03 Zakat and Tax Treatment

ZAKAT AND TAX TREATMENT

HJ MUSA BIN OTHMAN

Honorary Secretary

Malaysian Association of Tax Accountants (M.A.T.A)

NATIONAL BUSINESS ZAKAT SYMPOSIUM 2013

8th OCTOBER 2013

Zakat - or alms-giving. The practice of charitable givingby 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 responsibilityfor Muslims to ease economic hardship forothers (especially the unfortunate) andeliminate inequality.


8th 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, businesspursuits, investment and other services determine in accordance withthe Income Tax Act 1967.


8th OCTOBER 2013

• In Malaysia, a Muslim has to make two compulsory paymentson the same source of income every year, namely income taxand zakat.and zakat.

• Zakat is obligatory on the Muslims while Income Tax is a civilobligation as a Malaysian citizen.

• Zakat is obligation to Allah while Tax is obligation to theFederal government

• Failure of zakat compliance will be held as debt to Allah, andthis debt is due forever until fully paid.

• Failure of tax laws will cause difficulties to the defaulter, ofwhich the deterrent factors include monetary penalty and jailterm.

• Due to the dual system, many may end up double their taxdues while a few use the facility to avoid or reduce tax liability.


8th OCTOBER 2013

ZAKAT AND TAX TREATMENT

MUSLIM INDIVIDUALS

• Muslim individuals in Malaysia are very much fortunate as underSection 6A(3) of ITA, any amount paid for religious duty, which includezakat al-mal (on wealth) and zakat fitr, is given rebate as per actualzakat al-mal (on wealth) and zakat fitr, is given rebate as per actualamount expended.

• Zakat paid in year 2012 can be claimed as tax rebate in income tax returnform for year assessment 2012).

• Rebate is a privilege and special incentive provided by the governmentto 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 WithAn amount of RM 400 For Resident Individual WithChargeable Income Less Than RM35,000 – Sec 6A(2)

2. ZAKAT OR FITRAH

A rebate subject to the maximum tax charged - Sec 6A (3)


8th OCTOBER 2013

This means that, if the individual pays zakat of RM5,000.00, he/shecan deduct the actual RM5,000 amount that he/she pays for zakatcan deduct the actual RM5,000 amount that he/she pays for zakatduring the assessment year, from the amount of tax that he/she isliable to pay for that particular assessment year


8th 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 3,000.00Spouse 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


8th OCTOBER 2013

1. If zakat paid is less than tax payable then the balancemust be paid to IRB.must be paid to IRB.

2. If zakat paid is more than tax payable then the differencecannot be claimed from IRB – Sec 6A(4)


8th 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


8th OCTOBER 2013

B. FOR OFFSHORE COMPANIES

Zakat on business income paid by the Labuan offshore companiesis also given as an Income tax rebate. This rebate is equivalent tothe amount of business zakat paid to the religious authority. It issubject to a maximum of 3% of net profit or RM20,OOO whichsubject to a maximum of 3% of net profit or RM20,OOO whicheffective from the assessment year of 2004

C. FOR COMPANIES

For company, effective from YA 2005, the Government hadallowed the amount of zakat paid by a company is to be treatedas deduction of up to 2.5% of the Aggregate Income – Sec 44(11A)


8th OCTOBER 2013

Example 3:Azam Sdn. Bhd. recorded a statutory income of RM50,000.00 forthe year ended 31 December, 2012. Losses which was not deductedfrom last year’s income is RM10,000.00. In November 2012, thecompany 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 10,000.00Less: 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


8th OCTOBER 2013

D. FOR COORPERATIVES, TRUST BODIES AND SOCIETIES

In order to accord equal tax treatment between companies andtrust bodies, zakat settled by cooperatives, trust bodies andsocieties is also allowed as a tax deduction up to 2.5% of theAggregate Income. It is effective from year of assessment 2007

E. FOR LIMITED LIABILITY PARTNERSHIP (LLP)

Limited Liability Partnership (LLP) is an alternative businessvehicle regulated under the Limited Liability Partnerships Act 2012which combines the characteristics of a company and aconventional partnership. Zakat paid by LLP is also treated as taxdeduction up to 2.5 % of the Aggregate Income


8th OCTOBER 2013

• Zakat paid to the State Zakat Authorities are treatedfavorably by the Inland Revenue Board (IRB). The net effect isthat, the total tax payable is reduced when there is zakat paidduring the year of assessment.

CONCLUSION

• However, the zakat must be paid to an appropriate religiousauthority established under any written law or any personauthorized by such religious authority. – Sec 44(11A)

• Tax payer must also obtain and keep original receipts forfuture references.


8th OCTOBER 2013

God is He who knows bestWabillahi taufik wal hidayahWabillahi taufik wal hidayah

Wassalamualaikum warahmatullahi wabarakatuh

Thank you


8th OCTOBER 2013

03 Zakat and Tax Treatment

Documents

Transcript of 03 Zakat and Tax Treatment