Debt Of The Dead: Outstanding Income Tax Of Muslims Must Be Paid Before Inheritance Distribution – Fatwa Council
State muftis previously clashed over the issue: some argued that unpaid tax is a soul-binding debt, while others viewed it as a civil duty rather than a Syariah obligation like zakat.
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The distribution of a deceased Muslim’s estate must now prioritize any outstanding income tax arrears before the inheritance reaches the next-of-kin. This ruling was finalized by the Muzakarah Committee of the National Council for Islamic Religious Affairs Malaysia (MKI), as reported by the New Straits Times.
Datuk Dr Nooh Gadut, Chairman of the MKI Muzakarah Committee, confirmed that the decision was reached during the committee’s 122nd meeting. The ruling follows an extensive Syariah study and consultations with various stakeholders to clarify the status of tax liabilities under Islamic law.
Tax Arrears as a Formal Debt
According to the committee, unpaid income tax is classified as a debt that must be settled using the assets left behind by the deceased.
“The Muzakarah decided that outstanding income tax arrears constitute a debt that must be settled. Payment must be made using only the assets left behind by the deceased,” Nooh stated.
This decision aligns with Section 74 of the Income Tax Act 1967, which stipulates that tax liabilities do not automatically lapse upon a taxpayer’s death. The Inland Revenue Board (LHDN) had previously clarified in 2023 that they would issue official notices to legal representatives or estate administrators to recover these amounts if assets are available.
Resolving the Debate Among Muftis
The MKI ruling provides much-needed clarity following a period of differing opinions among state muftis:
Pro-Settlement: Figures like former Penang Mufti Datuk Seri Dr Wan Salim Wan Mohd Noor and former Negeri Sembilan Mufti Datuk Mohd Yusof Ahmad argued that all debts, including those to government agencies like PTPTN, must be cleared before faraid (inheritance distribution). They cited religious teachings, specifically a hadith narrated by Imam al-Tirmidhi, stating a soul remains bound by its debts until they are paid.
The Counter-Argument: Previously, some, including former Pahang Mufti Datuk Seri Dr Abdul Rahman Osman, suggested that income tax was a civil requirement rather than a Syariah-mandated obligation like zakat, and thus shouldn’t be treated as a compulsory religious debt.
After a detailed review in October 2023, the Muzakarah Committee concluded that settling these arrears is consistent with Islamic principles of debt management. While LHDN can write off debts after exhausting all recovery procedures, the priority remains on using the deceased’s estate to clear any revenue arrears first.
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