax, the rate is fixed at 6% as a single levy to be charged by the

service provider finally. But in the former GST by 6% the manufacturer will add 6%

of his sale price of RM100, to become RM106, the Wholesaler will buy at the


29

purchase price of RM106, then he will place a value he added in the supply chain,

say, RM20, to become RM120 as the total cost. Then he will sell at RM120 plus GST

6% of RM20 (RM1.2) to become RM121.2 as the selling price. The retailer will buy at

the RM121.20, and add the value of RM15, for example, and charge 6% GST of

RM15 to become RM121.2 + 15 = RM136 as the retail price. In these scenarios, the

consumers will be bearing the GST of RM36.6, while the businesses from

Manufacturer to retailers will be claiming input tax from the Malaysian Royal

Customs Department, without bearing the tax. This makes the GST more prone to

defying the Islamic principle of ‘not causing unbearable hardship to the payers, a

condition that must be fulfilled for a tax to be permissible in Shariah as would be

mentioned below.

Thus, the objective of the research is to study the Shariah position on

consumption tax out of which GST and SST form a component in Malaysia. The

methodology to be employed by the research is a qualitative method of inquiry.

Furthermore, it will use a deductive system of analysis to study the relevant data,

both primary and secondary sources of Islamic law. The research will also rely on

the legal materials, including the GST Act 2014, and the new SST Act, the guidelines

issued by the Malaysian Royal Customs Department, and materials from the

internet.

The paper is therefore structured into introduction as chapter one which also

contains the methodology, objective, and literature review in a separate subsection,

on the other hand, chapter two is the comparison between GST and SS, chapter

three studied taxation in Islam and chapter four looked at the role of maslahah in

consumption tax while chapter five is the conclusive part. It summarized the major

findings. This was then followed by a brief acknowledgement to the sponsor of the

research project that gave birth to this paper.

2.0 Literature Review

Much has not been written in the Shariah view on GST. However, a few

numbers of articles are available on the general concept of GST in Malaysia. The

following provides a brief review of the most relevant literature on GST. Ishak,

Othman & Omar (2015), for instance, found that Students’ Perception towards GST

was not positive. However, the paper was not on Shariah issues on GST, a gap that

justified the current research. Salleh, Ainon & Irwani (2016) argued that takaful is a

donation in nature, hence tax should not be imposed on it.

Hafizah and Ilias, in their article, Goods and Services Tax (GST): A New Tax

Reform in Malaysia, found that GST was ushered into the shore of Malaysia to

reduce the budget deficit and corporate tax among others. This finding agrees with

the objective of this research, except that it is not on the Shariah aspect of GST. On

the aspect of SST, because its implementation was still new, the researchers did not

find articles regarding the Shariah status except newspaper article by PIAM. It said

that the SST will cause a hike in the price of takaful products, except the medical

takaful which is exempted by the government (PIAM, 2018; The edge Markets,

2018). Firdaos (2018) in comparing between GST and SST, argued that GST was

instrumental in cushioning the effect of the government’s drop in revenue cannot be

dismissed and that under the SST regime the cost of government’s effort to prevent

businesses from unfairly utilizing the SST to hike prices may be high, and that the


30

SST may cause more hike of prices.

After reviewing the relevant literature on this subject, the Shariah status on

consumption tax, which the current study aims to cover based on the Malaysia GST

and SST laws and jurisprudential analysis was yet to be covered by previous

literature. This warrants that this study was important to fill this gap.

3.0 GST and SST Compared

It is essential to highlight the feature of GST which is that it is a value-added

tax (VAT) as well as looking into SST. Thus, “Value Added Tax (VAT; also known as

Goods and Services Tax, under the acronym GST in a number of the Organisation of

Economic Cooperation and Development (OECD) countries has become a major

source of revenue for governments around the world”(OECD, 2017). The report

continues, that some 165 countries have adopted VAT (OECD, 2017).

GST is essentially a form of consumption tax that is levied incrementally at the

different levels of the production and distribution process until the product or service

reaches the customer. The assessment of the tax is based on the increase in the

market value of the product or service at each stage of its production or distribution

process, such that only the added value at each stage would be taxed. In other

words, the tax would be on the difference between these two amounts. For

example, a 6% tax rate is imposed on the value added by the suppliers at each

stage. The 6% GST rate at the Manufacturer stage is on the value of the product that

the manufacturer has manufactured, which is RM100. In the second stage, the

Distributor adds RM 50 to the value of the product, thus the 6% would be on the

added amount. The same goes for the retailer stage where RM50 was added to the

value of the product, thus the 6% is on the added RM50.

Another salient characteristic of GST is the input tax credit, something which

is not available in the SST system (Deloitte, 2018). To understand input tax credit,

emphasis should also be given to output tax. Output tax is the GST collected on any

taxable supply of goods or services made by a taxable person (a registered business

as a GST collector on the supply of goods and services he makes) in the course or

furtherance of his business in Malaysia (GST Act 2014, section 2). As for input tax, it

refers to the GST incurred by the taxable person when purchasing goods and

services which he can claim back from the Customs department as the input tax

credit. This is because, as said earlier, GST is not a liability on businesses, but on

consumers.

In contrast, the SST in the context of Malaysia refers to Sales and Service tax.

The Taxes are regulated by two different Acts, comprising the repealed Sales Tax

Act 1972 now replaced with the new Sales Tax Act, 2018 and the Service Tax Act

1975 which is now replaced by the Service Tax Act 2018. The new versions took

effect from 1st September 2018, after repealing the GST Act of 2014 in August 2018.

One major element that characterizes the SST is its single-stage levy nature.

This is to say, if a manufacturer in Malaysia manufactures an item or an importer

imports items into Malaysia, he or she is the only one to add SST and remit to the

government. The wholesaler cannot add another tax nor does the retailer. So, the

consumer will only be paying taxes that are embedded in the sale price instead of

the accumulated value-added tax. The service tax is only levied on service rendered

in Malaysia at 6 % by a business that meets the threshold (Royal Malaysian


31

Customs Department, 2018; Service Tax Regulations, 2018, p. 106)

In general, the popular consumption tax, which the Muslim scholars knew that

time was more likely to be one single stage tax, like the SST which is Retail Sale Tax

(RST) in the US, while GST, despite being a type of consumption tax. In a lucid term,

GST was introduced in France in 1950, just half a century (Vermeend, Ploeg, &

Timmer, 2008, p. 197). This means that the taxation in the form of the SST of RST

predates the GST, giving us the assurance that it was not known in Islamic history

until recent time.

One of the criticisms being directed to SST or RST is its cascading nature,

which sometimes makes business pay tax twice unknowingly due to the difference

between business inputs and last consumer. In this case, it is said that a business

that plays the role of last finishing touch may acquire goods, but mistakenly, it will be

paying taxes as if it was a final consumer. Whereas the same business will be selling

to retailers who will be adding taxes to the last consumers. This, therefore, causes

inflation. On the contrary, the GST is said to be free from tax cascading (Vermeend,

Ploeg, & Timmer, 2008, p. 187).

4.0 Determining Whether Taxation is in Islam

In the parlance of Islamic economics, the tax is popularly referred to as ‘al-

dharībah’. It was also loosely referred to as al-kharāj’ if it was a levy on lands to be

paid by those using it for agricultural purposes. Accordingly, it was termed ‘dharībah

al-arḍ’ (tax on soil) (Kuwait Ministry of Awqaf and Islamic Affairs 1427AH, 19:52).

Another term used for a levy imposed by a leader is ‘maks’. It refers to a portion of

money that was imposed on traders during the pre-Islamic era; it also refers to

money unlawfully taken by zakat collector for himself after he had collected the

legally approved zakat; it also refers to some money collected by tax collector from

traders coming from another country; it also refers to what the al-ashshār (one who

is assigned to collect one-tenth of the non-Muslims’ commodities crossing border to

Muslim countries) (Kuwait Ministry of Awqaf and Islamic Affairs 1427AH, 38: 377-9).

While al-Jizyah (levy on non-Muslims residing in Islamic domicile as against

zakat paid by the Muslims) al-kharāj, al-maks and al-ʿushur are known in Shariah,

but, each with its own rulings. Thus, al-Kharāj as a tax on land is recognized by the

Shariah; so also, the al-ʿushur (one-tenth of goods brought by non-Muslim from their

domicile) as a tit-for-tat introduced during the time of Umar Ibn al-Khaṭṭab (al-

Sarakhsi, 1971, p. 2134).

The al-maks mentioned above is divided into two, the lawful and the unlawful

type. The lawful type is any levy approved by the Shariah which is not considered as

an oppression of the people, and these were administered by Umar Ibn al-Khaṭṭāb

(R.A) and approved by the consensus of the Saḥābah (companions of the Prophet

S.A.W). It encompasses all the above-mentioned al-kharāj, al-ʿushur and any other

levy taken from the people that might not be disapproved by the Shariah (Kuwait

Ministry of Awqaf and Islamic Affairs 1427AH, 38: 378). The unlawful type refers to

any unjust deductions from people's valuables with the aim of the administrator to

unjustly enrich himself at the expense of his victims and not for public interest and

inclusive social-economic well-being of the people. This is the type of al-maks that

existed in the pre-Islamic era and continued to be used by unjust leaders (al-Uzami,

2009, 18: 464). The unlawful al-maks had been historically documented in the


32

following poem of the pre-Islamic era:

" وفي كل ما باع امرؤ مكس درهم... وفي كل أسواق العراق إتاوة "

“Tax is collected in all the markets of Iraq, as every item sold by a seller was subject to a deduction of one Dirham” (al-Uzami, 2009, 18: 464).

The meaning of the above poem is nothing but what is referred to as

consumption tax today, as against the labour tax which is the income tax. It means

that any unjust consumption tax is a replication of the jāhiliyyah. This could only be

detected by how the payers respond to the tax, whether they feel oppressed or not,

and whether the authority that imposes it is using it for public interest, otherwise,

then it is the unlawful type of al-maks which the person guilty of it is threatened with

abode in hell as in the following hadith. The hadith reads:

"إن صاحب المكس في النار"

“Verily, one who administers al-maks (unjust levy on goods) has his abode in hellfire." (Ahmad Ibn Hanbal, 2001, 28: 526).

Another hadith reads as follows,

"ل يدخل صاحب المكس الجنة"

“The administrator of al-maks will not enter paradise.” (Al-Ruyani, 1416, 1: 164; Aṭiyah, Majallah of Islamic University of Madinah, p. 402).

The above two hadith are lucid prophetic ruling that accepts no other

interpretation of the abode of the unjust levies’ administrator. This is a curse from the

most merciful of mankind, the Prophet S.A.W.

4.1 Shariah Ruling on Taxation

This section will discuss the Shariah ruling on the modern taxation in general

and on GST and SST in particular. Nevertheless, the Muslim jurists disputed the

imposition of tax on Muslims after paying zakat, except that the predominance of the

jurists permits taxation in addition to zakat if there is the need for the state to do so.

The dissenting opinion is predicated on the understanding that Islam makes zakat

obligatory on the wealth of Muslims that reaches a threshold called niṣāb. It is

therefore absurd to impose an additional levy on them (Al-Mawardi, 2006, p. 179;

Abu Bakar al-Jassas, 1405, v. 2, p. 192-3; ). This is supported by the hadith that

says that “there is no levy on wealth apart from zakat” (Ibn Majah, 2009, v. 3, p. 9,

hadith no. 1789). The most notable scholar that held this view is Al-Mawardi (2006,

p. 179), Abu Bakar al-Jassas (1405, v. 2, p. 192-3). But the strictness of al-Jassas in

this matter may lead one to understand that what he and any other scholar that may

hold similar strictness criticized is not a tax that is transparently administered for


33

public interest with just and fairness. In one example of his strictness and irk against

taxation, he instructed that those collecting taxes from people are worse than bandits

and that they should be killed because their crime is same (Abu Bakar al-Jassas,

1405, v. 2, p. 192-3).

Contrary to the above, the scholars of hadith declared the above hadith

unauthentic (Ibn Hajar, 1989, v. 2, p. 337 and 828). As a result of the inability of this

hadith to establish a Shariah ruling because it is very weak, the preponderance of

the scholars that permit imposition of tax on wealth cited another hadith that is

accurately opposite to the previous one. The hadith reads that, in wealth, there is a

lawful levy apart from zakat (al-Tirmidhi, 1975, v. 3, p. 39, hadith no. 659). This

hadith has been adjudged authentic by the scholars of hadith, even though it has

some weaknesses, except that they all said that its weaknesses are not as bad as

the previous one, rather it is stronger and reinforced by Quran chapter 2, verse 177

(al-Qurtubi, 1964, v. 2, p. 242, al-Albani, 1985, v. 3, p. 380). Other evidence also

averred by the scholars is that the state cannot run without money. So, if the state

central treasury, that is the bait al-māl, is at any given time suffering from budget

deficit, it is allowed for the constituted authority to impose tax on those who are

capable of paying the tax (Imam al-Haramayn, 1401, p. 283-88; al-Ghazali, 1993, p.

177; al-Shatibi, 1992, v. 2, P. 619; al-Qurtubi, 1964, v. 2, p. 237; al-Dahlawi, 2005, v.

1, p. 93; Wahabah al-Zuhaili, 1985, v. 6, p. 4590). This is also the opinion of al-

Nawawi, who anchored the permissibility of taxation on the state not having other

sources and the affronts and those who stole from state treasury bring out what they

stole, as reported by Sai (2007, v. 1, p. 24).

Also, Umar Ibn Al-Khaṭṭāb said before he died, “if Allah prolongs my life, I will

take the surplus of the wealth of the affronts and give to the poor. Ibn Hazm said that

it is obligatory on the affronts to cater for the poor if the state ’s zakat proceeds are

not enough to do so. He further enumerated that, they have to provide their foodstuff,

winter and summer clothing and their homes (Wahabah al-Zuhaili, 1985, v. 6, p.

4590). It should be noted that in Shariah name does not matter, we call the said

“right” tax or any other name, these shreds of evidence support and consequently

confirm that there is a right on wealth apart from zakat, so long it is a levy instructed

by a constituted authority in the interest of the public.

In the light of the opinion that permits the levying of tax if there is a genuine

reason for the purpose of public interest, there are the following four conditions

without which the taxation is not supported by the Shariah (Al-zuhaili, 1985, v. 7:

5002; Kuwait Ministry of Awqaf and Islamic Affairs, v. 8, p. 24; al-Azraq, v. 46, pp.

121-2):

1. There must be an actual budget deficit and lack of alternative sources of funding

same so that a financial burden would not be unnecessarily placed on the

citizens,

2. The tax should be levied in a just and equitable manner, without giving

favouritism to some of the eligible taxpayers while imposing it on others,

3. The expenditures of the tax proceeds must be of public interest, and

4. The decision to impose the tax must be subject to the approval of the shūrā

council (this may now be represented in the parliament that represents the

electorate.


34

4.2 What May be the Shariah view on GST and SST

The preceding section has established the permissibility of taxation in the

Shariah, subject to the conditions mentioned above. Most examples of taxes

discussed in the Shariah are examples of income tax, which falls under labour taxes.

The current section will discuss the specific Shariah view on GST and SST, from the

perspective of their status as consumption taxes based on Malaysian laws.

In the discussion of some of the classical scholars on taxation, Imam al-

Haramayn (1401) for example, had argued seriously in favour of legality of income

tax in Islam if there is need to do so, subject to the conditions mentioned above. In

his book titled, al-Ghiyathi, he said that,

اتبة، أو مدانية لها، وإذا و ت ل بد من توظيف أموال يراها المام قائمة بالمؤن الر ف المام على الغل ظ

وائد والفوائد من الجهات يسيرا من كثير، سهل احتماله، ووفر به مرات وضروب الز أهب السلم والث

ولو عدم الناس سلطانا يكف عن زرعهم . حواله وماله، واستظهر رجاله، وانتظمت قواعد الملك وأ

اس من ذوي البأس إل ب الهاجمين، لحتاجوا في إقامة حر اجمين وتوث ة الن ى أضعاف ما وضرعهم عادي

.رمزنا إليه

It is inevitable for a constituted authority to impose a tax on wealth that he sees capable of funding the state expenditures or similar ones. If the leader imposes a low rate of tax on many sources of revenues, fruits or orchards, and other types of surpluses and benefits, then tax will be easily bearable, the Islamic state’s preparedness in wealth and the build-up of weaponry against external aggression will be overly enough. The men of the state will be self-independent, the foundational pillars of the territory and its affairs will be well organized. Supposed people lacked a leader that provides defence for their farms, and livestock against unscrupulous intruders, they would have necessarily required manifolds of what our proposal contains (Imam al-Haramayn, 1401, p. 283).

This quote gives us the understanding that Imam al-Haramayn also concur

with many other Muslim jurists that support the tax if done with the conditions

mentioned above. Although the service tax that complements sales tax may not be

captured well in the quote, mentioning of revenues, which is termed in Arabic as al-

ghallāt is sufficing to equalize tax on goods and services. But it appears that the

Imam al-Haramayn’s view on tax is that taxable items must have a revenue stream.

It is important to note that the Muslim scholars that approved taxation did so in

favour of income tax only while they disapproved consumption tax. For example, Ibn

Taymiyyah, in some of the questions posed to him and his responses regarding

consumption tax, whether it prohibits the goods, he said:

هذا ل يحرم من البائع أو المشتري أما إذا كان الرجل يبيع سلعته من طعام أو غيره وعليهما وظيفة تؤخذ

ول على مشتريها ول شبهة في ذلك أصل ول الشراء؛ ل على بائعها السلعة

If a man is selling his commodity, be it foodstuff, or something else, which are imposed tax that is to be paid by the seller or by the buyer, this does not makes the taxable commodity haram


35

as it does not also make purchase haram, neither the seller nor the buyer is prohibited from that commodity and there is no ambiguity of haram in that (Ibn Taymiyyah, 1995, v. 29, p. 252).

This confirms the veracity of that the practice of taxing people in what they

consume was known to early scholars and that they did not approve it. It could be

said as early as the fourth century of Imam al-Haramayn through the seventh century

of Islam of Ibn Taymiyyah who died in 728 AH. If some people had not practised it

there would have been no reason to seek a fatwa from the Sheikh. It then means

that consumption tax had been practised for a very long time irrespective of approval

or disapproval. To buttress this assertion a Western author of taxation literature said

that a consumption tax has been one of the oldest forms of taxation (Vermeend,

Ploeg, & Timmer, 2008, p. 187). The old existence of consumption tax here is

excluding GST as will be mentioned later.

Ibn Taymiyyah held that the authority that imposes tax some time imposes it

on the buyers or sellers or on the commodities by adding a fraction to the original

price to be paid by the buyer and he also referred to the taking of tax as an injustice

against the payers (Ibn Taymiyyah, 1995, v. 29, p. 252). It is, therefore, possible to

draw a conclusion that he is among the few scholars that do not permit taxation and

that what they are against is taxation whichever form it takes, whether consumption

tax or labour tax. Furthermore, there is also evidence of his words that whenever the

constituted authority levies tax those assign to collect the tax should fear Allah by

trying to use the principle of the lesser of the two evils. That is, if they are sure of

capable of preventing the authority, through their brilliance, to make the tax light for

the people it is better they take the assignment than to allow people that will

aggravate the process and make it unbearable to the people (Ibn Taymiyyah, 1995,

v. 30, p. 360).

Based on the previously mentioned fact, it could be concluded that the

express words of Imam al-Haramayn on taxation is income tax, and Ibn Taymiyyah’s

fatwa impliedly confirmed that consumption tax had existed in the past. And even

though Ibn Taymiyyah is not in favour of taxation, he sees no difference between a

consumption tax and labour tax which is on salary. The researchers, therefore,

concluded that labour tax under which income tax is categorized is closer to the spirit

of Islam and closer to the ʿushūr that was introduced by Umar Ibn al-Khattab as tit-

for-tat in the bilateral relationship with the non-Muslim merchants in his time.

5.0 Consumption Tax in the Lenses of Maslahah

It is a settled matter in Shariah that a need takes the ruling of a necessity. On

this ground, one may say that the government may impose a consumption tax like

sales and service tax when it needs to prevent some economic problems like

inflation. This is because the primary role of government is to guarantee the well-

being of its followers and the protection of life and properties. These actions are part

of the maqāsid Shariah termed as dharuriyyāt, (the five essentials) which the

Shariah commands humankind to protect. Some of the fiscal policies usually

adopted by the government during inflation by increasing taxes to mop up over

circulation of money could be approved by the Shariah as maṣlahah. This is

because the legal maxim says the management of affairs of the people by their


36

leader is anchored on the attainment of public interest (al-Zarqāʾ, p. 903, 1989). For

example, Venezuela is currently passing through hyperinflation, which experts said it

may get to 1million per cent by the end of the year if not cushioned (Brown, 2019).

One of the possible remedies proposed is a drastic reduction of the money in

circulation, aside from other deliberate policies (Brown, 2019). I

In the above circumstance, the Shariah principles of al-dharūat (necessity)

legalizes that which is prohibited would be invoked. Also, “repelling the harm takes

priority over obtaining benefit” that is the harm of inflation must be repelled than

retaining the benefit in keeping too much money in the hands of people. These

Shariah principles would all be considered to allow the government to use

consumption tax if this is what his monetary and fiscal policy advisers recommended.

Therefore, in this case, the consumption tax may be administered until the end of

inflation. This is because the scholars said license to use dharūat lapses with the

lapse of the reason that compelled for the use of dharūat (al-Zarqāʾ, p. 163, 1989).

6.0 Conclusion

The research studied the Shariah ruling on consumption taxes like GST and

SST based on Malaysian laws. The study used a qualitative research methodology,

with deductive methods of analysis. The relevant works of classical jurists were

analysed to determine the Islamic ruling on taxation generally, and consumption tax,

GST and SST in particular. Then the relevant laws also were inescapably analysed

as they are the subject matter of the research.

It was found that many Muslim earlier scholars, Ibn Taymiyyah, al-Jassas and

Almawardi and others did not permit consumption tax like the GST, SST, and RST.

Ibn Taymiyyah, however, argued that people should obey the leaders if they choose

to impose a consumption tax. He also held that if a good person is appointed as a

tax collector, he could accept the appointment of this role to simplify the payment.

More importantly, the preponderance of the Muslim jurists across all the four

Sunni madhhabs including Ibn Hazm from the Zahiri Madhhab approved income tax

with the conditions mentioned above. It was very clear that all the scholars did not

compromise the concern of lowering rate of the tax and deployment of the proceeds

to the public interest, otherwise, it will amount to al-maks that was discussed above

that whoever is guilty of it is going to hell.

It was very clear that those who permit taxation had strong proofs based on

the Quran and the Sunnah and they were equally careful to give the requisite

conditions for tax permissibility as mentioned above. Their proofs could be

summarized as follows, Quran chapter 2, verse 177, the hadith reported by Ibn

Majah and al-Tirmidhi whereby the former supports argument that there is no right

on wealth except zakat and the latter supports the argument that there is right on

wealth besides the zakat. It was found that the version that confirms the right beside

zakat is in concord with the above-mentioned Quran chapter 2 verse 177 supports its

meaning. And the version from Ibn Majah was not only devoid of corroborating

evidence but also declared as very weak hadith which cannot establish a ruling in

Islam. On this basis, the scholar approves taxation if it meets the conditions. Also,

the scholars rely on maṣlaḥah (public interest), arguing that if the state cannot

discharge its financial obligations it is lawful for it to impose taxes for the public

interest.


37

The researchers further understood that even though one of the conditions

mentioned for the permissibility of taxation is the approval of the shūrā council, which

is now the legislature in democratic countries, the best test for its public acceptance

is the public perception.

It is true that under the Shariah the properties of the people, tempered with

except with justice as prescribed by the Shariah, which is the argument of those who

are not allowing taxation. But we weigh this argument and the Shariah endorsement

of giving preference to the public interest over individual interest which is the basis

for tax permissibility according to the majority scholars that permitted it. On this

basis, if the government fulfilled the conditions mentioned above, then the humble

view of the researchers is that the GST and SST on goods and services are

permissible but subject to having no income tax.

With these findings, we can conclude that a constituted authority may impose

a tax on income, but not permitted to impose a consumption tax except necessity

compels him to do so after exploring income tax. In such circumstance, the paper

recommends to still consider exempting some essential items like health care

services from consumption taxes, as done by current SST which excluded medical

insurance from taxable items.

Acknowledgement

The paper is finding of the research project sponsored by ISRA. Therefore,

the authors hereby express their profound gratitude to the sponsor for providing the

required support that gave birth to this paper.

References

Accounting and Auditing Organization for Islamic Financial Institutions. (2015).

Shariah Standards. Manama: Dar Almaiman.

Achariam, T., & Mohsen, A. S. (2018, August 08). Thesundaily Newspaper.

Retrieved September 04, 2018, from

http://www.thesundaily.my/news/2018/08/09/finally-gst-dead-guan-eng-says-

after-bill-passed-dewan-rakyat

Ahmad al-Shanqiti, i. M. (1415AH). al-Waṣf al-Munāsib Li Sharʿ al-Hukm. Madinah:

Islamic University of Madinah.

Ahmad, I. H. (2001). Musnad Ahmad Ibn Hanbal (Vol. 11). (Ā. M. Shuaib Arnaut,

Ed.) Damascus: Muassasah al-Risalah.

Ahmad, I. H. (2009). al-Jamie Li Ulum al-Imam Ahmad. Egypt: Dar al-Falah Li al-

Bahth al-Ilmi Wa Tahqiq al-Turath.

Al-Albani, M. N.-D. (1985). Irwa al-Ghalil. Beirut: al-Maktab al-Islami.

Al-Azraq, A. H. (n.d). Nizam al-dharaib fi al-Islam. Majallah of Islamic University of

Madinah, 114-130.

Al-Bukhari, M. I. (1422AH). Sahih al-Bukhari (Vol. 3). (M. Z. Al-Nasir, Ed.) Dar Tauq

Al-Najah.

Al-Dahlawi, W. A. (2005). Hujjah Allah al-Balighah (Sayyid al-Sabiq ed.). Beirut: Dar

al-Jil.

Al-Ghazali, A. H. (1971). Shifa al-Ghalil Fi Bayani al-Shabah Wa al-Mukhayyal Wa


38

Masalik al-Talil. (H. al-Kubays, Ed.) Baghdad: Matba'tu al-Irshad.

Al-Ghazālī, M. A. (1993/1413AH). Al-Mustaṣfā. (M. A. Al-Shāfī, Ed.) Dar al-Kutub al-

Ilmiyyah.

Al-Imrani, A. a.-H. (2000/1421AH). al-bayan Fi Madhhab al-Imam al-Shafiʿe (Vol. 5).

Jeddah: Dar al-Minhaj.

Alkasani, A. a.-D. (1986). Badaiu al-Sana, Fi Tartib al-Sharai. Beirut: Dar al-Kutub al-

Ilmiyyah.

Al-Mawardi, A. A.-H. (n.d). Al-Ahkam Al-Sultaniyyah. Cairo: Dar al-Hadith.

Al-Mawwaq, M. I. (1994). al-Taj Wa al-Iklil LimukhtaÎar Khalil. Beirut: Dar Al-Kutub

Al-Ilmiyyah.

Al-maziri, A. A. (2008). Sharh al-Talqeen. (M. al-Sulami, Ed.) Tunis: Dar al-Gharb al-

Islami.

Alnawawi, Y. I. (n.d). al-Majmu Sharh Al-Muhadhab (Vol. 9). Beirut, Beirut:: Dār al-

Fikr.

Al-Qastalani, A. I. (1222AH). Irshad al-Sārī Li Sharh Sahih al-Bukhari. Egypt: al-

Maktabat al-Kubra al-Amiriyyah.

Al-Qurtubi, A. A. (1964/1384AH). al-Jāmiʿ Li Ahkām al-Quran (Vol. 14). (A. a.-B.

Atfis, Ed.) Cairo, Egypt: Dar al-Kutub al-Misriyyah.

Al-Ruyani, A. M. (1416). Musnad al-Ruyani. (A. A. Yamani, Ed.) Cairo: Muassat

Qurtubah.

Al-Sarakhsi, M. I. (1971). Sharh al-Sayr al-Kabir. al-Sharikat al-Kabirat Li al-I’Lānāt.

Al-Shatibi, I. I. (1992). al-Iitisam. Saudi Arabia: Dar Ibn Afan.

Al-Shirazi, A. I. (2003). al-Lluma' Fi Usul al-Fiqh. Beirut: Dar al-Kutub al-Ilmiyyah.

Al-Tirmidhi, M. I. (1975). Sunan al-Tirmidhi. (A. Shakir, Ed.) Egypt: Mustapha al-Babi

al-Halabi.

Al-Uzami, M. a.-A. (2009). al-Kaukab al-Wahā BiSharh Sahih Muslim Ibn al-Hajjaj

(Vol. 18). (H. M. Ulama, Ed.) Makkah: Dar al-Minhaj and Dar al-Ṭauq Linajah.

Al-Zarqāʿ, A. I. (1989/1409AH). Sharh Al-Qawāʿid Al-fiqhiyyah. Demashq: Dar Al-

Qalam.

Al-Zaylaʿī, A. I. (1313AH). Tabyeen al-Haqāiq Sharh Kanz al-Daqāiq Wa Hashiyah

al-Shilbi. Cairo: al-Maṭbaʿtu al-Kubra al-Amiriyyah Bolaq.

Al-Zubaidī, M. I. (1205). Taj al-Arus fi Jawahir al-Luhgag. Dar al-Hidayah.

Al-Zuhaili, W. I. (n.d). Al-Fiqh Al-Islami Wa Adilatuhu (Vol. 5). Damascus: Dar al-Fikr.

Ammet Life Takaful. (2017, October 30). Ammet LifeTakaful Website. Retrieved from

Ammet LifeTakaful Website: https://www.ammetlifetakaful.com/About-

Us/Takaful.aspx

AmMetLife. (2015, January). Am Metlife, GST Frequently Asked Questions: Life

Insurance. Kuala Lumpur, Malaysia.

Bank Negara Malaysia . (2016). Policy Document on Wakalah,.

Bank Negara Malaysia. (2013, June 26). Guidelines On Takaful Operational

Framework 2013. Kuala Lumpur.

Bank Negara Malaysia. (2013). Islamic Financial Services Act 2013 . Act no. 7 59.

Brown, E. (2019, February 7). truthdig. Retrieved from truthdig Web site:

https://www.truthdig.com/articles/the-venezuela-myth-keeping-us-from-

revolutionizing-our-economy/

Customs Department of Malaysia. (2014). Handbook of Goods and Services Tax for

Businesses. Kuala Lumpur: Customs Department of Malaysia.

Deloitte. (2018). Sales Tax and Service Tax (“SST”) Framework – Deloitte Analysis


39

and Views. Kuala Lumpur: Deloitte.

Firdaos, R. (2018, April 5). New Straits Times. SST, A Net Loss to Consumers.


https://www.nst.com.my/opinion/columnists/2018/04/353307/sst-net-loss-

consumers

Goods and Services Tax Act. (2014). Malaysia. Retrieved from

http://gst.customs.gov.my/en/rg/SiteAssets/gst_actw/SECTION%2032.pdf

Hafizah, A. M., & Ilias, A. (2013, January). Goods and Services Tax (GST): A New

Tax Reform in Malaysia. International Journal of Economics Business and

Management Studies - IJEBMS, 2(1), 12-9.

Ibn al-Hajar, a.-A. (1279AH). Fat-h Al-Bari Sharh Sahih Al-Bukhari (Vol. 5). (A. A.

Baz, Ed.) Beirut: Dar al-Ma’rifah.

Ibn Hajar al-Asqalani, A. I. (1379). Fat-hu al-Bari (Vol. 5). (M. F. Baqi, Ed.) Beirut:

Dar al-Marifah.

Ibn Hajar, A.-A. (1989). al-Talkhis Al-Habir Fi Takhrij Ahadith Al-Rafii Al-Kabir. Beirut:

Dar al-kutub al-Ilmiyyah.

Ibn Hibban. (2003). al-Taʿlīqāt al-Hisan Ala Sahih Ibn Hibban Wa Tamyiz Saqimihi

min Sahihihi Wa Shadhi Min Mahfuẓihi. (a.-A. M.-D.-H. Nuh, Ed.) Jeddah: Dar

Bi Wazir Linashr Wa al-Tawzi.

Ibn Hibban, M. I. (1993). Sahih Ibn Hibban (Vol. 11). (S. Arnaut, Ed.) Beirut: Muassat

al-Risalat.

Ibn Sydah, A. a.-H. (1996). al-Mukhassas. Beirut: Dar Ihyau al-Turath al-Arabi.

Ibn Sydah, A. a.-H. (2000). al-Muhkam Wa al-Muhīṭ al-Azam. Beirut: Dar al-Kutub al-

Ilmiyyah.

Ibn Taymiyyah, A. I. (1995). Majmu al-Fatawa. Saudi Arabia: King Fahd Quran

Printing Complex.

Imam al-Haramayn, A. a.-m. (1401). al-Giyathi Giyath al-Umam. Saudi Arabia:

Maktabah Imam al-Haramayn.

Ishak, I. B., Othman, M. H., & Omar, M. F. (2015, June). Students’ Perception

towards the Newly Implemented Goods and Services Tax (GST) in Malaysia.

International Journal of Contemporary Applied Sciences, 2(6), 79-99.

ISRA,. (2016). ISLAMIC FINANCIAL SYSTEM: PRINCIPLES & OPERATIONS (2nd

ed.). (M. U. Marjan Muhammad, Ed.) Kuala Lumpur, Kuala Lumpur, Malaysia:

CIME ADV SDN BHD.

Khalil, I. I. (2005). Mukhtasar. Cairo: Dar al-Hadith.

Kuwait Ministry of Awqaf and Islamic Affairs. (1427AH). Al-Mawsuʿah Al-Fiqhiyyah

Al-Kuwaitiyyah (Vol. 19). Kuwait: Dar Al-Salasil.

Lukman, B., & Elatrash, S. R. (2017). The Goods And Services Tax (GST) on

Takaful Critical Shariah Appraisal. ISRA International Journal of Islamic

Finance, 1-6.

Ma'sum Billah, M. (2007, February). EUREKAHEDGE. Retrieved from

EUREKAHEDGE WEBSITE:

http://www.eurekahedge.com/Research/News/870/Takaful_FundsAn_Overvie

w

Minister. (2018, May 16). The star Online Newspaper. Retrieved September 04,

2018, from https://www.thestar.com.my/news/nation/2018/05/16/gst-zero-

rated-from-june-1/

Pakatan Harapan. (2018). Buku Harapan. Putra Jaya: Pakatan Harapan.


40

PIAM. (2018, August 27). PIAM. Retrieved September 14, 2018, from

http://www.piam.org.my/press-release-sst-general-insurance/

PIAM. (2018, August 30). Thesundaily. Retrieved August 04, 2018, from

http://www.thesundaily.my/news/2018/08/30/sst-will-adversely-affect-general-

insurance-industry-piam

Royal Malaysian Customs. (2014, January 1). About GST. Retrieved from Offical

Website of Royal Malaysian Customs:

http://gst.customs.gov.my/en/gst/Pages/gst_wi.aspx

Royal Malaysian Customs. (2014, October 22). Guide on Insurance And Takaful.

Goods And Services Act of 2014. Kuala Lumpur, Kuala Lumpur, Malaysia:

Royal Malaysian Customs Department.

Royal Malaysian Customs. (2014, 09 02). Malaysian Goods and Services Tax.

Retrieved from Malaysian Goods and Services Tax Website:

http://gst.customs.gov.my/en/rg/Pages/rg_gg.aspx

Royal Malaysian Customs Department. (2013, February 15). Malaysian Goods and

Services Tax. Retrieved May 31, 2018, from

http://gst.customs.gov.my/en/gst/Pages/gst_es.aspx

Royal Malaysian Customs Department. (2018, July). Royal Malaysian Customs

Department. Retrieved August 27, 2018, from Official Website Malaysia Sales

and Service Tax:

https://mysst.customs.gov.my/RegisterBussiness#ServiceTax

Royal Malaysian Customs Department. (2018, August 29). Royal Malaysian

Customs Department. Retrieved September 5, 2018, from Royal Malaysian

Customs Department Web site:

https://mysst.customs.gov.my/SSTRegulations

Royal Malaysian Customs Department. (2018, September 06). Service Tax

Regulations. Kuala Lumpur.

Sai, M. N. (2007). Mawsuah Masail al-Jamhur fi al-Fiqh al-Islami. Egypt: Dar al-

Salam Li al-Tibaah Wa al-Nashr Wa al-Tauzi.

Salleh, M. C., Yussof, S. A., & Abdullah, N. I. (2016). Impact of the Government

Service Tax (GST) on the Malaysian Takaful Industry: Issues and Challenges.

2ND ASIA International Conference 2016, 10th-11th December 2016, UTM

KL. Kuala Lumpur.

TakafulMalaysia. (2018, September 1). Product Disclosure Sheet Takaful my motor.

Kuala Lumpur: TakafulMalaysia. Retrieved September 05, 2018, from

TakafulMalaysia Web site: https://www.takaful-

malaysia.com.my/products/general/PDS/myMotor/Takaful_myMotor_Motor_P

DS_ENG.pdf

TalkafulMalaysia. (2014). Notice of Implementation of Goods and Services Tax

(GST). TalkafulMalaysia. Kuala Lumpur: TalkafulMalaysia. Retrieved from

https://www.takaful-

malaysia.com.my/corporate/aboutus/CorporateAnnouncement/Notice of

Implementation of Goods and Services Tax (GST).pdf

The Edge Markets. (2018, August 28). Remove SST on general insurance products.


http://www.theedgemarkets.com/article/remove-sst-general-insurance-

products-%E2%80%94-piam

The Star Online. (2018, July 20). The Star Online News Paper. Retrieved August 27,


41

2018, from https://www.thestar.com.my/news/nation/2018/07/20/no-sst-for-

essential-items/

Vermeend, W., Ploeg, R. V., & Willem, T. J. (2008). Tax and The Economy: A

Survey of the Impact of Taxes on Growth, Employment, Investment,

Consumption and the Environment. United Kingdom: Edward Elgar Publishing

Limited.

Zulkifli, A. M., Rahman, B. H., Yassin, N., & Ramly, J. (2012). Basic Takaful

Practices: Entry Level For Practitioners. Kuala Lumpur: IBFIM.

Shariah View on Consumption Tax: Malaysian GST and SST …MALAYSIAN JOURNAL OF CONSUMER AND FAMILY...

Documents

Transcript of Shariah View on Consumption Tax: Malaysian GST and SST …MALAYSIAN JOURNAL OF CONSUMER AND FAMILY...