A Preliminary Study on Norms and Motivations towards Zakat and Income Tax Payment by Muslim Tax Payer

Abstract

Zakat and income tax payment are equally important to the development of country and social-economic of community. Muslim taxpayer in Malaysia are given the privilege to claim tax rebates on their zakat payment to the Islamic institutions (State Islamic Religious Affairs Department). This has given all Muslim taxpayer the advantage to choose either to pay more income tax or less. The contribution to zakat is only compulsory at 2.5% of wealth but most of the Muslim taxpayer would prefer to pay more due to personal reasons. Although it is a good practice that can encourage Muslim to perform the third pillar of Islam, the freedom given to Muslim taxpayer are causing less tax revenue to the country. This study will investigate the distribution pattern of individual income tax and zakat contribution among Muslim taxpayer and examine the norm that motivate their tax and zakat payment behaviour. From this study, most Muslim taxpayer prefer to pay more zakat compared to the amount which they required to pay by Islamic law. For Muslim taxpayer, the zakat rebate is an opportunity to avoid paying income tax or reduce income tax contribution. Tax payer‟s behaviour apparently depends on their level of trust to the governments and Islamic institutions. Besides trust, the social norms also influence the behaviour towards zakat and income tax payment by Muslim tax payer