Critical Review Zakat as Tax Deduction (Indonesia-Malaysia Comparative Study)

Abstract

This idea originated from the speech of the Minister of Finance at the 2nd Annual Conference of Islamic Finance in 2017 on the management of zakat and taxes. This paper critically discusses the regulation of income tax and zakat income in Indonesia and Malaysia. Furthermore, this paper aims to compare the treatment of zakat on personal income tax reporting with personal income tax in Malaysia. This study used a research design that adopts the Plomp & Nieveen’s (2007) development model with adjustments, by collecting data through document studies, literature studies, and in-depth interviews with zakat and tax practitioners. The results of the discussion show that Indonesia has not implemented zakat as a tax credit like Malaysia. Indonesia also does not yet have a national standard for zakat calculation.The theoretical implication based on the results of the discussion shows that there is no significant reduction in personal income tax payable because zakat is recognized as an “expense” not as a “tax deduction” so that the tax burden is borne by the WPOP is still high. The Indonesian government needs to consider a policy of recognizing zakat as a tax credit to ease the double burden borne by the WPOP. The government also needs to consider a single standard of calculating income zakat as well as calculating income tax.

Keywords

• zakat
• tax
• comparison
• tax deduction.