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Malaysian corporate tax rate and revenue: the application of Ibn Khaldun tax theory
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The present study aims to investigate the impact of the reduction of the corporate tax rate on corporate tax revenue. The study adopts the theory of taxation by Ibn Khaldun, depicted as the Laffer curve.
Design/methodology/approach
The paper analyses time series data for the period 1996 to 2014 using the autoregressive distributed lag (ARDL) approach.
Findings
The paper finds that the corporate tax rate has a dual effect on corporate tax revenue over the study period. It shows an inverted U-shape relationship between the corporate tax rate and corporate tax revenue and reveals that the optimal tax rate is 25.5156 per cent. Inferentially, a positive relationship exists between the two variables prior to the optimal tax rate, and a negative relationship prevails afterwards. A further test of causality shows a long-run unidirectional causality between corporate tax rate and corporate tax revenue.
Research limitations/implications
First, it should be noted that the policy was not implemented in isolation. Several other tax incentives were given to corporate tax payers, and therefore, such incentives should be controlled for to have a more insightful evaluation of the policy. Second and most important, there is a need to investigate whether the increased cash flow available to firms as a result of the reduction in the corporate tax rate adds value to firms. It is also necessary to investigate whether firms’ stakeholders benefited from the increased cash flow or was there managerial diversion of firms’ resources.
Practical implications
The policy of gradual reduction of the corporate tax rate in Malaysia is suspected to have a positive impact on the productivity of Malaysian companies, which has contributed to an increase in corporate tax revenue. It also has a positive impact on the economic growth of the country. It means that the lower corporate tax rate has actually reduced the cost of doing business in the country.
Originality/value
The benefit of increased corporate tax revenue needs to be investigated empirically for insightful policy evaluation. In Malaysia, however, such investigation is close to non-existent to the best knowledge of the researchers. Thus, the present study aims at investigating the impact of the policy of gradual reduction of the corporate tax rate on corporate tax revenue over an 18-year period from 1996 to 2014.
DOI: https://doi.org/10.1108/IJIF-07-2017-001
IJIF
Get PDFIn the Name of Allah, Most Gracious, Most Merciful. The global Islamic finance industry is an active market bustling with new announcements and promising indicators of progress. A handful of moves among industry participants worldwide in the last quarter of 2017 reflect the increased attention the industry is receiving from different stakeholders across sectors and markets. Some of the recent market developments include:
Turkey’s sale of gold-backed bonds and lease certificates (sukūk) to attract gold savings held by households into the economy.
Unprecedented interest in Sharīʿah-compliant retirement vehicles received by the Turkish pension fund sector with a surge in demand for them as compared to conventional funds.
The Federal Government of Nigeria’s debut sukūk worth Nigerian Naira 100bn (about US$277m) issued for the construction and rehabilitation of roads.
AAOIFI’s publication of new regulations, notably the Financial Accounting Standard (FAS) 28, “Murabahah and Other Deferred Payment Sales”.
The Malawi Government’s approval for the provision of Sharīʿah-compliant banking products on a window basis.
The UK Treasury’s promise to return to the sovereign sukūk market in 2019 with a reissuance of its 2014 GBP 200m inaugural issuance to reiterate the UK Government’s commitment to promoting Islamic finance
The goods and services tax (GST) on takāful products: a critical Sharīʿah appraisal
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This paper aims to ascertain the Sharīʿah (Islamic law) stance on the imposition of goods and services tax (GST) on tabarruʿ-based takāful (donation-based Islamic insurance) products in Malaysia. The paper aims to do so by analysing the philosophy, purposes and structure of GST on takāful products and comparing the imposition of GST on tabarruʿ-based takāful with its imposition on conventional insurance while probing into the Sharīʿah texts and opinions of classical and contemporary scholars about taxation in Islam.
Design/methodology/approach
The paper uses a qualitative research methodology. In addition to the literature and text on websites, the information on how GST is applied in practice is also obtained through interviews, discussions and documents from takāful operators. To determine the Sharīʿah position on GST, reference has been made to classical and contemporary Sharīʿah literature, including local and international Sharīʿah advisory bodies’ resolutions and standards.
Findings
This study finds that a strict interpretation of Sharīʿah does not allow for the imposition of GST; however, there is still room for the government to justify it using a broader interpretation of maṣlaḥah (public interest). Takāful has become a need for the society and is subscribed to by all income groups, and not only by the rich. Hence, the government should consider exempting takāful products from GST. The basis of tabarruʿ in takāful does not provide conclusive Sharīʿah evidence for takāful to be exempted from GST.
Originality/value
This research paves the way for the industry to propose further measures on GST for takāful products such as the exemption of GST on the tabarruʿ amount or imposition of a zero rate of GST on the relevant takāful fees and charges that are currently burdensome to consumers.
DOI: https://doi.org/10.1108/IJIF-08-2017-002
CSR practices of Palestinian Islamic banks: contribution to socio-economic development
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Corporate social responsibility (CSR) is an important corporate activity that affirms the importance of giving back to the community. This research aims to examine the CSR practices of Palestinian Islamic banks and their contribution to socio-economic development. There is an ongoing debate regarding Islamic financial institutions’ profit motive versus their motivation to achieve human welfare. The Palestinian Islamic banks are not disconnected from this debate, and this paper aims to discuss this issue.
Design/methodology/approach
For the purpose of assessing the CSR practices of Palestinian Islamic banks, a secondary analysis of the banks’ annual reports was carried out. In addition, 11 structured interviews were conducted with Islamic banks’ practitioners at the decision-making level and with some of the banks’ Sharīʿah board members to gather their views on CSR. These have been analyzed in light of the actual CSR practices disclosed in each bank’s annual reports.
Findings
The main research findings suggest that the CSR practice is highly valued by the Palestinian Islamic banks, but it is small and has marginal effects on the community’s socio-economic development. Another important observation from report analysis is that Islamic banks have great potential for expansion, given that the demand for Islamic financial transactions is double of what Islamic banks currently offer. If Islamic banks live up to that opportunity, they could deliver more in CSR practices, which is their ultimate goal according to the majority of the interviewees.
Originality/value
Existing literature has presented findings on the CSR of Palestinian corporations in general, but there is no available literature on the CSR practices of Palestinian Islamic banks. This research attempts to fill in the gap by presenting preliminary findings on Palestinian Islamic banks’ CSR practices.
DOI: https://doi.org/10.1108/IJIF-06-2017-000
The concept and application of ḍamān al-milkiyyah (ownership risk): Islamic law of contract perspective
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The purpose of this paper is to elucidate the concept of ḍamān al-milkiyyah (ownership risk) and to assess its application in contemporary Islamic financial products and services.
Design/methodology/approach
The methodology adopted is that of descriptive research.
Findings
From an Islamic law of contract perspective, the concept of ḍamān al-milkiyyah is central to legitimate profit-making transactions and hence must be adhered to in practical applications of Islamic finance.
Research limitations/implications
This study should help motivate further investigation into the position of ḍamān al-milkiyyah among different parties in existing Islamic financial products and services.
Practical implications
Policymakers and regulators should ensure that Islamic financial products and services are structured in a way that does not allow parties to profit without adequately bearing the liability for potential loss.
Social implications
The condition of ḍamān al-milkiyyah as a source of legitimate profit reflects the idea that the role of finance in Islam is to promote and ensure social benefits.
Originality/value
This paper emphasizes the importance of ḍamān al-milkiyyah as a fundamental condition for profit in Islamic financial transactions.
DOI: https://doi.org/10.1108/IJIF-06-2017-000
An economic theory of Islamic finance
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This paper aims to provide an economic rationale for Islamic finance.
Design/methodology/approach
Its methodology is simple. It starts with listing the contributions to economic analysis relevant to the required rationale in the theories of banking, finance, price, money and macroeconomics, to identify the main rationale for Islamic finance. A concise description of the author’s model for an Islamic economic system, within which Islamic finance can be operational, is provided.
Findings
The paper finds distinct advantages of Islamic finance, when properly applied within the author’s model. Islamic finance can therefore be a candidate as a reform agenda for conventional finance. It opens the door for significant monetary reform in currently prevalent economic systems.
Research limitations/implications
The first limitation of the paper is that the distinct benefits of Islamic finance are all of macroeconomic types which are external to Islamic banking and finance institutions. They are therefore not expected to motivate such institutions to apply Islamic finance to the letter, without regulators interference to ensure strict application. The second limitation is the necessity to set up enabling institutional and regulatory arrangements for Islamic finance.
Originality/value
The results are unique as they challenge the received doctrine and provide non-religious rationale for Islamic finance.
DOI: https://doi.org/10.1108/IJIF-07-2017-000
Pertinent Issues in Islamic Home Financing
No full textHome financing plays a significant role in today’s modern banking system. Aside from the fact that home financing is necessary to provide for housing, it is also important to mobilise deposits of banks. Moreover, home financing is crucial for financial deepening, development of the property sector and economic growth. Therefore, home ownership has been experiencing remarkable growth across the globe, particularly in Muslim countries as their demand has increased tremendously. Home financing is offered by both conventional and Islamic banks in many countries. The main difference between Islamic and conventional banks is that the former operate in accordance with the rules of the Sharīʿah (Islamic law) while the latter are based on secular principles, not religious laws (Shanmugam & Zahari, 2009). Conventional banks are primarily debt- and interest-based and practise risk transfer. In contrast, Islamic banks are asset-based, prohibit interest (ribā) and promote risk sharing (Hasan & Dridi, 2010)
Breach of Waʿd and Its Compensation Payment: A Critical Analysis of Islamic Profit Rate Swap
No full textWaʿd refers to an expression of commitment given by one party to another to perform certain actions in the future. It is neither a contract nor an agreement. It is a unilateral promise which is not binding in nature. The use of waʿd makes it possible for Islamic hedging products like Islamic Profit Rate Swap (IPRS), Islamic FX forward and Islamic FX option to perform the function of risk management. Though waʿd has become a common feature in Islamic hedging products, breach of waʿd remains a challenge to the Islamic finance industry, particularly the issue of compensation payment for it. A number of Sharīʿah resolutions or standards on waʿd have been issued by the local and international Sharīʿah bodies such as the International Islamic Fiqh Academy of the Organization of Islamic Cooperation (IFA-OIC), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Sharīʿah Advisory Council of Bank Negara Malaysia (SAC-BNM) and others. 
The Patronage of Islamic Banking: A Case Study of COMSATS University, Pakistan
No full textthis discipline has spread to almost all Muslim and non-Muslim countries. In Pakistan, the State Bank of Pakistan (SBP) has been taking fresh steps towards developing the Islamic banking sector so that it ranks among the key international industry players. It is also closely supporting inclusive Islamic financial services by establishing centres of excellence for Islamic finance. Currently, there are five full-fledged Islamic banks in the country, and 17 conventional banks operate Islamic banking windows through a network of over 1,400 branches. It is forecasted that the Islamic banking sector will double its share in the country’s banking system by 2020
Property Rights According to the Qurʿān and Sunnah and Their Economic Implications for Contemporary Societies
No full textProperty rights are among the most important human rights that are carefully protected in Islam. Property rights are clearly defined in Islam and there are many institutions designed to safeguard these rights. Moreover, there are distinct ethical and legal obligations in Islamic jurisprudence that govern the acquisition of private ownership. Generally, the use of property is restricted by the prohibitions of ribā (interest), gharar (uncertainty), hoarding and other prohibitions of the Sharīʿah (Islamic law). Moreover, the Sharīʿah prescribes certain obligations on wealth such as paying zakāh (mandatory alms) and recommendations such as ṣadaqah (charity). Ostensibly, these legal and moral limits have the benefit of protecting property rights, promoting more equal income distribution and realising the well-being of individuals and society at large. Success or failure in protecting property rights has contributed to many civilisations’ emergence or collapse. Since the main role is given to the individual for obeying rules, it is not expected that the government plays an active role in protecting property rights in Islam because a priori all individuals should be rule compliant. Moreover, the individual is given the most critical role to facilitate the efficient allocation of resources. For this reason, individuals’ rights, including property rights, are protected carefully. This paper reviews the theoretical evidence supporting the legal views of property rights according to Islam. The differences between the Islamic perspective and conventional theories are discussed and the rules governing property rights are clearly specified. The paper also assesses the implications of the protection of property rights on economic matters in modern times. Likewise it argues that property rights formulated by the rules and principles of the Qurʾān and Sunnah (prophetic traditions) directly result in societal development and economic growth