P033 Reformulation of Zakat Regulations as a Tax Deduction

A Study of the Challenges and Implementation of Tax Collection and Zakat Payments

Abstract

Articles 22 and 23 of Law No. 23 of 2011 on Zakat Management stipulate that zakat paid to BAZNAS and LAZ is deductible from taxable income, and that the payment receipt serves as proof of the deduction. Article 4, paragraph 3, of Law No. 7 of 2021 on the Harmonization of Tax Regulations affirms that zakat is exempt from taxation. Government Regulation No. 60 of 2010 specifies that zakat may be deducted from gross income. These regulations establish zakat as a deduction. Although regulations have provided scope for integrating zakat and taxes, implementation on the ground still faces various structural and administrative challenges. Using a normative legal approach and descriptive-qualitative analysis of applicable laws and regulations, as well as empirical data from official zakat institutions, this study identifies four main issues:  (1) the limited number of state-recognized zakat collection agencies eligible to receive zakat that is tax-deductible; (2) a tax collection system that is not yet integrated with zakat management; (3) low awareness and understanding among Muslim taxpayers regarding the mechanism for deducting zakat from taxable income; and (4) insufficient synergy between the Directorate General of Taxes and the National Zakat Agency (BAZNAS) in the integrated reporting system. This study concludes that a more comprehensive reformulation of regulations is needed, including expanding the scope of recognized zakat institutions, simplifying administrative procedures, and strengthening information systems and public education, to achieve a fair harmonization between zakat and tax obligations for Muslims in Indonesia.