The debate on tax breaks for ‘zakat’

The law already lets those who pay zakat contribute less to the state’s coffers, although some advocates want there to be more deductions for Muslims who pay alms.

The 2011 Law on Zakat Management and tax laws provide for zakat deductions to reduce a person’s taxable income.

For example, people who earn Rp 15 million (US$1,575) and pay 2.5 percent (Rp 375,000) of their income as zakat can reduce the base figure by which their taxes are determined by attaching proof of zakat payment to an official alms agency.

This, however, would not do much to reduce an individual’s tax burden, according to advocates. Dompet Dhuafa executive director Ahmad Juwaini wrote an open blog posting to the Finance Minister Agus Martowardojo requesting that a specific tax deduction be created for zakat.

This would allow, for example, zakat donors who pay 5 percent of their income to the state coffers to offset their tax burden by 2.5 percent, making zakat virtually part of taxes.

The proposal has been around since the dawn of the Reform era. Advocates lobbied the House of Representatives during deliberations on the Zakat Management law in 2009 and again in 2011, when it was revised.

The head of Forum Zakat (FOZ), Sri Adi Bramasetia, said that the deduction was a good idea but more incentives were needed.

He said that Indonesians could donate up to Rp 217 trillion in zakat and that giving alms for tax deductions would not reduce the state coffers. He said that in countries such as Saudi Arabia, taxation and zakat affairs were managed under one department.

On preferential treatment of Muslims, Bramasetia said that other faiths could also follow Islamic-based charities and demand tax deductions for those who give alms.

— JP/Prodita Sabarini

The Jakarta Post | Reportage | Tue, August 21 2012

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