ZAKAT AND TAX TREATMENT

HJ MUSA BIN OTHMAN

Honorary Secretary
Malaysian Association of Tax Accountants (M.A.T.A)
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Zakat - or alms-giving. The practice of charitable giving
by Muslims based on accumulated wealth.
INTRODUCTION
by Muslims based on accumulated wealth.
- obligatory to all Muslims who are able to do so
- It is considered to be a personal responsibility
for Muslims to ease economic hardship for
others (especially the unfortunate) and
eliminate inequality.
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Taxation
a fee charged (levied) by a government on a product, income or
activity. activity.
to finance government expenditure especially to finance public goods
and services.
Income Tax
a charge imposed by government on the annual gains of a person,
corporation or other taxable unit derived through work, business
pursuits, investment and other services determine in accordance with
the Income Tax Act 1967.
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
In Malaysia, a Muslim has to make two compulsory payments
on the same source of income every year, namely income tax
and zakat. and zakat.
Zakat is obligatory on the Muslims while Income Tax is a civil
obligation as a Malaysian citizen.
Zakat is obligation to Allah while Tax is obligation to the
Federal government
Failure of zakat compliance will be held as debt to Allah, and
this debt is due forever until fully paid.
Failure of tax laws will cause difficulties to the defaulter, of
which the deterrent factors include monetary penalty and jail
term.
Due to the dual system, many may end up double their tax
dues while a few use the facility to avoid or reduce tax liability.
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
ZAKAT AND TAX TREATMENT
MUSLIMINDIVIDUALS
Muslim individuals in Malaysia are very much fortunate as under
Section 6A(3) of ITA, any amount paid for religious duty, which include
zakat al-mal (on wealth) and zakat fitr, is given rebate as per actual zakat al-mal (on wealth) and zakat fitr, is given rebate as per actual
amount expended.
Zakat paid in year 2012 can be claimed as tax rebate in income tax return
form for year assessment 2012).
Rebate is a privilege and special incentive provided by the government
to lift the tax burden of a resident taxpayer
Rebate is a deduction from tax payable - This was effective from YA 1978
Types of Rebate
1. TAX REBATE FOR INDIVIDUAL
An amount of RM 400 For Resident Individual With An amount of RM 400 For Resident Individual With
Chargeable Income Less Than RM35,000 Sec 6A(2)
2. ZAKAT OR FITRAH
A rebate subject to the maximum tax charged - Sec 6A (3)
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
This means that, if the individual pays zakat of RM5,000.00, he/she
can deduct the actual RM5,000 amount that he/she pays for zakat can deduct the actual RM5,000 amount that he/she pays for zakat
during the assessment year, from the amount of tax that he/she is
liable to pay for that particular assessment year
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Example 1 :
For the year ended 31 December, 2012, Ahmad received annual salary
of RM60,000. His wife is not working and they have four school-going
children. In February 2012, Ahmad paid RM2,500.00 for zakat on
income. Therefore, income tax calculation for Ahmad:
Total income 60,000.00
Less: Personal relief 9,000.00
Spouse relief 3,000.00 Spouse relief 3,000.00
Children relief 4,000.00
Taxable income 44,000.00
Tax on the first RM35,000 1,525.00
Tax on the remaining RM 9,000 @ 12% 1,080.00
Total tax payable 2,605.00
Less: Zakat rebate 2,500.00
Tax payable 105.00
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
1. If zakat paid is less than tax payable then the balance
must be paid to IRB. must be paid to IRB.
2. If zakat paid is more than tax payable then the difference
cannot be claimed from IRB Sec 6A(4)
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Example 2 :
In Example 1, if Ahmad paid RM3,000.00 for zakat on income.
Therefore, income tax calculation for Ahmad:
Total income 60,000.00
Less: Personal relief 9,000.00
Spouse relief 3,000.00
Children relief 4,000.00
Taxable income 44,000.00
Tax on the first RM35,000 1,525.00
Tax on the remaining RM 9,000 @ 12% 1,080.00
Total tax payable 2,605.00
Less: Zakat rebate (LIMITED) 2,605.00
Tax payable NIL
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
B. FOR OFFSHORE COMPANIES
Zakat on business income paid by the Labuan offshore companies
is also given as an Income tax rebate. This rebate is equivalent to
the amount of business zakat paid to the religious authority. It is
subject to a maximum of 3% of net profit or RM20,OOO which subject to a maximum of 3% of net profit or RM20,OOO which
effective from the assessment year of 2004
C. FOR COMPANIES
For company, effective from YA 2005, the Government had
allowed the amount of zakat paid by a company is to be treated
as deduction of up to 2.5% of the Aggregate Income Sec 44(11A)
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Example 3:
Azam Sdn. Bhd. recorded a statutory income of RM50,000.00 for
the year ended 31 December, 2012. Losses which was not deducted
from last years income is RM10,000.00. In November 2012, the
company paid zakat on business of RM1,250.00
Tax calculation for YA 2012 for Azam Sdn. Bhd. is shown below:
Business statutory income 50,000.00
Less: losses carried forward 10,000.00 Less: losses carried forward 10,000.00
Aggregate income 40,000.00
Less: Zakat on business (limited to 2.5% of RM40,000.00) 1,000.00
Total taxable income 39,000.00
Tax @ 20% 7,800.00
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
D. FOR COORPERATIVES, TRUST BODIES AND SOCIETIES
In order to accord equal tax treatment between companies and
trust bodies, zakat settled by cooperatives, trust bodies and
societies is also allowed as a tax deduction up to 2.5% of the
Aggregate Income. It is effective from year of assessment 2007
E. FOR LIMITED LIABILITY PARTNERSHIP (LLP)
Limited Liability Partnership (LLP) is an alternative business
vehicle regulated under the Limited Liability Partnerships Act 2012
which combines the characteristics of a company and a
conventional partnership. Zakat paid by LLP is also treated as tax
deduction up to 2.5 % of the Aggregate Income
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
Zakat paid to the State Zakat Authorities are treated
favorably by the Inland Revenue Board (IRB). The net effect is
that, the total tax payable is reduced when there is zakat paid
during the year of assessment.
CONCLUSION
However, the zakat must be paid to an appropriate religious
authority established under any written law or any person
authorized by such religious authority. Sec 44(11A)
Tax payer must also obtain and keep original receipts for
future references.
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013
God is He who knows best
Wabillahi taufik wal hidayah Wabillahi taufik wal hidayah
Wassalamualaikum warahmatullahi
wabarakatuh
Thank you
NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013
8
th
OCTOBER 2013