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Malaysian Accounting Review, Vol. 10 No. 2, 13-25, 2011

TECHNICAL COMPARISON BETWEEN BUSINESS ZAKAT AND TAX ON BUSINESS INCOME IN MALAYSIA Rohila Awang Mohd Zulkifli Mokhtar Faculty of Management and Economics Universiti Malaysia Terengganu Abstract The focus of this paper is to demonstrate the technical comparison between business zakat and taxation. This paper aims to enhance the knowledge on the part of zakat assessment and the management of zakat as compared to the system of taxation in Malaysia. This is to minimise the misunderstandings that exist in paying zakat as an obligation and to enhance the responsibilities of a good citizen in paying taxes.

Introduction
There are five pillars in Islam which include syahadah, five times of prayers a day, zakat, fasting, and performing the hajj. Zakat stands as the third pillar of Islam. Basically, there are two types of zakat, namely zakat on wealth (zakat mal) and zakat on self (zakat fitr). Zakat on self is paid in the month of Ramadan before the celebration of Eidul Fitr (1 Syawal) which is a pious day in Islam whereby all Muslims celebrate the day after one month of fasting. The obligation is imposed to all Muslims who live in the whole year of Hijra until the end of Ramadan of that particular year. On the other hand, the types of wealth on which zakat must be paid are monetary wealth, crops and livestock. Zakat on wealth is payable by a payer at any time of the year after holding the wealth for 12 months (haul). The zakatable wealth should exceed the exemption limit (nisab). Thus, the wealth is zakat at the rate of 2.5%. Zakat on monetary wealth refers to gold, silver and trade goods. Examples of zakat of monetary wealth are zakat on savings, zakat on trade goods (business),

ISSN 1675-4077 © 2011 Accounting Research Institute & Faculty of Accountancy and UPENA, Universiti Teknologi MARA, Malaysia.

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Malaysian Accounting Review, Vol. 10 No. 2, 13-25, 2011

business investment and personal property (http://ourworld.compuserve.com/homepages/ Abewley/zakat2.html) One of the parties obligated to pay zakat is by those who are involved in business. As such, all Muslim owned businesses are required to disburse zakat if all the requirements for zakat have been fulfilled. At the same time, these Muslim businessmen also need to pay tax liability for a particular year of assessment. The practice of business zakat measurement in Malaysia involves several methods (Hamat, 2009). The most common methods are Growth Capital Approach and Working Capital Approach. The assessment of zakat in respect of both approaches is based on the Statement of Financial Position of a company. On the other hand, the assessment of tax liability for companies is based on the Statement of Comprehensive Income of such companies. The initial objective of this paper is to demonstrate the assessment of business zakat as compared to the tax assessment. In addition, the justification for both assessments will be further clarified. Both business zakat and business tax assessment would involve adjustments whereby the initial sum will be subjected to addition or deduction. Such adjustment is based on zakat rules for zakat on business and tax rules for business income.

Business Zakat and Tax on Business Income in Malaysia
Zakat is one of the five pillars of Islam and the purpose of zakat is to regulate the wealth of Muslims for the welfare of the society. This pronouncement of compulsory act is closely related to the five time prayers and is reflected in the Quran. Those who have executed zakat are deemed to deserve the help, blessings and appreciation from Allah, the Al-Mighty God. Linguistically, zakat means growth, increase and purification of one’s wealth. From the Syariah (Al-Quran, Hadith and Islamic jurisprudence), the term refers to the amount of money or kind which is taken from the specific types of wealth when it reaches a specific amount at a...
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