Zakat as a Reducer of Direct Taxes is Considered Potentially Strengthening the Social Economy

FOZ General Chair, Wildhan Dewayana (Ist)

JAKARTA - The Zakat Forum (FOZ) expressed support for the proposal of the National Sharia Council of the Indonesian Ulema Council (DSN-MUI) that zakat can be imposed as a direct tax reduction or tax credit/tax rebate, not only as a tax deduction as the current mechanism.

FOZ Chairman, Wildhan Dewayana, said the revision of Law Number 23 of 2011 concerning Zakat Management, which is currently being prepared by the government together with the DPR RI, is an important momentum to include this policy in national regulations.

"The momentum for this revision should not be missed. A strong legal basis in this umbrella regulation is a prerequisite before being synchronized with the General Terms and Procedures for Taxation (KUP) Law and the Income Tax Law (PPh)," said Wildhan in his statement, Tuesday, July 14.

Wildhan explained that the implementation of the tax credit scheme aims to overcome the double burden that some Muslims have felt, namely the obligation to pay zakat and taxes to the state.

According to him, the tax deduction mechanism currently in force has not provided optimal fiscal benefits because zakat only reduces taxable income. With this scheme, the impact of tax reduction received by taxpayers is still relatively small.

Meanwhile, through the tax credit scheme, zakat that is officially paid can directly reduce the amount of tax that must be paid by calculating one to one or rupiah for rupiah.

FOZ cites Malaysia as one of the countries that have implemented a similar system. In this system, income tax for Muslim taxpayers can be a tax reduction of up to 100 percent. According to FOZ, this policy is considered capable of increasing compliance with zakat payments, improving payroll administration, and encouraging the distribution of social funds through official institutions.

FOZ assessed that the zakat tax credit policy would not necessarily reduce state revenues. Wildhan said there were a number of benefits that the government could obtain through the implementation of the system.

First, zakat funds managed by official institutions have a special purpose to help groups of zakat recipients or asnaf, such as poor people and vulnerable groups. Thus, zakat institutions also play a role in supporting social, educational, and public health programs.

Second, this policy is considered to have the potential to expand the tax base. The existence of incentives in the form of tax credits can encourage people who have not been in the formal taxation system to start reporting their tax obligations.

FOZ emphasized that the implementation of this policy requires regulation harmonization, supervision of official Zakat Management Organizations (OPZ) that have permits, as well as transparent and impact-based reporting standards.

In terms of technology, FOZ assessed that the national zakat management ecosystem has been ready to support the integration of digital systems between the Directorate General of Taxes (DJP) of the Ministry of Finance with the zakat management information system owned by BAZNAS and the Amil Zakat Institution (LAZ).

Wildhan explained that through this integration, every zakat payment can be recorded digitally and make it easier for taxpayers to report.

"When the muzaki donates, the LAZ system will issue an electronic Zakat Deposit Proof (BSZ) which can be integrated with the DJP e-Filing application as the basis for reducing tax obligations," he explained.

FOZ estimates that if there is a strong political commitment from the government and the House of Representatives of the Republic of Indonesia, the transition period and the trial of system integration can begin within one year. Thus, the zakat tax credit policy is expected to be fully implemented within two years.

According to FOZ, this policy is not only a fiscal instrument, but can also strengthen the national zakat ecosystem as well as support poverty alleviation efforts through collaboration between the government and zakat management institutions.