Zakāt is one of the pillars of Islam other than shahādah (oath), ṣalāt (prayer), ṣiyām (fasting) and ḥajj (Pilgrimage). Islam states that wealth of individuals, if it reaches a certain benchmark amount (niṣāb) and maturity of holdings of one year (ḥawl), zakāt must be paid on it. This is to share the wealth with other segments of society. Zakāt is defined as a determined portion taken from specific wealth and allocated to those deserving it, by Qur’ānic injunctions, “Of their goods, take alms, that so thou mightest purify and sanctify them, and pray on their behalf.

Zakat is Fard (compulsory) on every Muslim male and female individuals who can afford to certain obligatory conditions. Therefore, a Muslim who disobeys this law may result in becoming an apostate (murtad). On the other hand, individuals who neglect this obligation without repudiating it as Fard are considered as committing a big sin. It is the responsibility of the Ruler to manage the collection and the distribution of zakat. Types of Zakat: There are several types of zakat: 1. Zakat of Income, 2. Zakat of Business, 3. Zakat of Savings, 4. Zakat of EPF, 5. Zakat of Gold, 6. Zakat of Silver, 7. Zakat of Shares, 8. Zakat of Crops, 10. Zakat of Livestock, 11. Zakat of Mineral, and 12. Zakat al-Fitr, Calculation of Zakat: The calculation of zakat is different based on the types of zakat.

Outline/Contents:
(1) Introduction
(2) Wealth Subjected to Zakat
(a) Zakat on Gold and Silver
(b) Zakat on Savings
(c) Zakat on savings in EPF
(d) Zakat on shares
(e) Zakat on sukuk
(3) Zakat on Employment Income
(a) Types of income subjected to Zakat
(b) Conditions to be fulfilled for Zakat to be compulsory
(c) The Nisab, Rate and Hawl
(d) Methods of calculating Zakat on employment income
(e) Deductible expenses
(4) Calculation of Tax on Income
(a) Income Chargeable to Tax
(b) Sample of Tax Computation on Income
(c) Relationship between Tax and Zakat for Individuals
(5) Planning Issues in Zakat and Tax
(6) Conclusion
Chapter/Topic Objectives:
Upon completion of this chapter you should have basic knowledge of:
(a) Wealth Subjected to Zakāt
(b) Zakāt on Employment Income
(c) Calculation of Tax on Income
(d) Planning Issues in Zakāt and Taxation

Definitions

ZAKAT –

USHR – is in fact a form of zakat which is levied on land produce. But, since human labor is comparatively less involved in this kind of production, the rate of the levy here is 10%, or in this kind of production , the rate of the levy here is 10%, or in some cases 20% instead of 2.5%. This key is due only on the produce of those lands which, according to the expositions of the fiqh, come under the special category of ‘ushr lands. ‘Ushr is spent on the same items as zakat.

KAFFARAT – Islam has prescribed another regular mode of transmitting wealth to hundreds of individuals in a society and that is the mode of ‘kaffarah’ (expiation money). If someone breaks his fast during Ramadhan without a proper excuse, or kills another Muslim unintentionally or compares his wife with the back of a female within prohibited degrees of relationship which amounts to taking an oath no to have connubial relations with her, or breaks a vow after having taken it, he has been enjoined to spend (compulsory in same cases and voluntarily in others) some of his wealth over the needy and the poor. this can be done in the form of cash and in the form of food or clothes.

Zakat Al-Fitr – besides it has been made compulsory for those whose possession come up to a certain specified quantity that on the occasion of the “Id Al-Fitr they should, before going to the prayers, distribute among the needy, the poor, orphans and widows, wheat or its price at the rate of 1% seers per number of the family. Everyone has to pay this sum not only on his or her own behalf but even on behalf of one’s minor children. To make such charity obligatory this condition too is not necessary that the possesions which give rise to the obligatory should consist of objects of growth or should have been held for one complete year. So, the sphere of this obligation is even wider than that of zakat and it can lead to the greatest possible demonstration of the principle of brotherhood, particularly on the occasion of a collective festivity.

Nafaqat –

Mirath –

Kharaj – is a kind of levy on land which is imposed only on those lands which come under the category of kharaj according to the expositions of the fiqh and the government can spend it on community projects.

(1) INTRODUCTION
Zakat means ‘to cleanse’ or ‘purify’. Carrying out this mandatory act establishes a spiritual connection with Allah. It is calculated at 2.5% of surplus wealth, such as savings and financial assets not used towards living expenses for an entire Islamic lunar year.
Zakat regulates a fair share of wealth distribution among the poor. It is the third pillar of Islam; the third most important form of worship after fasting. Giving Zakat is not a favour to the poor, but it is considered their right in Islam. Zakat helps the needy fulfil their necessities of life with dignity.
Allah (SWT) says in Quran: And perform As-Salat (Iqamat-as-Salat), and give zakat and whatever of good (deeds that Allah loves) you send forth for yourselves before you, you shall find it with Allah. Certainly, Allah is All-Seer of what you do. (2:110).
The threshold on wealth is called the ‘Nisab’, and if an individual meets Nisab i.e 85 grams of gold or 612.36 grams of silver on their cash equivalents, they become eligible. To pay Zakat, one must be of age, mentally sound, free, and must have a positive cash/goods flow, along with personal wealth that exceeds the Nisab value. Islam has identified eight recipients of Zakat: (a) The poor, (b) The needy, (c) Collectors of Zakat
Reconciliation of Hearts, (d) Those who are enslaved/ kept captive, (e) Those in Debt, (f) In the way of Allah, and (g) The stranded travellers.
Zakat purifies wealth and makes it a blessing that is highly rewarded and appreciated by Allah (SWT). Highlighting the importance of Zakat.
Quran mentions: Truly those who believe, and do deeds of righteousness, and perform As-Salat (Iqamat-as-Salat), and give zakat they will have their reward with their Lord. On them shall be no fear, nor shall they grieve. (2:277).
Zakāt is one of the pillars of Islam other than shahādah (oath), ṣalāt (prayer), ṣiyām (fasting) and ḥajj (Pilgrimage). Islam states that wealth of individuals, if it reaches a certain benchmark amount (niṣāb) and maturity of holdings of one year (ḥawl), zakāt must be paid on it. This is to share the wealth with other segments of society. Zakāt is defined as a determined portion taken from specific wealth and allocated to those deserving it, by Qur’ānic injunctions, “Of their goods, take alms, that so thou mightest purify and sanctify them, and pray on their behalf. Verily thy prayers are a source of security for them: And Allah is One Who heareth and knoweth” (al[1]Tawbah (9): 103). For Muslim individuals, the zakāt element is as vital as planning for tax in order to perform the compulsory ʿibādah as prescribed by the Shariah, as well as, observing their responsibility towards the country.
(2) WEALTH SUBJECTED TO ZAKĀT
There are two types of zakāt levied on Muslims.
(a). Zakāt al-Fiṭr
Zakāt al-Fiṭr is due from the starting of Ramaḍān and ends before the ʿīd al-fiṭr prayer.
(b). Zakāt on Wealth
Zakāt on wealth (zakat al-māl) can be classified into:
(1). Farming (agricultural) produce (e.g. wheat, rice)
(2). Livestock (e.g cows, sheep, camel)
(3). Gold and silver
(4). Mining and treasure (maʿādin, rikāz and kunūz)
(5). Business (e.g. sole proprietor, partnership, company)
(6). Savings (including EPF savings)
(7). Shares
(8). Employment income
(9). Ṣukūk
Zakāt, applicable to modern Muslim society includes zakāt payable on gold and silver, savings, shares and employment income, will be explored further in the chapter. Note that zakāt on employment income is considered zakāt on wealth notwithstanding the traditional definition of income being different from wealth. The reason for making zakāt on employment wājib (compulsory) is derived from the qiyās of scholars. Employment income is similarly treated as that of wealth created from agricultural activities which is a form of wealth subjected to zakāt. We will not investigate in detail zakāt on business income as the main attention of this module is on personal financial planning.
In addition to the above, some Islamic scholars also suggest the inclusion of mustaghallāt sources in zakāt. Mustaghallāt sources are fixed properties such as land for agricultural purpose and house or buildings which are not meant for trade. Originally, these properties were not subjected to zakāt. However, they are subjected to zakāt should there be benefits arising from their renting or leasing. The argument is based on the Qur’anic verse in which Allah the Almighty states: “O ye who believe! Give of the good things which ye have (honourably) earned” (al-Baqarah (2): 267).
There are different opinions on the method of zakāt calculation on mustaghallāt sources:
(a). Zakāt on mustaghallāt wealth has to be treated equivalent to zakāt on trade materials. The assets will be evaluated at the end of the ḥawl, and zakāt will only become payable if they meet the niṣāb. The rate of the zakāt is 2.5% and the niṣāb is the current value of 85 grams of gold.
(b). The wealth is deemed as assets which are not subjected to zakāt and thus, only the revenue is subjected to zakāt once it is gained and meets the niṣāb. There is no ḥawl condition to be met and the rate of zakāt is 2.5%.
(c). The assets will be treated as assets which are not subjected to zakāt and only the revenue is subjected to zakāt at the rate of 5% or 10% once it is gained. The rate of zakāt in the third method is similar to the rate for agricultural produce. However, it still needs to fulfil the niṣāb requirement.
There is also an opinion suggesting that the actual cost of maintaining the mustaghallāt sources, such as quit rent and assessment, maintenance of the property, be deducted against the revenue before calculating zakāt.
2.1 Zakāt on Gold and Silver
Gold and silver are subjected to zakāt because they have value. For instance, they can be used as money, gifts or souvenirs. It is compulsory to pay zakāt if gold and silver meet the niṣāb of 85 grams for gold and 595 grams for silver. It must also meet the ḥawl. In the Holy Qur’ān, Allah the Almighty indicates that it is compulsory to pay zakāt on gold and silver: “…and there are those who bury gold and silver and spend it not in the way of Allah: Announce unto them a most grevious penalty” (al-Tawbah (9): 34). The types of gold and silver items that are subjected to zakāt are:
(a). Gold and silver items which are not worn b. Gold and silver items which are worn (even once or occasionally during the ḥawl) It is also compulsory to pay zakāt on gold or silver utensils, decorations, and equipment. The niṣāb and ḥawl conditions are the same as that of jewellery. Methods of calculating zakāt on gold and silver are as follows:
(b). Gold and silver items which are not worn even once during the year. Its zakāt payable is 2.5% on the current value of gold or silver b. Gold and silver items which are worn are subjected to two conditions:
(i). If it is less than ʿurf (standard amount of gold or silver or jewellery worn by people in that area), therefore, it is not subjected to zakāt.
(ii) If it is more than ʿurf, it is subjected to zakāt on the excess of the ʿurf. The zakāt is imposed at 2.5% on the difference between the current values of gold or silver less any gems (diamonds. jade, sapphire, pearls, rubies etc.) attached to the jewellery.
2.2 Zakāt on Savings
Since money is used for business transactions, thus, it is subjected to zakāt. It has the ‘buying power’ like gold. ‘Money’ means ‘money which is deposited or kept in saving accounts, fixed deposit, current accounts, shares, unit trust and other kinds of savings’.
Zakāt on money is imposed if the amount of the lowest balance of the saving meets the minimum quantity (niṣāb) and it is kept for one year (complete ḥawl). The niṣāb for zakāt is the current value of 20 mithqal of gold which is 85 grams or silver of 595 grams. The rate of zakāt is 2.5%.
For example, the calculation of zakāt on savings based on the amount in Table 8.1 is provided:
Table 8.1: Al Wadiah Account Balance of a Client
Additional note: The niṣāb for the ḥawl is approximately RM8,500 (85g of gold at RM100 per gram). Included in the lowest balance is RM200 which is hibah (gift by the banks to the depositor after performing business for a year). Thus, the calculation of zakāt is as follows:
Period of ḥawl: 1 Muḥarram – 30 Dhul-Ḥijjah
Niṣāb = RM8,500
Lowest amount = RM16,700
Rate of zakāt = 2.5%
Thus, zakat on money/savings = RM16,700 x 2.5% = RM 417.50
Based on the Shariah, the hibah is permitted and hence, it is not deducted from the lowest balance amount.
If a person has multiple savings accounts, a standard ḥawl for all accounts has to be determined. The lowest balance from each account will be added up. If the total amount is more than the niṣāb, zakāt on money will be imposed.
A similar method is also applicable to calculate zakāt on other savings accounts such as, fixed deposit and muḍārabah accounts. Zakāt on investment in unit trusts is imposed on the value of the investment if it meets the minimum niṣāb and ḥawl.
2.3 Zakāt on Savings in EPF
Zakāt on savings in Employees Provident Fund (EPF) or any funds similar to it, is imposed if it completes the ḥawl and meets the minimum niṣāb. There are three views in calculating zakāt on savings from EPF:
(a). Incomplete Ownership Zakāt is only imposed on the retirement day when the saving is retrieved from the EPF or when some money is withdrawn from the EPF accounts, for instance, withdrawal made to buy a house. Zakāt is imposed on the whole amount of savings withdrawn from the EPF and the rate on zakāt is 2.5%. For example, if the EPF savings is RM100,000, thus the zakāt is RM100,000 x 2.5% = RM2,500
(b). Complete Ownership Zakāt is imposed when it has complete ḥawl and niṣāb. Zakāt is only imposed on the amount of savings contributed by the employees only. Thus, every year zakāt is payable on the amount of contribution by the employees if it meets the ḥawl and niṣāb even though the money is still in the EPF. The rate for zakāt is 2.5%. For example, if the employee’s contribution during the year is RM 10,000, thus, zakāt at the end of the year is RM10,000 x 2.5% = RM250.
(c). Consensus by the Fatwā Council in 1982 According to Imam al-Shāfiʿī, zakāt on savings in EPF or any similar funds is compulsory for Muslims once it completes the ḥawl which is after a year of receipt.
2.4 Zakāt on Shares
According to Dr. Yūsuf al-Qaraḍāwī in his Fiqh al-Zakāt, shares refer to “valuable papers which are traded specifically in trade transactions in the shares market”. Zakāt on shares will not be imposed if the company which issued the shares has already paid zakāt on its business. However, if the company does not pay zakāt on its business, the holder of the shares has to pay zakāt on those shares. As for listed shares, zakāt may be imposed on the dividend received. There are two ways of calculating zakāt on shares:
(a). Shares which are still in hand at the end of the ḥawl.
If the value of shares is lower than the acquisition cost, then, the market value of shares is applied.
(b). Shares which are traded during the period of the ḥawl.
Zakāt is imposed on the selling price of shares after deducting the market value.
Example 1:
Encik Samad has the following information regarding his shares:
i. 200 lots of shares are still in hand in company Q and the price is RM1, therefore, the value of shares is RM200,000 qThus, zakāt is = RM 200,000 x 2.5% = RM5,000
ii. Shares traded during the year: qTotal value of shares sold – acquisition cost qRM500,000 – RM400,000 = RM100,000 qThus, zakāt is = RM100,000 x 2.5% = RM2,500 iii. Total zakāt on shares paid by Encik Samad is RM5,000+RM2,500 = RM7,500 If the shares are kept for a year, zakāt is payable on the lower amount: the capital or the lowest value of the shares. If the shares are kept up to a year, they will be deemed as savings. Shariah non-compliant shares are not subjected to zakāt since they are from doubtful sources. If shares are bought through loan, the loan cost will be deducted if the shares are traded in a year’s time. If the shares are kept for a year, the cost of loan will be deducted from the lowest value of the shares during the year.
2.5 Zakāt on Islamic Bonds
Other than equity-based financial instruments, investment can be made in debt-based securities such as Islamic bonds. Since bonds are part of an individual’s assets, zakāt is payable on them. As explained before, zakāt is not payable on ḥarām sources; no zakāt is to be levied on bonds that are not Shariah compliant. The same rate of zakāt is imposed on bonds, i.e. 2.5%. If the shares are for investment and held during the year of zakāt payment, zakāt is payable on its original value plus any profits earned on them. But if they are meant to be traded, then zakāt is payable on their current value. The cost of purchase and the financing amount is deductable as in the calculation of zakāt on shares.
(3) ZAKĀT ON EMPLOYMENT INCOME
 Zakāt on employment will be discussed separately due to its extensiveness, although it falls under zakāt on wealth dealt with in the previous section.
‘Income’ to zakāt means “gains” and this is inclusive of employment income and income from professional services. Islamic scholars such as Prof. Dr. Yūsuf al-Qaraḍāwī and Prof. Dr. Shawqī Ismāʿīl Shahātah, suggest that employment income and income from rendering professional services are among wealth from the mustafād sources or from the expansion of the wealth. There is no specific Qur’anic verse nor Prophetic tradition pronouncing that zakāt on the mustafād sources are compulsory. However, Islamic scholars agree that zakāt on mustafād sources are compulsory based on the following: “O ye who believe! Give of the good things which ye have (honourably) earned” (al-Baqarah (2): 267).
Islamic scholars also agree that zakāt on the mustafād sources were initiated by Caliph ʿUmar al Khaṭṭāb. During his days, the Caliph had asked Muslims to pay zakāt on lambs born to those sheep which have met the ḥawl and niṣāb. The order was imposed even on newly born lambs. The discussion on whether zakāt is compulsory on wealth from mustafād sources has not reached a solid consensus. It is considered a matter of mukhtalaf fīhi (subject to argument). Hence, the implementation is up to the authorities (Islamic Religious Council in each state in Malaysia) to determine whether it is compulsory to pay zakāt on employment and professional services. If the Islamic Religious Council in a state decides that it is compulsory to pay zakāt on income from employment and professional services, then the people in that state who receive income from the said sources have to abide by the decision. At the national level, the National Fatwā Committee Conference (Special) which was held on 22nd June 1997, agreed that zakāt on salary is compulsory for those who qualify (met the ḥawl and niṣāb).
3.1 Types of Income Subjected to Zakāt
(a). Employment income which is subjected to zakāt refers to: q Annual salary q Deferred salary q Various allowances (related to employment) q Others (e.g. bonus or any other income which could be considered as income related to employment).
(b). Income from professional services q Income from undertaking tasks or rendering professional services (e.g consultants)
3.2 Conditions of Zakāt to be Compulsory It is compulsory to pay zakāt on employment and professional income if the following conditions are met:
(a) The individual is a Muslim
(b) Full Ownership
(c) Income/gains in nature
(d) Complete niṣāb (the amount differs from each state)
(e) Complete ḥawl
3.3 The Niṣāb, Rate and Ḥawl The niṣāb of zakāt on employment income and professional services is based on zakāt on gold. Thus, the niṣāb is equal to the current value of 85 grams of gold. The rate of zakāt on employment income and professional services is based on zakāt from mustafād sources which is 2.5% from the net income. The rate is 2.5% because the source is in the form of cash (nuqūd) and it is not in the form of ʿayn (in-kind). Since the employment and professional income fall under zakāt from mustafād sources, the niṣāb is calculated before determining the commencement of ḥawl. If the niṣāb is already fulfilled, only then will calculations be started on the ḥawl. Priority should be given to the niṣāb rather than the ḥawl. For instance, for one who starts working in January, one’s income will only meet the niṣāb in October; thus, the ḥawl will be calculated starting from October until the next 12 lunar months (qamariyyah). Zakāt could be paid prior to the ḥawl since it will not affect the amount of zakāt that has to be paid as long as the income is not less than the niṣāb in a year. This approach is known as taqdīm or taʿjīl al-zakāt.
3.4 Methods of Calculating Zakāt on Income There are two approaches in determining the amount of zakāt payable:
Approach 1:
Multiply the rate of 2.5% on gross income for that respective year.
Approach 2:
Multiply the rate with the income chargeable to zakāt after deducting allowable expenses. The allowable expenses are defined according to the decisions made by the respective Islamic Religious Councils. For instance, Pusat Pungutan Zakat Selangor adopts the guidelines on personal reliefs from the Inland Revenue Board as the basis to deduct expenses. The deduction could be based on the basic needs or the actual amount of expenses incurred.
3.5 Deductible Expenses
(i). Basic needs (e.g. food, clothing, education, medical expenses)
(ii). Allowable expenditure
q Self – RM8,000
q Spouse- RM3,000
q Children (unlimited)- RM1,000 each
q Parents (unlimited)- amount contributed to parents
q Others under the responsibility of zakāt-payer (e.g. siblings, maid, adopted children)
q Payments made to institutions that pay zakāt (e.g. monthly savings deduction to Tabung Haji)
q Payment made to Employees Provident Fund (EPF). Money contributed to EPF is considered “fully-owned” since the employee will only receive the money after retirement.
(5) CALCULATION OF TAX ON INCOME
(a) Income Chargeable to Tax
The scope of the Malaysian Income Tax is specified under Section 3 of the Income Tax Act 1967 as “Subject to and in accordance with this act, a tax to be known as Income Tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia”.
Income Tax Act 1967, in Section 4 explains six headings of income that are chargeable to tax. They are:
Section 4 (a): Gains or profit from a business for whatever period of time carried on.
o Section 4 (b): Gains or profit from employments.
o Section 4 (c): Dividends, interests and discounts. o Section 4 (d): Rents, royalties or premiums.
o Section 4 (e): Pensions, annuities, or other periodical payments not falling under any of the foregoing paragraphs.
o Section 4 (f): Gains or profits not falling under any of the foregoing paragraphs.
(b) Sample of Tax Computation on Income
For married individuals, they are given the option whether to file their tax returns separately on jointly. The following example illustrates both situations for a couple, Mike & Lucy for the Year of Assessment 2008.
The full lists of relief can be referred to in the self-assessment forms available on the net at www.lhdn.com.my.
(c) Relationship between Tax and Zakāt for Individuals
The first incentive is on the Schedular Tax Deduction (STD) payment which is imposed on those salaried individuals who meet the minimum criteria stipulated by the Income Tax Act 1967. Effective from January 2000 an employed individual who deducts zakāt from his employment income on a monthly basis and at the same time is also subjected to STD payment by the IRB could request from the employer to deduct the amount of monthly zakāt from the STD. Therefore, the amount of STD remitted to the IRB is the net amount after deducting the zakāt paid. If the amount of zakāt deducted on a monthly basis is more than or equal to the amount of STD, thus there is no STD remitted to the IRB.
The amount of zakāt paid is entitled to be claimed as rebates pursuant to Section 6A (3) of the Income Tax Act 1967. In addition to that, any payment due which is related to Islamic religious purposes such as zakāt al-fiṭr is also entitled to rebates under the same section. However, if the amount of zakāt paid is more than the final tax due, no refund will be granted by the IRB.
(5) PLANNING ISSUES IN ZAKĀT AND TAX
Tax planning are planning schemes of tax affairs by the taxpayers or the company with the objectives of minimising current or future tax obligations. In general, tax planning involves efforts in reducing the overall tax rate and to take advantage of the tax exempt provisions in the Income Tax Act 1967. Tax planning is referred to as tax avoidance activities that involve looking for loopholes and weaknesses in the Act and some specific tax provisions to the advantage of taxpayers. This is different from tax evasion which amounts to cheating and misleading the tax authorities thus, rendering the taxpayers involved liable to tax evasion practices punishable under the Act. There are two elements of tax planning:
(a) to take advantage of all deductions and exemptions available and allowable under the act.
(b) to plan the right timing to make economic decision so that maximum deductions and exemptions may be utilised in an efficient manner.
Several strategies normally employed in tax planning activities are:
(a) To shift income or profit between assessment years -normally forward.
(b) To change the nature of income or profit from taxable to exempt.
(c) To take advantage of incentives and concession in tax provisions to reduce tax obligations.
(d) To take advantage of the privileges provided to certain ‘persons’ or ‘entities’ from the viewpoint of taxation; for example, whether to form a sole proprietorship or a limited company to reduce tax.
(e) To split income or profit between several tax ‘entities’ to reduce effective rate.
(f) To even out effective tax rate between entities by shifting income or expenses between entities. This is usually done by companies having sets of subsidiaries under a holding company, or by individuals shifting expenses to the spouse whose income is lower in order to enjoy a lower tax bracket.

Taxation affects almost every aspect of our life. Why is that? Taxation is a tax on our income or gains or goods and services, which we consume. It involves cash and therefore affects our disposable income. Money is in the middle of everything; it is the medium of exchange, a store of value and a unit of account. Therefore it affects everything and everyone. Knowing our tax system will allow us to pay our due taxes but at the same time allows us to pay no more than what is required by law. Tax planning is therefore an important module for financial planners as under our self-assessment tax system Malaysians are expected to do their own tax computations and it is the duty of a good financial planner to help the client with the client‟s tax compliance and look for ways under the tax system to improve the client‟s after-tax cash flow. The planner‟s job however is to educate the client and not become his tax agent. Tax agents are licensed by the Ministry of Finance to represent clients with the Inland Revenue Board.

Learn more on
TAX PLANNING AND ZAKAT

Self-Assessment / Zakat
Choice Circle the letter of the correct choice for each of the following.
1. Which of the following is NOT a condition for zakat payment?
A. Complete nisab
B. Complete hawl
C. Income/gains in nature
D. All taxpayers
2. Which concept is zakat on employment levied on Muslims based?
A. Mustaghallat sources
B. Mustafad
C. Mithqal
D. Nisab
3. Zakat on savings in the Employees Provident Fund (EPF) is compulsory when it meets the nisab and hawl. It can be calculated by multiplying 2.5% with all of the following EXCEPT:
A. Annual contribution by the employees.
B. All amounts of savings withdrawn from EPF and after deducting the employers’ contribution.
C. All amounts of savings once they are withdrawn from the EPF.
D. All amounts of savings after a year of receipt.
4. Which one of the following statements is NOT TRUE?
A. Zakat on shares is compulsory if the company that issues the shares has not paid zakat on its business.
B. Zakat on traded shares is calculated by multiplying 2.5% with the total value of shares held at the end of the period.
C. Zakat on shares can be calculated based on holding shares or traded shares.
D. Zakat on listed shares can be calculated based on the dividend received.
5. Encik Shahrul has multiple savings accounts and the lowest balances of the accounts at the end of the year 2019 were as follows: RM Conventional savings accounts in Public Bank Berhad 3,400 Al-Wadiah accounts in Maybank Berhad 7,500 Al-Wadiah accounts in Bank Muamalat Berhad 900 Included in the above balances was interest from a conventional bank of RM100, hibah from Maybank Berhad and Bank Muamalat Berhad of RM200 and RM40 respectively. How much zakat on savings does Encik Shahrul have to pay?
A. RM295.00
B. RM292.50
C. RM266.25
D. RM270.00
6. Halima has 5 sets of gold rings, necklaces and bracelets that she wears whenever she attends functions like weddings or dinner. At the end of year 2019, the weight of the gold from her 5 sets of rings, necklaces and bracelets was 220 grams. The current price of a gram of gold was RM101.50. It is a norm to wear gold jewellery worth RM10,000 in her place. How much zakat on gold does Halima have to pay for the year 2019?
A. RM453.75
 B. RM205.60
C. RM308.25
D. Nil
7. How much is the nisab of the amount of financial assets payable to zakat?
A. 75g of gold
B. 85g of gold
C. 80g of gold
D. 70g of gold
8. All of the following are reasons why gold is used as the indicator for zakat payments EXCEPT: It reflects the purchasing power in the economy.
A. It takes into account inflation in the economy.
B. Its value is more stable as it is backed by gold commodity.
C. Its value is determined by the demand and supply of money in the economy.
9. Ali Jinnah has a balance of RM 230,000 in his account in 2019. His contribution to EPF is RM 130,000 and the balance is his employer’s contribution. In accordance with the concensus of Majlis Fatwa, after completing hawl on one year, how much zakat on his EPF balance does Ali Jinnah have to pay if he does not make any withdrawals from his account? The nisab level is RM 8585 (85g of gold at RM101.00 market value).
A. RM 3250.00
B. RM 3500.00
C. RM 5750.00
D. Nil
10. Which statement is TRUE on the value that should be taken to calculate zakat payable on shares traded during a year?
A. Cost of purchase – financing cost
B. Market value – financing cost
C. Dividends received
D. Total value of shares sold – acquisition cost – financing cost.
Answer: 1-d, 2-a, 3-b, 4-b, 5-b, 6-c, 7-b, 8-c, 9-c,10-d.

Self-Assessment 2 / Zakat
Choice Circle the letter of the correct choice for each of the following.
1. These are the general conditions for paying Zakat except:
A. Muslim
B. The wealth is fully and partially own

C. The wealth meets the Nisab
D. The wealth meets the hawl
2. These are the beneficiaries of Zakat, except

A. Fakir and miskin

B. Muallaf

C. Orphan and single mother
D. Wayfarer
3. How many approaches are there to calculate Zakat on earned income?
A. One B. Two C. Three D. Four
4. On 5 January 2011, Ina bought 30 lots of shares in Ekano Power Berhad. The acquisition cost per unit of shares was RM1.00. On 31 December 2011, Ina still held the same number of shares and the value of shares per unit was RM0.95. How much Zakat on shares did Ina had to pay for year 2011?
A. RM 750 B. RM 712.50 C. RM 650 D. Nil
5. Encik Shahrul has multiple savings accounts and the lowest balances of the accounts for the year 2011 are as follows:- RM Conventional saving accounts in Public Bank Berhad 3,400.00 Al-Wadiah accounts in Maybank Berhad 7,500.00 Al-Wadiah accounts in Bank Muamalat Berhad 3,900.00 Included in the above balances were interests from the conventional bank of RM100.00, hibah from Maybank Berhad and Bank Muamalat Berhad of RM200.00 and RM40.00 respectively. How much Zakat on savings that Encik Manan had to pay for year 2011?
A. RM295.00 B. RM367.50 C. RM370.00 D. RM266.25
6. The wealth below are subject to Zakat except:
A. Agricultural product (e.g.rice)
B. Land and building
C. Gold and silver
D. Saving and shares
7. Amira has 5 sets of gold rings, necklaces and bracelets that she wears whenever she attends functions like weddings or dinner. At the end of year 2012, the weight of the gold from her 5 sets of rings, necklaces and bracelets was 220 grams. The current price of 1 gram gold was RM132.50. The uruf for owing jewellery is 800 grams. How much Zakat on gold that Amira has to pay for year 2012?
A. RM728.75 B. RM1,475.50 C. RM3,543.75 D. Nil
8. Calculate Zakat on paddy below and choose the right answer for each boxes. Total weight of paddy: 2,000 kg Value of paddy per kg : RM1.60 Value of paddy : Rate Zakat on agriculture : 5 % Value of Zakat:
A. RM3,200.00; RM320.00
B. RM3,200.00; RM80.00
C. RM3,200.00; RM0.00
D. RM3,200.00; RM160.00
9. Which one of the following statements is true in respect of Zakat on business?
A. Basic equation or basic steps to assess Zakat on business is: – Cash + Stocks for sale + Debtors – Creditors
B. Trade receivable and cash in hand is not Zakatable.

C. Zakat on business is calculated based on profit earned during the year.
D. Trade creditor is Zakatable
10. Encik Ramli rears 40 goats in his village. At the end of year 2011, he has 47 goats. What is number of his Zakatable goats?
A. 1 goat B. 47 goats C. 40 goats D. 7 goats
Answer: 1-B, 2-C, 3-B, 4-B, 5-B, 6-B, 7-D, 8-D, 9-A, 10-A

Self-Assessment 3 / Zakat
Circle the letter of the correct choice for each of the following:
1. Which of the following statements is NOT TRUE about ZAKAT?
A. Payable zakat is 2.5% of liquid assets.
B. Zakat is calculated upon the completion of one year from the date the person become the owner of the asset (completes hawl).
C Zakat should be distributed to eligible recipients as soon as possible, at least before the next zakat date.
D. Payable zakat is 2.5% of assets regardless of the value.
Answer: 1-D

Self-Assessment 4 / Tax Planning
Q1: Express Sdn Bhd and its wholly owned subsidiary Concorde Sdn Bhd are both resident in Malaysia for tax purposes. Express Sdn Bhd expects to incur a loss of RM 300,000 in its business for the financial year ending 31 December 2017. For the same financial year, Concorde Sdn Bhd expects to derive a profit of RM 250,000 from its plantation business. The following are possible tax planning ideas for YA 2017 except:
A. Concorde Sdn Bhd can declare dividends to Express Sdn Bhd to absorb the losses and recover tax paid at source by Concorde Sdn Bhd.
B. Express Sdn Bhd can undertake some management work on behalf of Concorde and absorb the losses while Concorde can incur some expenses to reduce taxable income.
C. Express Sdn Bhd can surrender seventy per cent of its losses to Concorde Sdn Bhd under section 44A.
D. Express Sdn Bhd can offer financing to Concorde Sdn Bhd earning income while Concorde incurs some expense.
Q2: Which of the following statements is/are correct? I. Separate assessment helps reduce taxes because of income shifting II. Separate assessment must be elected when submitting the tax return
A. Only I is correct
B. Only II is correct
C. Both are correct
D. Both are incorrect
Q3: Which of the following statements is/are correct?
I. Losses of Company A can be set-off against Profits of Company B if both companies are wholly owned by Company C.
II. Capital allowances of Company A can be set-off against Profits of Company B if both companies are wholly owned by Company C.
A. Only I is correct
B. Only II is correct
C. Both are correct
D. Both are incorrect
Q4. Which of the following statements is/are correct? I. Separate assessment helps double the relief available to individuals under section 46 II. Separate assessment is still beneficial even if there is no Total Income for one of the spouse.
A. Only I is correct
B. Only II is correct
C. Both are correct
D. Both are incorrect
Q5: Which of the following statements is/are correct?
I. Tax evasion is an illegal activity
II. Tax avoidance is still an illegal activity
III. Section 140, ITA prohibits tax planning
IV. A taxpayer cannot order his affairs to minimize his tax payable
A. Only I is correct
B. Only II and III are correct
C. Only III and IV are correct
D. All four are correct
Q6: Which of the following statements is/are correct?

I. Tax paid by a company can be recovered by declaring dividends to the shareholders.
II. Employee Provident Fund contributions by the company to company directors are tax exempt to the director and tax deductible to the company
III. Company directors can be provided with benefits-in-kind with favorable tax consequences
IV. The cost of compliance using a company is less expensive than a partnership
A. Only I is correct
B. Only I and II are correct
C. Only II and III are correct
D. All four are correct
Q7. Which of the following statements regarding tax entities is/are correct?
I. The tax payable by the sole proprietor with his wife’s wages of RM 25,000 being deducted will be more beneficial than forming a Sendirian Berhad with both of them as shareholders and receiving director’s fees of RM 25,000 each,
II. The big disadvantage of sole-proprietorship versus corporation is not the inability to shift income, as, a sole proprietor can form a partnership and achieve the same result. It is the provision of exempt or tax-advantaged income to directors that is the advantage especially the tax sheltered contribution to EPF.
A. Only I is correct
B. Only ii is correct
C. Both are correct
D. Both are incorrect
Q8: All the following statements are correct except:

A. Debt is preferred to equity by a business owner for tax purposes.

B. Using leverage increases the return on investment.

C. The tax rate of small scale companies is 19% on the first RM 500,000 chargeable income. This makes being incorporated more beneficial for an individual with RM 500,000 chargeable income.
D. A limited liability partnership allows partners to shift their income
Q9: Which of the following statements is/are correct? I. If your marginal tax rate is 24% and you intend to utilize the tax relief for insurance of RM 6,000 plus RM 3,000, your cost of insurance is RM 6,840. II. If the investment in insurance of RM 9,000 provides a return of 3.5%p.a. over a period of 10 years, the effective rate of return on your insurance product is more than 9%.
A. Only I is correct

B. Only II is correct
C. Both are correct
D. Both are incorrect
Q10: Compute the total gross income from employment for the following employee given the following perquisites and allowances? I. Housing loan subsidy of RM 20,000 on a loan amount of RM 300,000 II. Travelling allowance for official duties of RM 7,200 III. Reimbursements of entertainment expenses of RM 6,000 IV. Meal allowance of RM3,000 for the year
A. RM 10,200 B. RM 36,200 C. RM 26,000 D. RM 30,200
Answer: 1-A, 2-A, 3-A, 4-A, 5-A, 6-C, 7-C, 8-D, 9-C, 10-A