`Zakat' to be deductible from net income tax

The Jakarta Post, Jakarta

The Directorate General of Tax confirmed on Friday that zakat, or the religious tax that Muslims are obliged to pay, will become net income tax deductible starting next year.

"In determining the size of taxable income, zakat on income (as against wealth/property) will be deductible from net income, rather than from income tax owed," said Moch. Soebakir, acting director of the tax information office.

The new policy on tax deductions applies to both individual and corporate income taxpayers, he said in a letter distributed to the media.

Muslims are obliged to pay at least 2.5 percent of their income and wealth in zakat, in addition to giving alms and other forms of social contribution.

To date, many Muslims who pay state income taxes -- ranging from 5 percent to 30 percent -- have also paid the 2.5 percent zakat either to government-appointed bodies, mosques, orphanages or directly to the poor, without claiming rebates.

A 1999 law on zakat management, passed during the last days of president B.J. Habibie's administration, however, makes it possible for Muslim individuals and corporations to deduct the amount of zakat they have paid from their net taxable income.

The policy comes into force in January.

While the law states that zakat is obligatory for Muslims, it fell short of stipulating its enforcement, stating that the matter is to be left to each individual to assess the amount of zakat they want to pay and to whom.

President Megawati Soekarnoputri is scheduled to inaugurate a new zakat management agency on Monday, which will become a parent organization for provincial, regency and district agencies that collect and channel zakat.

The 1999 law states that the national agency must report to the House of Representatives while the regional offices must periodically report to the local legislative councils.