Compulsory Zakat/Religious Donations

Zakat is a property that must be set aside by a Muslim or a body owned by a Muslim in accordance with religious provisions to be given to those who are entitled to receive it.

For people who do not embrace Islam, it is termed a obligatory religious contribution.

Zakat/religious donation is one of the income that is excluded from the object of income tax.

 

General Requirements

Zakat/religious donations can be deducted from gross income as the basis for imposing personal or corporate income tax.

Zakat/religious donations that can be used as tax deductions include:

1. zakat on income paid by individual taxpayers (WP) who are Muslim or by domestic corporate taxpayers owned by Muslims to amil zakat bodies or amil zakat institutions established or legalized by the government; or
2. Obligatory religious donations for individual taxpayers belonging to religions other than Islam or by domestic corporate taxpayers owned by adherents of religions other than Islam, which are recognized in Indonesia paid to religious institutions established or legalized by the Government.

Zakat/religious donations that are not paid to religious bodies/institutions as referred to above, then the expenditure cannot be deducted from gross income.

Zakat/religious donations can be in the form of money or equivalent to money. What is meant by "equal to money" is zakat/religious donations given in a form other than money which is valued at the market price at the time it is paid.

 

Zakat/Religious Contributions Paid by Women and Children

Zakat/religious donations paid by individual taxpayers or by domestic corporate taxpayers can be deducted from the gross income in question. Apart from that, the following applies:

1. Zakat/religious contribution paid by a married woman whose tax base is the combined net income of husband and wife, deducted from her husband's gross income;
2. Zakat/religious contribution paid by a married woman can be deducted from the gross income of the woman concerned, if the woman:

• has lived separated from her husband based on the judge's decision;
• in writing enter into an agreement for the separation of assets and income; or
• choose to exercise their own tax rights and obligations;

    3. Zakat/religious donations paid by minors can be deducted from the gross income of their parents.

 

Reporting

Reductions in zakat/religious donations are reported in the year the income is received or earned, in:

• Annual Income Tax Return (PPh) for individual taxpayers or by domestic corporate taxpayers concerned, for the payment of zakat/donations paid by individual taxpayers or domestic entities;
• Annual income tax return of the husband concerned, if his religious zakat/contribution is deducted from his husband's gross income, namely for the payment of zakat/donations paid by a married woman whose taxation is based on the combined net income of husband and wife, it is deducted from her husband's gross income;
• Annual income tax return of the woman concerned, if her religious zakat/contribution is deducted from the woman's gross income;
• Annual Income Tax Return of the parents of the child concerned, for payment of zakat/donations paid by minors.

If in the tax year the income is reported in the Annual SPT, the zakat/religious contribution has not been paid, the following provisions apply:

• reduction of zakat/religious donations can be made in the tax year the payment is made; and
• Taxpayers can show that gross income has been reported in the Annual Tax Return of the previous tax year.

 

Proof of payment

Zakat/religious donations that can be deducted from gross income by the giver of zakat/religious donations must be supported by valid evidence, namely a photocopy of proof of payment which is attached to the Annual Income Tax Return of the Fiscal Year the reduction of the zakat/religious donation is made.

Proof of payment can be in the form of proof of payment directly or via bank account transfer, or payment through Automated Teller Machines (ATM).

Proof of payment at least contains:

• The full name of the taxpayer and the taxpayer's identification number (NPWP);
• Amount of payment;
• Payment date;
• Name of amil zakat agency, amil zakat institution, or religious institution established or ratified by the government; and
• The signature of the official of the zakat agency/amil zakat institution/religious institution on the proof of payment, if the payment is direct; or
• Validation of bank officers on proof of payment if payment is via bank account transfer.