Islamic Financial System 2011 INTRODUCTION In economic system, the state needs revenues to support its expenditure and

also to address inequities in income and wealth. The main source of financing- tax revenue, non- tax revenue and non-revenue receipts. From the viewpoint of households and firms, the major ways in which a government can obtain revenue is from taxes. It same goes to zakat. Zakat is one of the basic principles of the Islamic economy, based on social welfare and fair distribution of wealth. It plays the role in helping other Muslim from variety of aspects.

DEFINITION More than 20 % of all income flows into the government each year and the government received funds from taxes and borrowing. There are three sources of revenue- tax revenue, non-tax revenue and non-revenue receipts. The major portion of the revenue is from taxes. The objectives of taxations are income, equitable distribution of income, reduction of harmful consumption, regulation of foreign trade and conservation of resources. The principle demands that every taxpayer should be treated equally under the law. Under the benefit principle, those who use a good or service provided by the government should pay for it such as toll roads. Under the ability to pay principle, those who have larger incomes should pay a larger share of what they receive for example income taxes. The types of taxes are income taxes, GST, sales taxes, property taxes, excise taxes and others. Zakat is one of the five pillars of Islam and is a duty performed on a regular basis. Zakat is not an option it is a compulsory act for all Muslims. It is a contribution paid once a year on savings of two and a half percent. This giving is to cleanse your money and possessions from excessive desire for them or greed. Zakat is a compulsory payment and is neither charity nor a tax. It is expected from every Muslim individual. It is paid on the net balance after a Muslim has spent on basic necessities, family expenses, due credits, donations and taxes. In zakat situation, we are giving money for charity is highly commendable, and the sky is the limit, but Zakat is different because it is obligatory and is given in a calculated amount. Zakat represents the unbreakable bond between members of the community, whom prophet Muhammad described to be "like the organs of the body, if one suffers then all others rally in response." One of the most important principles of Islam is that all things belong to God, and that wealth is therefore held by human beings in trust. The word zakat means both 'purification' and 'growth'. Our possessions are purified by setting aside a proportion for those in need, and, like the pruning of plants, this cutting back balances and encourages new growth. Zakah does not only purify the property of the contributor but also purifies his heart from selfishness and greed. It also purifies the heart of the recipient from envy and jealousy, from hatred and uneasiness and it fosters instead good-will and warm wishes for the contributors. As Muslims pay the Zakat they have the genuine feeling that it is an investment and not a debit helping to establish economic balance and social justice in the society. In general terms, what remains over and above the meeting of needs and expenses, and is hoarded for the full span of one year, is liable to Zakat. Zakat is the right of the poor in the
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Islamic Financial System 2011 wealth of the rich and is neither optional charity nor philanthropy. Zakah has a deep humanitarian and social-political value; for example, it frees society from class welfare, from ill feelings and distrust and from corruption. Although Islam does not hinder private enterprise or condemn private possession, it does not tolerate selfish and greedy capitalism. Islam adopts a moderate but positive and effective course between individual and society, between the citizen and the state, between capitalism and socialism, between materialism and spiritualism.

THE CONCEPT OF ZAKAT AND TAXES Zakat and taxes are two completely different concepts. Tax is collected from every person of a country or area by the government of the country or area. If the person is rich he needs to pay tax and if he is poor even then he need to pay the tax on the items or things on which tax is applied by the government. Tax is forced by the government. Tax is used for development of the country or particular area from where the tax was collected. In contrast, zakat also has its own concept. Zakat is applied on the people how can pay it. There are some nisab (rules) applied on the payer of zakat. If somebody satisfies those nisab (rules), he is eligible to pay the zakat. If somebody has 85 grams Gold or 595 grams Silver or if he has some currency equal to the above written quantity of Gold, he has to pay the Zakat on it. Zakat is payable after one Lunar (moon) year if the above written quantity of gold, silver or money is kept by any person. The Ratio of Zakat is 2.5% (Approx. 1/40) of the salary of the Lunar year of the payer. Zakat is used to help the poor people of the country or the area. Zakat cannot be spent on the people who are not eligible for the Zakat. The zakat is an alms tax, required of every adult Muslim with sufficient means. In many ways it resembles the modern welfare state, in which the "haves" are taxed to help the "have-nots." For most of Islam's history, the tax was enforced by the state. Today it is mostly left up to the individual, except in Saudi Arabia where religious law (Shari'a) is strictly adhered to.

THE SIMILARITY OF ZAKAT AND TAXES Tax and zakat are both compulsory, but while the government can hold its citizens accountable for tax payment, no person can be held accountable for payment of zakat by another person or governing body; the accountability is with God. Basic commonality between Zakat and Tax is 'upliftment of society", to describe meaning of society, a place where human being lives together, Muslim or non-muslim. Besides that, the main objective of paying zakat and tax are to help in developing an economic of the country.

THE DIFFERENCES BETWEEN ZAKAT AND TAX Zakat is levied only on the Muslim members of the society while tax is levied on all the citizens of the state. Zakat is a compulsory payment which must be paid by the Muslims and tax is also a compulsory payment but it is remittable by the government of the state. The Zakat is not remit
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Islamic Financial System 2011 tenable. Zakat has a religious sanctity behind it because it is one of the five pillars of Islam but a tax is a compulsory contribution to the state to cover the cost of services rendered by it for the general benefit of the people. The rate of zakat (2.5%) is fixed by the God in the Holy Quran and cannot be changed by the government of the state from time to time to meet its requirements. The nature of the sources of zakat is fixed but the sources of a tax are variable. The sources of a tax can be diversified in accordance with the need of revenue requirements. The income collected from zakat can only be spent on deserves of zakat. The specified items of deserves are laid down by the Holy Quran but taxes can be spent on various requirements as determined by the government of a state. Zakat and tax are also different in calculation. Zakat is a proportionately fixed contribution collected from the surplus wealth and earnings of the Muslim. Each Muslim calculates his or her own zakat individually. Zakat is paid on the net balance after paying personal expenses, family expenses, due credits, taxes and others. Every Muslim male or female who at the end of the year is in possession of the equivalent of 85 grams of gold (approx. $1400 in 1990) or more in cash or articles of trade, must give zakat at the minimum rate of 2.5%. Taxes paid to government do not substitute for this religious duty. The contributor should not seek pride or fame but if disclosing his name and his contribution is likely to encourage others, it is acceptable to do so. There are two ways how taxes are collected which is direct taxes and indirect taxes. Taxes are classified in three ways depending on the share of income they take of different levels of yearly income. For instance income tax which is imposed on an individual/company based on their annual income. Taxes are classified in three ways depending on the share of income they take of different levels of yearly income. They are progressive taxes, regressive taxes and proportional taxes. The Inland Revenue Board levies income tax in Malaysia. All individuals are liable to pay tax on accrued income, derived from or remitted to Malaysia. The first and priority one is to build the schools and public hospitals for everyone. Besides that, dont forget about public library, civic centre; think paved roads, sidewalks, zoo and other infrastructure which are important to each one of us. Now, you can pay income tax via LHDNs e-filing website. The entire filing process is done online and all calculations will automatically calculate after you key in the amount.

THE ADVANTAGES OF ZAKAT AND TAX It makes society like a single family, in which those who have the means, show compassion to those who do not and the rich show empathy to those who are in hardship. Removing the love of wealth from ones heart, a spiritual disease that could carry away the man. Pleasing Allah by taking care of His creations when it is important for the needy and helpless. There are some advantages of zakat system. Firstly, rich and well-to-do people help needy and poor and satisfy their needs. Secondly, they provide help to hospitals, schools, libraries, and different institutions for the progress and welfare of needy people in different fields of life. Thirdly, when most people participate in zakat, they have a common Islamic feeling of doing their duty together. This promotes national unity. Fourthly, when we please God and do our religious economic duty
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Islamic Financial System 2011 honestly, He blessed us and increases our wealth. Zakat can prove to be a real blessing if it is used for productive and constructive purposes to the permanent benefit of the poor. Then only will it encourage investment and savings. Distributing money among the poor and needy directly after taking them from the rich is not enough at all. From the taxes had been collected, government provides good and services. For instance building and maintaining roads, building and staffing schools and others. Taxes also are used to discourage people from buying some products. Taxation is imposed on goods such as cigarettes and cigarettes in order to restrain people from consuming these. Higher taxes are imposed on these goods to make them expensive. It also can encourage some types of spending decisions such as tax cuts- lower taxes encourage consumers to make beneficial choices.

CONCLUSION The revenue available to any government, determines to a large extent its capabilities, therefore revenue generation is an important part of any government. In order to raise revenue taxation is often used. So we should support our government policy in order to get the revenue. Government costs money. Taxes are the simplest way for government to raise needed revenues. By paying taxes is the best way on how we can help our country. Some of us thought that there is no need of any type of tax in islamic country if zakat is apply properly because it is complete and proper system itself. Basic commonality between zakat and tax is 'upliftment of society", to describe meaning of society, a place where human being lives together, Muslim or non-Muslim. Actually it depends on individual because we are in multi racial country whereas the citizen are Muslim and non Muslim. Both zakat and tax have their own role in helping to develope the country. However, for Muslim they should realize that paying zakat is obligation for them. Let us make "Zakat" the basis of our economy. If we make use of this Islamic institution in an intelligent way, do away with the old feudal system and wipe out corrupting, the country can be changed into a true welfare state.

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