Paying zakat is the third pillar of Islam. Therefore, it must be carried out by all Muslims who have fulfilled certain criteria. Zakat is defined as a portion of Muslim's assets that must be distributed when certain conditions are met. In general, zakat is divided into zakat fitrah (compulsory zakat during Ramadan) and zakat mal (zakat on assets).

According to National Amil Zakat Agency (Baznas), zakat is issued from assets owned. Assets subject to zakat are assets that meet the following requirements:

1. Halal item and obtained in a lawful way;
2. Fully owned by the owner;
3. Property with potential to grow;
4. Reach the nishab according to the type of wealth;
5. Passing hauls; And
6. Property’s owner has no short-term debt to pay off.

Zakat, like taxes, "does not provide direct returns" to those who pay it (muzakki). However, most people are more "sincere" about paying zakat because they believe it will provide goods or benefits. Furthermore, zakat is closely related to religious provisions, which adds significance and urgency for some people.

If taxes are for the greatest prosperity of the people, zakat is only for eight groups. According to QS. At-Taubah verse 60, eight groups of people who receive zakat is as follows:

1. Fakir, those who have almost nothing and are unable to meet their basic needs of life.
2. Poor, those who have wealth but not enough to meet their basic needs of life.
3. Amil, those who collect and distribute zakat.
4. Converts, those who have just converted to Islam and require assistance in strengthening their faith in Tauhid and Sharia.
5. Riqab, a slave or slave who wants to free himself.
6. Gharimin, those who are in debt for life necessities in order to maintain their soul and izzah.
7. Fisabilillah, those who strive in the way of Allah through da'wah, jihad and other means.
8. Ibn Sabil, those who run out of expenses on the way in obedience to Allah.

Tax Provisions on Zakat

Expenses that are not related to earning, collecting and maintaining income are generally non-deductible. In other words, these expenses cannot be deducted when calculating taxable income amount. However, government regulates some costs that, while not related to these activities, are still fiscally deductible. One of them is zakat.

In accordance with Article 9 paragraph (1) letter g of Income Tax Law, assets earmarked for zakat are fiscally deductible. Zakat must be received by the amil zakat agency or amil zakat institution established or authorized by the government in order for it to be deducted in determining the amount of taxable income.

A Way to Excluded Zakat from Income Tax Objects

Zakat that is exempt from income tax objects means that zakat will not be taxed (there is no tax payable on zakat payments). Provisions for zakat exclusion from income tax objects are further regulated in Government Regulation Number 55 of 2022 (PP 55/2022).

In accordance with Article 55 PP 55/2022, zakat, infaq, and alms that:

• received by amil zakat agency or amil zakat institution established or authorized by the government and
• received by the rightful zakat recipients

excluded from income tax object as long as the parties concerned have no relationship with respect to:

• business,
• work,
• ownership, or
• control

Zakat must therefore be distributed to amil zakat agency or amil zakat institution in order to be exempt from income tax. Furthermore, there is no business, work, ownership, or control relationship between taxpayers and amil zakat agency or amil zakat institution that receive zakat from taxpayers.

The list of amil zakat agency or amil zakat institution that are designated as recipients of zakat which can be deducted from gross income is governed by Regulation of the Director General of Taxes Number PER-08/PJ/2021 Appendix letters A, B, C, D, E, and F. Zakat paid to agency/institution can be deducted from gross income since agency/institution are established or approved by Government.

deductible-expenses , income-tax , income-tax-object , zakat