COMPLIANCE BEHAVIOUR OF ZAKAT ON SALARY INCOME AMONG MUSLIM YOUTH IN KLANG VALLEY

Transcription

1 COMPLIANCE BEHAVIOUR OF ZAKAT ON SALARY INCOME AMONG MUSLIM YOUTH IN KLANG VALLEY Teh Suhaila Tajuddin, Aza Shahnaz Azman & Noraini Shamsuddin Faculty of Management and Muamalah International Islamic University College Selangor (KUIS) & ABSTRACT Several previous studies showed that the level of zakat compliance varies by different age groups. When age and the income increased, the awareness to pay zakat is also increased. However, the compliance behaviour among youth to pay zakat is low, and there is no assurance that the zakat compliance level will increase as the age increases. If the level of compliance does not improve, then the potential to improve the zakat collection in the future is small. Therefore, it is very crucial to study the level of compliance behaviour on zakat among youth and to identify factors influencing their obligation towards zakat payment. This study was conducted to identify factors influencing zakat compliance behaviour among youth in Klang Valley. Data from 437 respondents were analysed using Exploratory Factor Analysis (EFA) and Confirmatory Factor Analysis (CFA). The results showed that the youth understanding on zakat and facilities factors influenced the zakat compliance behaviour on salary income significantly. An important implication of the study is that zakat understanding among youth should be given high priority to further improve the level of zakat obligatory. Gazetting the law of zakat would be implemented in addition to reduce the non-obligatory. Keywords: Zakat compliance, zakat on salary income, youth and understanding about zakat. 1. Introduction The obligation to pay zakat is clearly explained in the Quran and Sunnah. However, many Muslims do not care and refuse to pay zakat on the income they earned (Ab Rahman, Mohd Sobali, & Syed Omar, 2012). Various parties should pay serious attention and take proactive measures in addressing the issue of reluctance to give zakat. Therefore, compliance of giving zakat is necessary to be applied at the early age of every Muslim. Each Muslim individual must learn relevant knowledge of zakat to enable them to understand and to further implement the obligatory of giving zakat. Jaffar, Affif, Amri & Sahezan (2011) explained that age is a demographic factor that influences the awareness of giving zakat and ultimately gives a positive impact on the compliance behaviour of giving zakat. The increase of age in line with income raised the awareness to pay zakat. Many Muslim individuals tend to pay zakat only when their age and income increase. There are many Muslims who only paid income tax but did not pay zakat on income even though they met the obligation of giving zakat (Muda, Marzuki & Shaharuddin, 2006). They give more priority to pay tax than the zakat because they feel the law enforcement and tax compliance are very clear and often publicised to the general public. Moreover, according to Muda, Marzuki & Shaharuddin (2006), this situation is caused by lack of motivation towards paying zakat. Meanwhile, Md Idris (2002) in his study stated that employees who are subject to scheduler tax are Organized by 656

2 automatically eligible to pay zakat on income. This is because their salary income is among those who have income that exceeds nisab, which is about RM3, 000. There are many previous studies regarding the factors influencing zakat compliance on earnings or salary income among Muslims in Malaysia (Md Idris, 2002; Muda, Marzuki & Shaharuddin, 2006; & Wahid, Ahmad & Mohd Nor, 2007). However, no specific study that targets youth as the subject in the study, particularly on the compliance of zakat on salary income. By considering several previous studies that emphasized the potential of youth and the importance of age factor in the compliance of zakat (Wahid, Mohd Nor, and Ahmad, 2005; Wahid, Ahmad & Mohd Nor, 2007; and Jaffar, Affif, Amri & Sahezan 2011), thus, this study was conducted to identify factors influencing zakat compliance on salary income among Muslim youths in Klang Valley. 2. Zakat Compliance among Muslim Society in Malaysia Compliance attitude is heavily influenced by external and internal factors of an individual. Each of these factors influences the view and compliance of an individual in carrying out religious obligatory. Compliance of zakat payment is closely related to religious obligations. Although the zakat on salary income is considered ikhtilaf property but it is still categorised as a compulsory zakat based on the fatwa in respective states. Therefore, individuals who did not pay zakat on salary income are considered as disobeying his or her religious obligatory (Wahid, Ahmad & Mohd Nor, 2007). Therefore, this action represents disobedience to the religious obligatory and less piety of the respective individual (Ghazali, 1998). According to Qardawi (1998), disobedience to religious obligatory is closely related to the piety factor. Mohd Nor, Wahid, & Md. Nor, (2004) analysed the study on the awareness level of paying zakat on salary income among professionals. The study found the piety and knowledge of the zakat law greatly influenced the compliance of giving zakat. This is proven by the results of the study from Ahmad & Wahid (2005) who found that most individuals are willing to pay zakat due to internal factors of piety and faith. Therefore, fulfilling the obligatory of zakat on salary income or earnings is considered as fulfilling the religious obligatory and is no longer seen as a burden. According to Mohd Hassan (1998), there are some individuals who assume payment of tax is equivalent to the payment of zakat. However, the fact is that the actions of both obligators are clearly very different because the tax instrument acts as one of the elements in improving the country's economy. 3. Understanding of Giving Zakat Generally, in Malaysia, zakat on salary income is compulsory as decided by the National Fatwa Council However, Perak is the only state that does not obligate zakat on salary income since Although there are discrepancies of fatwa from the point of law, efforts to educate the public on the importance of zakat on salary income need to be done since there are people who pay zakat on income even though they reside in the state that does not impose the obligatory (Wahid, Ahmad & Mohd Nor, 2007) and vice versa. This condition is because the compliance in paying zakat is closely related to piety factors (Ghazali, 1998; Qardawi, 1998). Awareness and compliance to pay zakat can be increased if relevant knowledge of zakat is continuously given to all walks of life, whether formal or informal. This is proven through studies by Mohd Nor, Wahid, & Md. Nor (2004) who studied the awareness factors of paying zakat. The study found that zakat knowledge and piety are the factors of tendency of a Muslim to pay zakat. The knowledge contributes in increasing piety and subsequently gives awareness to individuals for paying zakat. Organized by 657

3 The knowledge of zakat is often correlated in studies regarding awareness, determinant factors, and motivation of paying zakat. For example, the study of Abu Bakar & Abdul Rashid (2010) found that internal support factors such as social responsibility towards the community and awareness on the existence of the right of others on the income earned are major factors of the respondents to pay zakat. Researchers also concluded that the above two factors are closely related to the importance of spreading knowledge and education of zakat to the public. Other several studies (Saad, Bidin, Md. Idris & Md. Hussain, 2010; Jaffar, Affif, Amri & Sahezan, 2011) also indicated the importance of knowledge as a driving factor for paying zakat. Mohd Nor, Wahid, and Md. Nor, (2004) indicated that the level of individuals awareness is closely related to piety and also the level of knowledge about zakat. 4. Convenience of Zakat Payment Mechanism Wahid, Mohd Nor & Ahmad, (2005) found that the easier zakat payment mechanism, the higher amount of zakat can be collected. Zakat collection and distribution process are continuous processes that should be undertaken by zakat institution systematically, trusty, and efficiently. Therefore, the medium or channels of zakat payment that are relevant to the current situation need to be introduced to the Muslim community. However, in the meantime, the conventional method of payment is not waived. This is because the integration of the method of traditional and modern zakat payment is able to boost the amount of zakat collection every year. In terms of convenience to pay zakat, various technology systems have been developed and prepared for the convenience of taxpayers. Close cooperation between the agencies and various parties has been established to widen the zakat payment facilities such as banking institutions, statutory bodies, tertiary education institutions and others as zakat collection agencies. Today, the payment of zakat can be made easily and quickly. In addition to the payment of zakat paid over the counter at the existing zakat collection offices, zakat payment can also be made through an online payment system provided by various banks, ATM systems, SMS, mobile counter service and others. For government servants and private sector workers, the implementation of zakat can also be made through scheduled payroll deduction system by completing a special form provided by the zakat collection centres in respective states. 5. Theoretical Framework This study attempts to estimate the probability of a relationship between the level of compliance of giving zakat as a latent variable and observation variables involving the perception of youth towards six factors that are expected to influence the level of compliance of giving zakat. These include the factors of understanding about zakat, convenience of the facilities provided by zakat institutions, respondents commitment, trust towards zakat institutions, perception towards tax system, and zakat law enforcement. This study will identify the key factors affecting respondents decision to implement zakat on salary income. 6. Methodology 6.1 Sample and data collection method Youth with salary income earned in the private sector is the unit of analysis in this study. 600 questionnaires were distributed. Only 450 questionnaires were returned by the respondents, but 13 Organized by 658

4 had to be rejected due to incomplete responses and incompletely answered. Therefore, a total of 437 questionnaires were analysed. As there is a large population among private companies in Klang Valley, the cluster sampling method by industry was used. Questionnaires samples were distributed to several companies including public and private limited companies. 6.2 Instrumentation The survey method was implemented for the purposes of quantitative research data collection. Questionnaires were used as the research instrument to obtain primary data. Construction of the questionnaires was based on the identified variables and all factors were analysed via Confirmatory Factor Analysis (CFA) test, which is classification of questions based on feedbacks from respondents. 7. Findings and Discussion 7.1 Reliability analysis Results of the factor analysis using the CFA method found that each category of the questions could be summarized to form six identified factors, namely the understanding about zakat, convenience of the facilities provided by zakat institutions, respondents commitment, trust towards zakat institutions, perception towards tax system, and zakat law enforcement. The levels of usability and reliability (Cronbach s alpha) for each of these factors were analysed. The findings in Table 1 indicate that the highest levels of Cronbach s alpha for reasons for compliance in paying zakat on salary income are the understanding about zakat (0.919) and followed by convenience of facilities (0.879). Reliability towards these variables is important because it influences the perception of respondents in assessing the questions. Table 1: Reasons for Compliance in Paying Zakat on Salary Income Factors Cronbach Alpha (α ) Understanding about zakat Convenience of facilities Descriptive statistics and analysis For data analysis, descriptive statistics (frequency, mean, and percentage) and statistical inference (regression test, significant test) were performed using SPSS. The findings showed that the majority of respondents are female (53.1%). The highest age group of respondents is from 26 years old to 30 years old (42.6%) and they are holding executives post (57.4%). It is interesting to note the majority of the respondents are classified as junior executive as majority of them are having working experience which is less than three years. Even though they are still new in their job, they are already qualified to pay income tax as majority of them earned estimated monthly household income between RM3,001 to RM6,000. Therefore, it is predicted that the same group of respondents should also eligible to pay their zakat on salary income that they have earned. The details of the background information of the respondents obtained was collected and presented in Table 2: Organized by 659

5 Table 2: Demography Characteristics of the Respondents No. Variables Frequency Percentage (%) 1 Gender Male Female Age 21 to 25 years old to 30 years old to 35 years old to 40 years old Position Executive Non-Executive Industry Electricity and gas supply Construction Mining and exploration Agriculture Transportation and communication Financial Education Others Working Experience Less than 3 years years years years More than 9 years Employment Status Permanent Temporary Status of Marriage Bachelor Married State of Residence Selangor Wilayah Persekutuan Others Highest Education Background SPM, PMR/SRP, Certificate and below Diploma and TPM/STAM Bachelor Degree Master and above Estimated Monthly Less than RM3, Household Income Between RM3,001 and RM6, Between RM6,001 and RM9, Between RM9,001 and RM12, Between RM12,001 and RM15, More than RM15, Number of Children 1 child children children Organized by 660

6 4 children children children BRIM Recipient Yes No Income Taxpayer Yes No Zakat on Salary Income Payer Yes No Testing using structural equation modelling (SEM) method was also conducted to identify the level of respondents behaviour on dependent variable, which is the compliance of respondents towards the payment of zakat on salary income. Table 3 indicates the understanding about zakat factor contributed by six main items based on the capacity and communality values of a close relationship with compliance variables. The highest capacity score (0.802) corresponds to the item of fulfilling the rights asnaf who are in need and secondly is zakat can purify wealth (0.781). In conclusion, the results of the understanding factor analysis showed that respondents fulfilled the obligatory of zakat on salary income based on the encouragement to fulfil the religious obligatory. Items Table 3: The Test Results of Factor Analysis for Understanding about Zakat Factor Capacity factor Mean 1 Communality (1) Awareness on other s rights on income (2) Believe in the blessings of paying zakat (3) Seek for the pleasure of Allah SWT (4) Fulfilling the rights of asnaf who are in need (5) Zakat purifies wealth (6) Zakat develops the economy of Muslim s community Note: Mean based on Likert scale score; score 1=strongly disagree to score 5= strongly agree Bartlett s test of sphericity: Significance on 1% Cronbach s alpha (α) = 0.919; score= 0.70 and above explained the integrity of scale Table 4 indicates the facility factor contributed by five main items based on the capacity and communality scores of a close relationship with compliance variables. The highest capacity factor refers to the item of zakat counter can be found easily (0.816) and facilities at the zakat collection centres use modern and easy applications (0.755). In conclusion, the test results of facilities factor analysis showed that respondents were more likely to use technology that is easily accessible. Organized by 661

7 Items Table 4: The Test Results of Factor Analysis for Facility Factor Capacity factor Mean 1 Communality (1) Zakat counter services are efficient (2) Zakat counter can be found easily (3) Using modern and easy applications (4) Many zakat agents and easily reachable (5) Satisfied with the information of zakat on salary income Note: Mean based on Likert scale score; score 1=strongly disagree to score 5= strongly agree Kaiser-Meyer-Olkin measures of sampling adequacy =0.872 Bartlett s test of sphericity: Significance on 1% Cronbach s alpha (α) = 0.879; score=0.70 and above explained the integrity of scale Regression analysis in Table 5 presents the relationship of variables between compliance and understanding about zakat, which shows a significant relationship on the reasons of compliance in giving zakat. For respondents who already complied with this third pillar of Islam, they consider awareness or information of zakat did not have an impact on them as they believed that zakat is a pillar of mandatory. Meanwhile, for the variables of zakat payment facilities provided by the zakat institution, the analysis justified that this factor did not influence the compliance of giving zakat. The diversity of zakat payment facilities either online or offline did not influence the decision of youth to perform zakat on salary income. The level of dispersion for both variables is based on the beta levels of and These levels define that when understanding increases by one unit, the level of compliance increases automatically by 71.5%. Table 5: Regression Analysis Reasons of Compliance in Paying Zakat on Salary Income Beta S.E C.R Sig compliance <--- understanding compliance <--- convenience ***Indicate highly significant at < Conclusion and Future Recommendation Based on the findings of the study through factor analysis using CFA methods, the understanding about zakat is the main factor that influences the compliance of zakat on salary income among the respondents. It is represented by the highest Cronbach s alpha (α) score of 0.919, which shows the respondents performed the obligatory of zakat on salary income based on the encouragement to fulfil religious obligatory. Regression analysis showed that there was a significant relationship Organized by 662

8 between respondents' compliance and understanding of zakat. It explains that the respondents complied with the third pillar of Islam remained committed in performing the obligation of zakat on salary income and they considered awareness or information of zakat did not influence their decision in giving zakat. In addition, regression analysis also proves that there was no significant correlation between respondents and convenience of facilities for zakat payment. The level of dispersion for both variables is based on the beta levels of and These levels define that when understanding increases by one unit, the level of compliance increases automatically by 71.5%. Several strategic measures have been identified as a result of the findings on the study. Zakat institutions should provide understanding to the public that individuals who have paid the zakat on salary income are eligible for a rebate for the zakat paid in the taxation system in Malaysia. The results from the findings of the study indicate that most respondents (59.7%) did not know about the rebate that can be claimed in the individual tax. They believed that once they have paid the income tax, then they do not have to paid zakat on income. This judgement confirmed that they have a lack of understanding towards zakat rebate and lack of attention towards the special treatment given by Inland Revenue Board of Malaysia to the zakat payers in respect of the zakat paid. In Malaysia, for an individual who wants to pay income tax based on chargeable income earned, the income tax to be paid can be further reduced by claiming the zakat rebate with condition that the zakat is already paid during the assessment year. However, the rebate amount cannot be exceeding the total tax to be paid. So, it is clearly indicated that there is no issue on the double assessment on the same source of income by Muslim individual. The implementation of legal action is also necessary if a Muslim fails to pay zakat on salary income and other properties. There is no doubt that ongoing dakwah and campaign efforts are optimised by the management of zakat and the results are very encouraging with the increase in the collection of zakat every year. However, if these efforts are yet to give total awareness to the public, it is desirable that law enforcement action is to be undertaken. Acknowledgement This paper is under the research grant of the International Islamic University College Selangor. References Ab Rahman, A., Mohd Sobali, A. and Syed Omar, S.M.N. (2012), Keengganan Membayar Zakat Menurut Perspektif Syarak dan Perundangan Islam di Malaysia, USIM Publisher. Abdul Hamid, H., (2012), Ekslusif Zakat, Galeri Ilmu Sdn. Bhd. Abu Bakar, N.B. and Abdul Rashid, H. M. (2010), Motivations of Paying Zakat on Income: Evidence from Malaysia, CCSE Organized by 663

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