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Optimizing zakat to reduce the tax burden
A tax reduction on zakat payments in Indonesia is intended as an incentive for zakat payers to pay zakat properly and correctly.
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A man pays alms at a drive-through center at Nurul Hidayah Mosque in Jakarta on May 14, 2020. Muslims, if capable, need to pay alms ahead of Idul Fitri. JP/Seto Wardhana.
(JP/Seto Wardhana.)
T
he World Giving Index survey in 2020 found Indonesia ranked 31st out of 114 countries in terms of generosity. This survey was conducted on 1,000 respondents who were randomly selected throughout Indonesia.
Previously, the Dompet Dhuafa survey in 2019 also showed the majority of Indonesians tend to make donations and participate in social activities. As many as 75.8 percent of respondents stated they had made a donation within the last 12 months prior to the survey.
Indonesia has a rich philanthropic tradition such as zakat, infaq and alms (ZIS), which in Islam are considered obligations and good deeds. The ZIS concept is understood as cleaning up assets. An opinion developed among ordinary people that it is better to pay zakat than pay taxes. This is due to the social conditions at the grassroots, where they to some extent distrust the government, giving rise to an understanding of the benefits of taxes that is still lacking.
Public services that remain inadequate also triggered a lack of a sense of belonging, resulting in reluctance to contribute. Finally, legal awareness of tax obligations is immature, causing low tax culture.
The government's involvement in including zakat as a tax element is urgently needed as moral support between religious and state obligations: for example, by applying the zakat formula as a tax deduction “cost”. On the one hand, zakat payers feel they have fulfilled religious orders; on the other hand, it is hoped they will not forget to contribute to the country's development in the form of paying taxes. Moreover, there are 231 million Indonesian Muslims (World Population Review, 2021) who are the target.
The zakat mechanism as a tax deduction is regulated in Zakat Management Law No. 23/2011. Those who wish to reduce their taxes by paying zakat must first calculate the amount of zakat they have paid. Zakat mal (assets) is usually calculated at 2.5 percent of the assets owned. Zakat payments can be used as a deduction from gross income subject to income tax (PPh).
The provision for the deduction of zakat is not more than 2.5 percent of the gross income subject to income tax after deducting expenses that are considered a deduction from income. This means the amount of zakat deduction as a deduction from maximum income tax is 2.5 percent of gross income after deducting costs considered income deductions, such as operational, administrative, security and other costs that are permitted as income deductions based on tax regulations.
