Pay for Two Years and Get
One Year HRMS Subscription Free!
Limited Offer

Zakat | Meaning and Definition

Zakat is a charitable contribution taken by the government of Saudi Arabia to help people who are poor and in need of money. It is also considered as one of the Five Pillars of Islam. The idea emphasizes wealth redistribution to fight poverty and assist the underprivileged. It is based on the principles of wealth purification and social justice. As per the Quran, Zakat lays the foundation for Muslims to carry out their religious obligation and improve society.

Zakat is a religious obligation for all Muslims who meet the required wealth standards to assist the underprivileged. It is an obligatory charitable donation that is frequently viewed as a tax. Most Muslim nations allow citizens to choose whether or not to pay zakat. But in Saudi Arabia, all Muslims who have the means to do so are required to pay zakat. If Zakat is not paid, there may be legal repercussions.

In Saudi Arabia, the Zakat and Income Tax Authority (ZITA) is an organization that is in charge of gathering, handling, and distributing funds of Zakat. ZITA is in charge of overseeing the administration of Zakat in the Kingdom. Under the Ministry of Finance’s supervision, ZITA makes sure that Islamic law is followed when administering zakat.

Zakat is collected to provide food for emergencies, give shelter to refugees and others in need, provide training to job seekers, medical benefits, etc.

How is Zakat Calculated?

In Saudi Arabia, Zakat is normally computed at 2.5 percent of an individual Muslim’s yearly savings and investments. Money, gold, silver, stocks, and other financial instruments are all considered permissible assets to calculate Zakat. Every year, a wealth assessment is conducted as part of the process, and those who satisfy the Nisab (minimum threshold) are required to pay Zakat. In keeping with Islamic teachings, the zakat money is then used for a variety of social welfare projects and organizations.

What is the Difference between Zakat and Income Tax in Saudi Arabia?

The difference between zakat and income tax in Saudi Arabia include:

  • Nature and Objective: Zakat is a religious duty in Islam that involves donating a portion of one’s money to the less fortunate to purify one’s wealth. It serves as a tool for community support, financial redistribution, and social justice. Whereas, income tax is a secular financial duty levied by the government on citizens and companies to pay for infrastructure, public services, and government expenses.
  • Applicability: Zakat is only applicable to Muslims who meet the requirements depending on their saved money and total assets. In general, non-Muslims are exempt from paying zakat. Whereas, for income tax, the government sets the rates and regulations for this tax, which applies to Saudi Arabian citizens and non-Muslims who make money.
  • Management: In Saudi Arabia, Zakat is managed by the Zakat and Income Tax Authority (ZITA). In compliance with Islamic principles, ZITA makes sure that funds are collected, managed, and distributed appropriately. Whereas, income Tax is managed by the Saudi tax authorities, as per government-established guidelines and protocols. The tax authorities are in charge of obtaining income tax from qualified people and organizations.
  • Gather and Compute: 2.5% of an individual’s admissible wealth, which includes cash, gold, silver, stocks, and other financial assets, is what is used to calculate zakat. Every year, zakat is collected, and it is the responsibility of the individual to ensure compliance. Income tax on the other hand is based on taxable income and levied at government-set rates. Income tax is normally deducted by employers from employee pay, and individuals may be required to file tax returns to declare additional income or take advantage of deductions.
  • Utilization of Funds: The money gathered by Zakat is utilized for social welfare and philanthropic endeavors, such as aiding the underprivileged, widows, orphans, and other vulnerable groups. Additionally, these funds also contribute to advancing healthcare, education, and sustainable development. On the other hand, the money raised by income taxes goes toward funding infrastructure projects, public services, and other state expenses.
Pay for 2 Years and Get 1 Year HRMS Subscription Free