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TAX

Tax is to impose a financial charge or other levy 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 A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government a payment exacted by legislative authority. "A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."

Purposes and effects


Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Governments also use taxes to fund welfare and public services. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation.Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies. Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign aid and military ventures, to influence themacroeconomic performance of the economy (the government's strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive. A nation's tax system is often a reflection of its communal values or/and the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burdenwho will pay taxes and how much they will payand how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system, these choices reflect the type of community that the public and/or government wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power.

All large businesses incur administrative costs in the process of delivering revenue collected from customers to the suppliers of the goods or services being purchased. Taxation is no different, the resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called compliance cost, and includes for example the labour cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation. This practice is often disliked byfinance ministers, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since, in reality, money is fungible. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls. Some economists, especially neo-classical economists, argue that all taxation creates market distortion and results in economic inefficiency. They have therefore sought to identify the kind of tax system that would minimize this distortion. Since governments also resolve commercial disputes, especially in countries with common law, similar arguments are sometimes used to justify a sales tax or value added tax. Others (e.g. libertarians) argue that most or all forms of taxes are immoral due to their involuntary (and therefore eventually coercive/violent) nature. The most extreme anti-tax view is anarcho-capitalism, in which the provision of all social services should be voluntarily bought by the person(s) using them

Direct and indirect


Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these terms can vary in different contexts, which can sometimes lead to confusion. An economic definition, by Atkinson, states that "...direct taxes may be adjusted to the individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller."[6]According to this definition, for example, income tax is "direct", and sales tax is "indirect". In law, the terms may have different meanings. In U.S. constitutional law, for instance, direct taxes refer to poll taxes and property taxes, which are based on simple existence or ownership. Indirect taxes are imposed on events, rights, privileges, and activities.[7] Thus, a tax on the sale of property would be considered an indirect tax, whereas the tax on simply owning the property itself would be a direct tax.

History
The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BCin the first dynasty of the Old Kingdom. The earliest and most widespread form of taxation was the corve and tithe. The corve was forced labour provided to the state by peasants too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym for taxes). Later, in the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC;[26] the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th century. It was abolished by Akbar.

Zakt
Zakt "that which purifies"), one of the Five Pillars of Islam, is the giving of a fixed portion of one's wealth to charity, generally to the poor and needy.

History
Zakat, a practice initiated by Muhammed himself, has played an important role throughout Islamic history.[3] Initially, Muhammed instituted zakat as a voluntary, individual offering, but during his lifetime certain forms of zakat have been declared obligatory. The caliph Ab Bakr, believed by Sunni Muslims to be Muhammed's successor, was the first to institute a statutory zakat system. [4] The third caliph, Uthman ibn Affan (who reigned from 644-656) significantly altered the zakat collection protocol, by decreeing that only "apparent" wealth was taxable, which had the effect of limiting zakat to mostly being paid on agricultural land and produce.[5] Ultimately, the practice of state-administered zakat was very short-lived, ending with the reign of Umar bin Abdul Aziz from 717-720 A.D.

Collection of funds
Zakat is considered to be a religious duty, and is expected to be paid by all practicing Muslims who have the financial means (nisab).[6] In addition to their zakat obligations, Muslims are encouraged to make voluntary contributions (sadaqat).[7] The zakat is not collected from non-Muslims, although they are sometimes required to pay the jizyah tax.[8][9] The Qur'an does not provide specific guidelines on which types of wealth are taxable under the zakat, nor does it specify percentages to be given. Traditionally, the goods taxed are those that were the basis of most wealth in seventh-century Arabic kingdoms: agricultural goods, precious metals, minerals, and livestock. The amount collected varies between 2.5 and 20 percent, depending on the type of goods being taxed.[10][11] Many Shi'ites are additionally expected to pay one fifth of their income in the form of a khums tax, which they consider to be a separate ritual practice.[12] The Qur'an is also unclear on who is to collect the tax. Today, in most Muslim countries, zakat is collected through a decentralized and voluntary system, where eligible Muslims are expected to pay the zakat based on fear and love of Allah, personal conscience, and peer pressure.[13] Under this voluntary system, zakat committees are established, which are tasked with the collection and distribution of zakatfunds.[14] In a handful of Muslim countries - including Saudi Arabia, and Pakistan - the zakat is obligatory, and is collected in a centralizedmanner by the state.[13] In countries where zakat is collected by the state, the economic effects are often negligible, doing little to alleviateeconomic inequality.[15] In Jordan, Bahrain, Kuwait, Lebanon, and Bangladesh, the zakat is regulated by the state, but contributions are voluntary.[16]

Disbursement of funds
There are eight categories of people (asnaf) who qualify to receive zakat funds, according to the Qu'ran:[17][18]

1.

Those living in absolute poverty (Al-Fuqar')

2. 3. 4.

Those who cannot meet their basic needs (Al-Maskn) The zakat collectors themselves (Al-milna 'Alaih)

Non-Muslims who are sympathetic to Islam or wish to convert to Islam.(AlMu'allafatu Qulbuhum) 5. People whom one is attempting to free from slavery or bondage. Also includes paying ransom or blood money (Diyah). (Fir-Riqb) 6. Those who have incurred overwhelming debts while attempting to satisfy their basic needs (Al-Ghrimn) 7. Those working for an Islamic cause (F Sablillh)

8.

Travelers in need (Ibnus-Sabl)

Zakat may not be given to descendents of the prophet Muhammed, nor may it be given to parents, grandparents, children, grandchildren, or spouses. It is also forbidden to disburse zakat funds to organizations that pay salaries to their employees, or use the money for investments.[19] Muslim scholars disagree whether the poor that qualify should include non-Muslims. Some state that Zakat may be paid to non-Muslims, but only after the needs of Muslims have been met.[19] Fi Sabillillah is the most prominent asnaf in Southeast Asian Muslim societies, where it broadly construed to include funding missionary work, Quranic schools and anything else that serves the community (ummah) in-general

Role in Islamic societies


The zakat is considered by Muslims to be an act of piety through which one expresses concern for the well-being of fellow Muslims,[21] as well as preserving social harmony between the wealthy and the poor.[22] Zakat promotes a more equitable redistribution of wealth, and fosters a sense of solidarity amongst members of the Ummah

DIFFERENCE BETWEEN ZAKAT & TAX


Zakat is absolutely different from tax which is imposed by the Govt. the main differences are as under

1. Payment:
The payment of Zakat is a religious duty whereas the payment of tax is a national duty.

2. Imposition:
Zakat is imposed only on the muslim members of the society whereas tax is imposed on all the citizens in proportion to their ability to pay.

3. Compulsion:
Zakat is a compulsory payment which is not remitted by anyone whereas tax though compulsory payment, yet is remittable by the Govt.

4. Rates:
In case of Zakat, the rates of Zakat payment are fixed by the Holy Quran and cannot be changed by anyone whereas, in case of tax, the rates can be changed by the govt. from time to time.

5. Collection:
Zakat can be paid individually whereas tax is collected only by the Govt.

6. Utilization:
The beneficiaries of Zakat have been clearly pointed out in the holy Quran and Zakat can not be spent by the govt. on other than beneficiaries anywhere.

7. Nisab:
Nisab of Zakat is fixed by the holy Quran wheras taxable income varies from time to time.

8. Period:
Zakat is payable after the completion of one year whereas it is nto necessary for tax. Its period may be less or more than one year.

9. Sources:
Zakat is imposed on all types of goods even animals , gold and silver etc. held by the individual , whereas tax is imposed only on the income earned by various sources.

10. Objectives:
The objective of the payment of Zakat is the pleasure of Almighty Allah through financial assistance of the poor and needy whereas the objective of tax is to meet the development and non development expenditures of the society , as a whole.

11. Purification:
Zakat purifies the wealth , whereas tax does not serve this purpose.

12. Variability:
Zakat is non variable whereas the tax is usually progressive.

13. Feeling:
Zakat creates the feelings of being a member of muslim society irrespective to regional limits whereas tax creates the feelings of being a member of just single society. Thus Zakat creates universal feelings while tax creates native feelings.

14. Facilities:
Tax payers expect to avail some specific facilities from the govt. against the payment of tax whereas Zakat payer does not expect to get any type of specific facility or material gain.

15. Regional limits:

Tax can be utilized just in that region from where it has been collected whereas , if the amount of Zakat is more than the needs of one region it can be spent on any other region of the world.

16. Ability to pay:


Zakat is imposed just on those who have the ability to pay it whereas tax , particularly in the case of indirect taxes can be imposed on those who have not the ability to pay.

17. Corruption:
In the collection and distribution of Zakat, there is no corruption whereas a lot of corruption is observed in the collection of tax.

CONCLUSION
Keeping in view the above whole discussion on the topic of Zakat, we reach to the conclusion that Zakat is one of the five pillars of Islam. It is the main tool of fiscal policy of an Islamic state. It provides financial assistance to poor persons, raises the aggregate growth of the economy, plays a vital role to stabilize all the fiscal variables and make the country prosperous.

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