What is the major difference between Zakat and property tax? Honestly speaking, we have been asked this question quite a few times.
The differences and similarities between Zakat and property tax are too much to comprehend for some homeowners. And they’re not the ones to be blamed. As a property owner, you cannot opt for one simply due to religious obligations; neither do they provide similar compensations.
So, we decided to make matters simpler for you by reducing the legwork and coming up with a definite answer to the question above. Let’s begin from understanding the meaning of Zakat on property.
What is Zakat on Property?
Zakat – one of the five pillars of Islam – is a type of deduction from your wealth that needs to be given once within every Islamic year. It is calculated according to the assets you have accumulated over the year including cash, property, jewellery, etc. The primary aim of giving Zakat is to help underprivileged individuals.
Since Muslims who have more than a certain limit of assets, every real estate owner first needs to decide whether they are Sahib-e-Nisab. Once they have determined whether they are Sahib-e-Nisab, they are eligible to pay Zakat after due calculations.
On a side note, if you need help with property registration in Karachi, check out our recently published guide. We have listed everything that you need to know about the process.
What is Property Tax?
Property taxes are imposed by the local government on the annual rental value of the immovable properties in Pakistan. The tax value is based on ‘Urban Immovable Property Tax Acts’ and it can vary from one province to the other. The rental value of the property is assessed by the government as to how much rent would be generated for a certain property.
In some parts of Pakistan, annual rental value is determined by assessing properties based on their type. The value can differ from whether the property is residential or commercial. Tax can also vary depending on the fact if the property is rented or self-occupied.
- As per the Excise, Taxation, & Narcotics Control Department of Punjab, 5 % of annual rental value is levied as yearly property tax.
- According to the Excise, Taxation & Narcotics Department Sindh, tax is levied at a rate of 25% of the annual rental value of the property.
Difference between Zakat on Property and Property Tax
As the image above shows, Zakat on property and property taxes have almost no similarity except the fact both are paid once in a year. The former one is the unit of charity while the other one is paid to the government for funding purposes. Since it is paid on immovable assets, both of them might appear strikingly similar.
We’ll use the below-mentioned elements as a scale to help you better understand the difference between both:
We have already mentioned above that Zakat is a religious obligation, but we’ll repeat for good measures. It is one of the five basic pillars of Islam and every [Sahib-e-Nisab] Muslim is obliged to pay it once in the Islamic year during.
Property taxes, on the other hand, is levied on immovable properties including buildings, houses, apartments, offices, land, etc. It is imposed by federal or provincial governments while every property owner is enforced by law-making departments to pay once in a year. Taxes are used for public purposes such as infrastructure development, mass transit, free healthcare, safety & protection, etc.
Scroll up for further clarifications.
Unlike property taxes, Zakat is solely paid for religious purposes and it is a type of charity that is given by Muslims to underprivileged individuals. Comparatively, property taxes are paid to the government so that they can use it for public purposes and welfare of people.
The primary aim behind paying Zakat on the property is to eradicate poverty while property taxes are used for public welfare. The benefit derived from Zakat money is enjoyed by an individual while property taxes are one of the many ways to fund the government. No matter how beneficial one might seem than the other, both of them cannot replace one another.
Zakat rate is fixed as per the Holy Quran. It is not changeable at any cost. It is calculated at 2.5 percent of the annual income of an individual/family. On the other hand, property taxes are finalised by local departments, they are not permanent, and can be changed according to the laws. Not to mention, people with different incomes fall into different tax brackets.
Note: The government has the power to change the tax rate anytime they want.
Terms & Conditions
As compared to property taxes, Zakat is easy to comprehend because the rates and regulations are fixed. You can pay your tax throughout the year while zakat is only paid during the month of Ramadan. On the other hand, Zakat is paid by certain individuals who can afford it while every citizen irrespective of being rich or poor has to pay tax.
The major difference between Zakat and property tax is that the former one is paid by homeowners to the local government while the latter one is paid directly to any individual [who is Muslim]. We can monitor easily where and who is receiving the charity via Zakat while property taxes are utilised collectively and used for various purposes.
Although both property taxes and Zakat on the property are paid once in a year, the payment time can vary. The deadline for the payment of property taxes is decided by the government. Zakat is paid during the month of Ramadan only.
The most noteworthy difference between Zakat and property tax is the obligation of paying.
Zakat can be dispatched to other countries [where underprivileged Muslim live] if you cannot find anyone eligible within your vicinity. It is global and everyone can benefit from this charity around the world. Meanwhile, property taxes are only paid inside the country. And, they are collected by the local government for the development and property of a limited region.
This is where we will talk about the gist of our entire blog. This post is based on major differences between Zakat and property tax. We hope that this article proved to be informative and insightful for you.
As discussed in the article, the basic aim behind Zakat is to eradicate poverty from the society. Meanwhile, Property tax is mandatory for the development and prosperity of society. Both of them are equally crucial since they cater to the needs of the general public and they are used for welfare.
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