Zakat vs Tax: Difference and Comparison

There are several types of taxes, which have various impositions and features depending upon their nature. Zakat is also considered one of them. But that is incorrect, as Zakat is a tax imposed on one religion; there are many differences between a regular tax and Zakat.

Key Takeaways

1. Zakat is an obligatory donation that Muslims make every year as a form of worship and to help the poor and needy.
2. Tax is a mandatory payment made to the government to support public services and infrastructure.
3. Zakat is based on the principles of purity, intention, and proportionality, while tax is based on the principles of legality, equality, and fairness.

Zakat vs Tax

The Islamic finance term “zakat” refers to a person’s duty to donate a set percentage of their annual wealth to charity. It is based on both income and asset worth. While taxes are compulsory contributions that government collects from people or businesses. Tax earnings support government operations.

Zakat is a religious tax or duty fixed in the holy Quran, according to which Muslims should pay Zakat to help other Muslims, although it is not compulsory in most of the country. The main motive is the help of poor and needy Muslims.

Tax is the amount of money charged by the government, which has to be paid by every citizen of the country, irrespective of their religion. The main motive for tax collection is the country’s development and providing facilities to its citizens, and geographical boundaries do not bind it.

Comparison Table

Parameter of Comparison	Zakat	Tax
Meaning	A religious tax, most important after prayers.	The Compulsory fee charged by the government for the country’s development.
Related to	Religious Tax	Related to government
Imposed on	Only Muslims in the Country.	All citizens of the country
Sources	Has Fixed Sources	Several Sources
Compulsion	Is not Compulsory	It is Compulsory

What is Zakat?

All wealthy Muslims have to pay a certain amount as Zakat for charitable causes. It is considered to be an important way of salvation. Although spending is not compulsory, most Muslims pay Zakat as it is essential, which is fixed by the Holy Quran.

There are five pillars of Islam:

1. Declaration of Faith
2. Ramadan Fasting
3. Prayer
4. Hajj pilgrimage
5. Zakat

Zakat is calculated on the income; the most common amount paid is 2.5% or ¼ of the total savings.

Importance of Zakat:

1. Balanced Society: it helps make a balanced society by uplifting the below-poverty line section.
2. Circulation of Money: it circulates the money among the people.
3. Means of salvation: it is considered a means of saving for Muslims.
4. Value of Sacrifice: it promotes the importance of sacrifice in society.

Misconception related to Zakat:

1. It is a misconception about Zakat that it is only given during Ramadan.
2. Only gold is paid as Zakat.
3. Relatives cannot be given the Zakat.

Zakat has several criticisms, such as it has failed to achieve its primary goal, which is to help the poor and needy Muslims.

What is Tax?

Tax is a compulsory fee the government charges to the country’s citizens. And if any person is failed to pay the tax, he is punishable by law.

Benefits of Tax:

1. Development in the public health sector
2. Public Insurance
3. Benefits for Unemployment
4. Development is public transportation
5. Development in the educational sector
6. Providing facilities to the public
7. Overall development of the country

Types of Taxes

Direct Tax is the type of tax paid directly to the government. Direct Tax includes the following:

1. Income tax: this tax is charged on the income or the profit of citizens.
2. Capital Gains: it is set on the capital sale or the investments.
3. Securities Transaction Tax: imposed on securities trade and the stock market.
4. Corporate Tax: it includes Dividend Distribution Tax, Fringe Benefits Tax, and MAT.
5. Prerequisite Tax: charged on the benefits received by the employees of a company.

Indirect Tax: Taxes that are not collected directly but indirectly by the Government.

• GST: Goods and Service Tax.

Other Taxes: this type includes the miscellaneous revenues, which include:

1. Property Tax
2. Professional Tax
3. Entertainment Tax
4. Registration Fees
5. Toll tax.

Main Differences Between Zakat and Tax

1. Zakat, in simple words, is a religious duty of Muslims, whereas Tax is a compulsory duty of every citizen of the country.
2. In Zakat, only the Muslim section of society are the payers, and the Tax has to be paid by everyone irrespective of their religion.
3. The amount paid as Zakat is 2.5% of the wealth, whereas the tax percentage varies with its type.
4. Changes in the rate of the Zakat are not possible as it is fixed in the Holy Quran, whereas the government decides the speed, and therefore they can change it at their convenience.
5. The Zakat payers expect no return as it is paid for the betterment of other Muslims. In contrast, the taxpayers expect a recovery in the form of facilities of certain developments from the government.
6. Zakat doesn’t have any geographical limits. If there is an excess amount of tax received, it can be shared with some other countries among the poor or needy Muslims, whereas so much sharing or dispatching takes place with the tax it is utilized within the county in which it is collected.
7. The tax has various types, but no such types are in Zakat.

References

1. https://www.jstor.org/stable/2729788
2. https://www.emerald.com/insight/content/doi/10.1108/JIABR-07-2017-0097/full/html

Last Updated : 11 June, 2023