Tax law, zakat, and public welfare

Under Bangladesh’s taxation law, payment of zakat only operates as a deduction to taxable income instead of reducing the tax liability. Consequently, full income tax on the taxable amount remains payable even if the person pays an equal amount of zakat. In my view, this system neither encourages systematic payment of zakat nor addresses rights-based concerns.

Zakat is a religious obligation in Islam for adherents who possess wealth above a specified threshold. In other words, if one’s wealth stays at or above this level for one lunar year, one is required to pay zakat, usually at 2.5% of eligible assets. The nisab is traditionally measured by the value of either 87.48 grams of gold or 612.36 grams of silver. Since gold and silver prices change regularly, the nisab amount in monetary terms also changes. Its objectives include, amongst others, poverty alleviation, redistribution of wealth, and ensuring social welfare etc. Interestingly, these objectives closely mirror those of taxation in a modern welfare state.

Currently, paying zakat to any poor persons, philanthropic agencies, or even the Government Zakat Fund has minimal fiscal significance relative to income tax payments. Under the current Bangladesh Income Tax Act 2023, however, zakat that is paid to the Government Zakat Fund is treated only as an allowable deduction (rebate), not as a tax credit. This distinction is decisive. The former merely reduces taxable income; it does not reduce tax payable. Therefore, the taxpayer who wants to pay zakat is compelled to make two compulsory payments serving overlapping public purposes, in my opinion. Hence, the current income tax system in Bangladesh may be re-evaluated in light of Article 27 of the Constitution of Bangladesh, which guarantees equality before law and equal protection of law.

Under the current Bangladesh Income Tax Act 2023, zakat that is paid to the Government Zakat Fund is treated only as an allowable deduction (rebate), not as a tax credit. The former merely reduces taxable income; it does not reduce tax payable. Therefore, the taxpayer who wants to pay zakat is compelled to make two compulsory payments serving overlapping public purposes, in my opinion.

Some Muslim-majority countries have experimented with integrating zakat into fiscal or welfare systems, allowing full credits against tax liability. Accordingly, in our context, it could be a modest reform grounded in fairness: to treat zakat paid to a government-recognised fund as a tax credit, not merely a rebate. To conclude, such reform would not only advance constitutional values but also strengthen welfare delivery and enhance tax compliance.

The writer is Senior Lecturer at the Department of Software Engineering, Daffodil International University and Executive Director at MoRPH Bangladesh.