Section 18A tax deductions and zakah

Question

As-salaamu alaykum respected Ulama, Please advise if the following is permissible: When making a donation an Islamic institution, we receive a S18A tax certificate for whatever donation we make. This we enter on our annual tax return and claim as a tax deduction to reduce the amount of tax we pay to the government. If I pay my zakah and received a S18A tax donations certificate, can I claim it in my tax return as a tax deduction? Or does it defeat the purpose of paying my Zakah?
السلام عليكم ورحمة الله وبركاته

 

1. The situation to which your question pertains involves two separate and mutually independent financial obligations:

1.1 The obligation of zakāh, which is imposed by Allah.

1.2 The obligation of tax, which is imposed and regulated by government.

2. The validity of one’s zakāh depends on whether the full sum given as zakāh has reached its rightful recipients. As long as the full sum given as zakāh has reached the proper beneficiaries, and no part of that sum itself reverts back to the giver in the form of a direct kickback, the zakāh is valid.

3. Section 18a of the Income Tax Act makes taxpayers who have donated to charities and public benefit organisations eligible to a tax deduction. The rebate or deduction received under this law does not represent a return of zakāh given, but is merely a reduction of one’s tax obligation.

4. Assume for example that one has an initial tax obligation of R10 000, but you have also given R2 000 in charity to a recognised public benefit organisation, for which you received a Section 18a certificate. Let’s assume you are thereby entitled to a tax deduction of R2 000. As long as your R2 000 of zakāh has reached its rightful beneficiaries in full, your zakāh obligation remains validly executed. The R2 000 received as a tax deduction is not the return of what you gave in zakāh, and does not reduce or affect the interests of the zakāh beneficiaries. It is nothing other than the government’s reduction of the tax obligation which it imposes upon you. Had you not given the zakāh, the government would have imposed a tax burden of R10 000 on you, but on account of the fact that you gave your zakāh to a recognised public benefit organisation, the government is willing to reduce your tax burden from R10 000 to R8 000.

5. In short, the tax rebate received under Section 18a of the Income Tax Act is your own money which the government returns to you in recognition of the contribution you made to a public benefit organisation.

6. The purpose of zakāh is to benefit certain defined categories of persons. This purpose stands unaffected by the reduction of the giver’s own tax obligation.

7. As such—

7.1 it is Islamically acceptable to receive a tax deduction in terms of Section 18a of the Income Tax Act;

7.2 and a tax deduction of this nature does not defeat the purpose of zakāh.

والله تعالى أعلم

And Allah knows best.

MJC (SA)

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