Essay On Zakat

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Recommended: The proper role of government in the market economy

1. Introduction

Government enhances the operation of the market system by providing an appropriate legal foundation and promoting competition. Government also provides certain goods which there are non-rivalry in consumption and non-excludability of benefits. Many quasi-public goods also provided by the government because of their large external benefits. To finance those goods and services businesses and households are required to pay taxes.
Taxation is among the ways in which government can lessen income inequalities. Taxes is done in order to correct the over allocation of resources associated with negative externalities. Taxation is a method of transferring resources from the private to public sector. In the early centuries of Islamic State, only zakat was collected from Muslim and Islamic Tax was introduced by Caliph Umar Al-Khattab which is imposed to non-Muslim. The purpose of this report is to differentiate between conventional taxes and Islamic taxes.

2. Types of Conventional Tax, Zakat and Islamic Tax

2.1. Conventional Tax

Tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Government imposes many types of tax. For example personal income tax, corporate income tax, payroll tax, sales tax and property tax.

Type of Tax Meaning
Personal income tax The households or an individual which is levied.
Payroll tax Workers pay the full tax levied on their earnings and part of the tax levied on their employer.
Corporate income tax Depends on short-run (SR) or long-run (LR). In SR, full taxes falls on employer, while in LR it falls on workers by having lower wages.
Sales tax Tax t...

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... are distributed and necessarily given to low income groups because Islam promote justice and brotherhood.

3.6. Tax Burden, Avoidance and Evasion

Tax burden is a cost and burden which could possibly be transferred to consumers through market mechanism (depending on elasticity of demand and supply). To a Muslim, Zakat is a religious duty and never a burden and therefore should not be transferred on other people.
Tax Avoidance manipulation of one’s affairs within the law in order to reduce tax. A believer is normally pleased when his income and wealth are increasing and hence would be paying more Zakat and will not avoid Zakat.
Tax Evasion is an illegal manipulation of one’s affairs to reduce tax. A believer is never ingkar that command by Allah such as paying zakat because when they ingkar the command of Allah, they will be punished by the hellfire.

4. Conclusion

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