Indonesia studies Malaysia's zakat tax rebate scheme for potential adoption

Indonesian researchers are examining Malaysia's zakat tax rebate scheme, which has shown a significant impact on boosting zakat collection. A study in Kedah, Malaysia, found that tax rebates are a key factor in encouraging individuals to comply with paying income zakat, alongside religiosity and the quality of zakat institution services.

Further research in Malaysia indicates that many Muslim taxpayers intentionally increase their zakat payments as a strategy to reduce their tax obligations. This suggests that while the rebate incentivizes higher zakat payments, the motivation can be a mix of religious observance and fiscal planning. Malaysia has long recognized zakat as a tax offset, with the policy gradually formalized since the Income Tax Act of 1967 and strengthened in the late 1990s and early 2000s.

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One of the countries that has long implemented the policy of zakat as a tax reducer is Malaysia. Malaysia itself began to recognize zakat within the tax law framework since the Income Tax Act 1967, but the scheme of zakat as a tax reducer/full rebate (not just deduction) has only been formed gradually.

For individuals, zakat payments can be claimed as a direct offset against income tax, with no percentage limit. Corporations followed later, with a cap of 2.5 percent of total business income. Malaysia views zakat as a strategic fiscal instrument for poverty alleviation and to prevent Muslims from facing a double burden of both zakat and tax obligations. The impact has been an increase in zakat collection through official state religious councils. However, tax authorities are closely monitoring the significant amounts being offset, highlighting the importance of robust reporting and verification systems to prevent tax evasion.

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The impact in Malaysia is seen from the increase in zakat collection through official state religious councils, although on the other hand, it also raises serious attention from tax authorities regarding the large amount being offset, which shows that the benefit of this scheme depends heavily on how well the reporting and verification system is maintained so that it does not become a loophole for pure tax evasion.