Does trust in zakat institution enhance entrepreneurs’ zakat compliance?

Abstract

Purpose Although zakat is a principal way to redistribute wealth, a unique practice designed to achieve a sustainable Islamic economic and social system, zakat institutions and agencies in most Muslim countries still suffer from the perplexing issue of low zakat collections, ascribing this to the level of compliance among zakat payers. To provide more insight into this lacuna, this study aims to examine the role of trust in zakat institution through the relationship between socio-economic determinants (i.e. religiosity, moral reasoning, peer influence and system fairness) and zakat compliance decisions. Design/methodology/approach From a typical Islamic country, Yemen, a random sample of 274 entrepreneurs was drawn for a self-administered survey. To estimate and analyze the compliance model, SmartPLS structural equation modeling was used. Findings The results show that all hypothesized direct relationships are supported. Importantly, the trust-moderated interactions of religiosity, moral reasoning and peer influence on zakat compliance are significant, although its interaction with zakat system fairness is not. Practical implications The results should be helpful for policymakers and responsible institutions in Muslim communities to understand how different levels of trust can play an important role in Zakat payers’ compliance to boost or erode zakat funds. This research also contributes important inferences for managers about the necessity of inculcating religious and moral values among zakat payers, formulating a fair system and embarking on sensitization programs in society. Originality/value The research enriches the scanty literature by validating a viable compliance model drawing on the socio-economic theory of regulatory compliance. Moreover, the model integrates the moderating role of trust in socio-economic perspectives of zakat compliance.

Does deterrence-based enforcement matter in alms tax (Zakat) compliance?

“…In Yemen, according to Zakat Law No. 2 of 1999, the Zakat authority (GDZO) is the only responsible body for administering and collecting Zakat funds from individuals and companies, while any Zakat payment does not go through this authority, it is considered unlawful behaviour (Bin-Nashwan et al. , 2021b).…”

“…Because all Yemenis are Muslims, there is the potential for huge Zakat funds; however, in reality, national collection through the GDZO is still far below what is expected. One of the reasons for this phenomenon is a lack of confidence in the authority, as Bin-Nashwan et al. (2021b) argued.…”

“…In Yemen, according to Zakat Law No. 2 of 1999, the Zakat authority (GDZO) is the only responsible body for administering and collecting Zakat funds from individuals and companies, while any Zakat payment does not go through this authority, it is considered unlawful behaviour (Bin-Nashwan et al, 2021b). Because all Yemenis are Muslims, there is the potential for huge Zakat funds; however, in reality, national collection through the GDZO is still far below what is expected.…”

Business zakat compliance in Algeria: an ethical perspective

“…Additionally, trust was found to have a significant relationship with entrepreneurs’ zakat compliance behaviour. In the numerous behavioural studies that highlighted the importance of trust in various contexts, it was found to be a significant factor influencing donation behaviour (MacMillan et al, 2005; Sargeant and Lee, 2004; Alhidari et al, 2018), tax compliance (Kogler et al, 2013; Torgler, 2005) and zakat compliance behaviour (Tsalas et al, 2019; Bin-Nashwan et al, 2021b). In the current study, trust shows less than the recommended minimum effect size representing a “practically” significant effect for social science data.…”

“…Additionally, it has been found that business zakat constitutes about 65% of all zakat collections in Algeria. Thus, determinants of business zakat compliance should be understood before suitable policies can be formulated (Bin-Nashwan et al, 2021a, 2021b). Improving business zakat collection is necessary since it is a very important tool for fighting poverty and achieving social justice.…”