Sunday, December 28, 2014

Zakat and Tax System in Saudi Arabia

Zakat is sometimes interlinked with taxation system of modern world. We will explain what are the differences and similarities in both the systems. “Zakah" or “Zakat” in literal sense means cleanliness or gradual increase. Whether in strict technical meanings it is a specified ratio on a certain amount of wealth obligatory to be paid by the wealthy people (who possess a specified amount of wealth) to the needy people. This payment made by the rich to the poor is called Zakat because it cleans the money, hearts from lust of wealth, also increases the wealth of those who pay (as ultimate result of Zakat system). It also increases the economic status of those who receive Zakat.

On the other hand, Tax is a financial liability imposed by the state on its residents, may not be inconsideration with the economic status of the people. There is no limitation as to where shall the tax money be used. It could be used to cover the government’s expenses, may be spent to meet the defense expenses or may be used for personal expenses of a monarch. The objective of Zakat is both spiritual and economic whereas tax has only economic motives. Following are important points in discussion related to differences between tax and Zakat;

  1. Zakat is being imposed by almighty ALLAH and has been explained clearly in Quranic verses, while tax is imposed by state authorities.
  2. Primarily, Zakat is an act of worship (an ibadah) it rewards gratitude and nearness of ALLAH while tax is only a social obligation and a matter between state and citizens. Those who pay Zakat are promised about many benefits in this world and herein after while in paying tax the only benefit is that the taxpayer may get some worldly benefits.
  3. In case of nonpayment of Zakat there are punishments by the state in this world and there will be a severe punishment on the Day of Judgment while if tax is not paid there are some punishments not so severe and only in this world.
  4. Zakat is imposed to a specific category of people who have certain economic status and those who are having less money than the specified are exempted from paying Zakat. Tax may be imposed without considering the economic condition of people for example taxes on items of daily use.
  5. If a wealth is below a certain limit, that will be exempted from obligation of Zakat. This is different as compared with taxes of this time, a concept of tax exemption prevails but that is in hands of state or its authorities.
  6. It is specified by Islamic Law as to who will be the beneficiary of Zakat and the Zakat collected can only be spent in the prescribed way. On the other hand state decides where to spend the tax money and who will be the beneficiaries.
  7. Zakat is imposed on Muslims only whereas taxes are not imposed on the bases of religion.

Zakat and Tax System in Saudi Arabia
It is important to note that in Saudi Taxation system, Zakat doctrine is applied only on the Saudi owned companies and the foreign companies operating in KSA are liable to pay Tax money. If the company is joint venture of Saudis and foreigners Zakat is applied on the partners of Saudi origin and foreigner partners are liable to pay tax.

Other Laws of Saudi Arabia
  1. Blood Money (Diyyah) and its Calculation
  2. Blood Money in case of Abortion
  3. What is an eye for eye Judicial System?
  4. Saudization or Nitaqat in Saudi Arabia
  5. Point System for Saudi Nationality
  6. Drinking Alcohol in Saudi Arabia


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