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TAX
Tax is to impose a financial charge or other levy upon a taxpayer(an individual
orlegal entity) by a stateor the functional equivalent of a state such that failure topay is punishable by lawA tax may be defined as a "pecuniary burden laid upon individuals or propertyowners to support the government a payment exacted by legislative authority. "Atax "is not a voluntary payment or donation, but an enforced contribution, exactedpursuant to legislative authority" and is "any contribution imposed by governmentwhether under the name of toll, tribute, tallage, gabel, impost, duty, custom,excise, subsidy, aid, supply, or other name."
Purposes and effects
Money provided by taxation has been used by states and their functional equivalents throughout
history to carry out many functions. Some of these include expenditures on war, the enforcement
oflaw andpublic order, protection ofproperty, economic infrastructure (roads, legal tender,
enforcement of contracts, etc.), public works,social engineering, and the operation of government
itself. Governments also use taxes to fundwelfare and public services. A portion of taxes also go to
pay off the state's debt and the interest this debt accumulates. These services can
include education systems,health care systems, pensionsfor the elderly, unemployment benefits,
and public transportation.Energy,waterandwaste management systems are also commonpublic
utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant
subsistence producers into cash economies.
Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax
burden among individuals or classes of the population involved in taxable activities, such
as business, or to redistribute resources between individuals or classes in the population.
Historically, the nobility were supported by taxes on the poor; modern social security systems are
intended to support the poor, the disabled, or the retired by taxes on those who are still working. In
addition, taxes are applied to fund foreign aid and military ventures, to influence
themacroeconomic performance of the economy (the government's strategy for doing this is called
itsfiscal policy; see alsotax exemption), or to modify patterns of consumption or employment within
an economy, by making some classes of transaction more or less attractive.
A nation's tax system is often a reflection of its communal values or/and the values of those in
power. To create a system of taxation, a nation must make choices regarding the distribution of thetax burdenwho will pay taxes and how much they will payand how the taxes collected will be
spent. In democratic nations where the public elects those in charge of establishing the tax system,
these choices reflect the type of community that the public and/or government wishes to create. In
countries where the public does not have a significant amount of influence over the system of
taxation, that system may be more of a reflection on the values of those in power.
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All large businesses incur administrative costs in the process of delivering revenue collected from
customers to the suppliers of the goods or services being purchased. Taxation is no different, the
resource collected from the public through taxation is always greater than the amount which can be
used by the government. The difference is calledcompliance cost, and includes for example the
labour cost and other expenses incurred in complying with tax laws and rules. The collection of a
tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to paydirectly for alcoholism rehabilitation centres, is called hypothecation. This practice is often disliked
byfinance ministers, since it reduces their freedom of action. Some economic theorists consider the
concept to be intellectually dishonest since, in reality, money is fungible. Furthermore, it often
happens that taxes or excises initially levied to fund some specific government programs are then
later diverted to the government general fund. In some cases, such taxes are collected in
fundamentally inefficient ways, for example highway tolls.
Some economists, especially neo-classical economists, argue that all taxation createsmarket
distortion and results in economic inefficiency. They have therefore sought to identify the kind of tax
system that would minimize this distortion.
Since governments also resolve commercial disputes, especially in countries withcommon law,similar arguments are sometimes used to justify a sales tax orvalue added tax. Others
(e.g.libertarians) argue that most or all forms of taxes areimmoral due to their involuntary (and
therefore eventually coercive/violent) nature. The most extreme anti-tax view isanarcho-capitalism,
in which the provision ofallsocial services should be voluntarily bought by the person(s) using
them
Direct and indirect
Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of theseterms can vary in different contexts, which can sometimes lead to confusion. An economic
definition, by Atkinson, states that "...direct taxes may be adjusted to the individual
characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespectiveof the circumstances of buyer or seller."[6]According to this definition, for example, income
tax is "direct", and sales tax is "indirect". In law, the terms may have different meanings. In
U.S. constitutional law, for instance, direct taxes refer topoll taxesandproperty taxes, whichare based on simple existence or ownership. Indirect taxes are imposed on events, rights,
privileges, and activities.[7]Thus, a tax on the sale of property would be considered an
indirect tax, whereas the tax on simply owning the property itself would be a direct tax.
History
The first known system of taxation was in Ancient Egypt around3000 BC - 2800 BCin the firstdynasty of the Old Kingdom. The earliest and most widespread form of taxation wasthecorve and tithe. The corve wasforced labourprovided to the state by peasants too poor to
pay other forms of taxation (labourinancient Egyptian is a synonym for taxes).Later, in thePersian Empire, a regulated and sustainable tax system was introduced byDarius I the
Great in 500 BC;[26]thePersian system of taxation was tailored to eachSatrapy (the area ruled by
a Satrap or provincial governor).Islamic rulers imposedjizya (a poll taxon non-Muslims) starting in the 11th century. It wasabolished byAkbar.
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ZaktZakt "that which purifies"), one of the Five Pillars of Islam, is the giving of a fixed portion of one'swealth to charity, generally to the poor and needy.
History
Zakat, a practice initiated by Muhammed himself, has played an important role throughout Islamic
history.[3]
Initially, Muhammed instituted zakatas a voluntary, individual offering, but during hislifetime certain forms ofzakathave been declared obligatory. ThecaliphAb Bakr, believedby Sunni Muslims to be Muhammed's successor, was the first to institute a statutory zakatsystem.[4]
The third caliph, Uthman ibn Affan (who reigned from 644-656) significantly altered
the zakatcollection protocol, by decreeing that only "apparent" wealth was taxable, which had the
effect of limiting zakatto mostly being paid on agricultural land and produce.[5]Ultimately, thepractice of state-administered zakatwas very short-lived, ending with the reign ofUmar bin Abdul
Azizfrom 717-720 A.D.
Collection of funds
Zakat is considered to be a religious duty, and is expected to be paid by all practicing Muslims who
have the financial means (nisab).[6]In addition to theirzakatobligations, Muslims are encouraged to
make voluntary contributions (sadaqat).[7] The zakatis not collected from non-Muslims, although
they are sometimes required to pay thejizyah tax.[8][9]
The Qur'an does not provide specific guidelines on which types of wealth are taxable under
the zakat, nor does it specify percentages to be given. Traditionally, the goods taxed are those that
were the basis of most wealth in seventh-century Arabic kingdoms:agriculturalgoods,precious
metals,minerals, and livestock. The amount collected varies between 2.5 and 20 percent,
depending on the type of goods being taxed.[10][11]Many Shi'itesare additionally expected to pay
one fifth of their income in the form of a khums tax, which they consider to be a separate ritual
practice.[12]
The Qur'an is also unclear on who is to collect the tax. Today, in most Muslim countries,zakatis
collected through adecentralized and voluntary system, where eligible Muslims are expected to
pay the zakatbased on fear and love ofAllah, personal conscience, and peer pressure.[13]Under
this voluntary system, zakatcommittees are established, which are tasked with the collection and
distribution ofzakatfunds.[14] In a handful of Muslim countries - including Saudi Arabia, and Pakistan
- the zakatis obligatory, and is collected in acentralizedmanner by the state.[13]In countries
where zakatis collected by the state, the economic effects are often negligible, doing little to
alleviateeconomic inequality.[15]In Jordan,Bahrain,Kuwait,Lebanon, and Bangladesh, the zakatis
regulated by the state, but contributions are voluntary.[16]
Disbursement of funds
There are eight categories of people (asnaf) who qualify to receive zakatfunds, according to the
Qu'ran:[17][18]
1. Those living inabsolute poverty(Al-Fuqar')
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2. Those who cannot meet their basic needs (Al-Maskn)
3. The zakatcollectors themselves (Al-milna 'Alaih)
4. Non-Muslims who are sympathetic to Islam or wish to convert to Islam.(Al-
Mu'allafatu Qulbuhum)
5. People whom one is attempting to free fromslaveryor bondage. Also includes
paying ransom or blood money (Diyah). (Fir-Riqb)
6. Those who have incurred overwhelming debts while attempting to satisfy their
basic needs (Al-Ghrimn)
7. Those working for an Islamic cause (F Sablillh)
8. Travelers in need (Ibnus-Sabl)
Zakat may not be given to descendents of the prophet Muhammed, nor may it be given to parents,
grandparents, children, grandchildren, or spouses. It is also forbidden to disburse zakat funds to
organizations that pay salaries to their employees, or use the money for investments.[19]
Muslim scholars disagree whether the poor that qualify should include non-Muslims. Some state
that Zakat may be paid to non-Muslims, but only after the needs of Muslims have been met.[19]
Fi Sabillillah is the most prominent asnafin Southeast Asian Muslim societies, where it broadly
construed to include funding missionary work, Quranic schools and anything else that serves the
community (ummah) in-general
Role in Islamic societies
The zakatis considered by Muslims to be an act of piety through which one expresses concern for
the well-being of fellow Muslims,[21]
as well as preserving social harmony between the wealthy and
the poor.[22]
Zakatpromotes a more equitable redistribution of wealth, and fosters a sense ofsolidarity amongst members of the Ummah
DIFFERENCE BETWEEN ZAKAT & TAXZakat is absolutely different from tax which is imposed by the Govt. the main differencesare as under
1. Payment:
The payment of Zakat is a religious duty whereas the payment of tax is a national duty.
2. Imposition:
Zakat is imposed only on the muslim members of the society whereas tax is imposed onall the citizens in proportion to their ability to pay.
3. Compulsion:
Zakat is a compulsory payment which is not remitted by anyone whereas tax thoughcompulsory payment, yet is remittable by the Govt.
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4. Rates:In case of Zakat, the rates of Zakat payment are fixed by the Holy Quran and cannot bechanged by anyone whereas, in case of tax, the rates can be changed by the govt. fromtime to time.
5. Collection:
Zakat can be paid individually whereas tax is collected only by the Govt.
6. Utilization:The beneficiaries of Zakat have been clearly pointed out in the holy Quran and Zakatcan not be spent by the govt. on other than beneficiaries anywhere.
7. Nisab:
Nisab of Zakat is fixed by the holy Quran wheras taxable income varies from time totime.
8. Period:Zakat is payable after the completion of one year whereas it is nto necessary for tax. Itsperiod may be less or more than one year.
9. Sources:
Zakat is imposed on all types of goods even animals , gold and silver etc. held by theindividual , whereas tax is imposed only on the income earned by various sources.
10. Objectives:The objective of the payment of Zakat is the pleasure of Almighty Allah through financialassistance of the poor and needy whereas the objective of tax is to meet thedevelopment and non development expenditures of the society , as a whole.
11. Purification:Zakat purifies the wealth , whereas tax does not serve this purpose.
12. Variability:Zakat is non variable whereas the tax is usually progressive.
13. Feeling:Zakat creates the feelings of being a member of muslim society irrespective to regionallimits whereas tax creates the feelings of being a member of just single society. ThusZakat creates universal feelings while tax creates native feelings.
14. Facilities:Tax payers expect to avail some specific facilities from the govt. against the payment oftax whereas Zakat payer does not expect to get any type of specific facility or materialgain.
15. Regional limits:
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Tax can be utilized just in that region from where it has been collected whereas , if theamount of Zakat is more than the needs of one region it can be spent on any otherregion of the world.
16. Ability to pay:
Zakat is imposed just on those who have the ability to pay it whereas tax , particularly inthe case of indirect taxes can be imposed on those who have not the ability to pay.
17. Corruption:
In the collection and distribution of Zakat, there is no corruption whereas a lot ofcorruption is observed in the collection of tax.
CONCLUSION
Keeping in view the above whole discussion on the topic of Zakat, we reach to theconclusion that Zakat is one of the five pillars of Islam. It is the main tool of fiscal policyof an Islamic state. It provides financial assistance to poor persons, raises the aggregategrowth of the economy, plays a vital role to stabilize all the fiscal variables and make thecountry prosperous.