Tax is to Impose a Financial Charge or Other Levy Upon A

8/2/2019 Tax is to Impose a Financial Charge or Other Levy Upon A

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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.

Tax is to Impose a Financial Charge or Other Levy Upon A

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