The goods and services tax (GST) on takāful products: a critical Sharīʿah appraisal

Abstract

Purpose 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.

Measuring the effect of GST towards performances of Malaysian takaful operators

“…As a result, it boosts the additional business service cost for the company. Takaful firms were not exempted from the GST even though few scholars suggested that takaful should be considered based on Tabarru' concept (Lukman and Elatrash, 2017). However, the Family takaful was exempted from GST, whereas firms were still required to establish a new system and employees to adopt the new system and bookkeeping.…”

“…Islamic Financial Services Act (IFSA, 2013, p. 24) defines takaful as “means an arrangement based on mutual assistance under which takaful participants agree to contribute to a common fund providing mutual financial benefits payable to the takaful participants or their beneficiaries on the occurrence of pre-agreed events” (IFSA, 2013). Researchers have shared their views on the implementation of GST on the takaful participants where they argued that takaful is based on a donation (tabarru) contract and should be exempted from the GST (Lukman and Elatrash, 2017). Therefore, a part of the business has been exempted from the GST, especially a Family Takaful business that provides coverage for death, medical and total permanent disability (Royal Malaysian Royal Malaysian Customs, 2017).…”