Many Muslims grow up hearing about zakat and wakaf, yet few fully grasp their broader purpose beyond religious observance. Because both are strongly tied to acts of worship, they are often regarded purely as spiritual duties, overshadowing the crucial role they now play in supporting communities amid rising living costs and widening social needs. What is less recognised, however, is that these instruments also offer tangible financial advantages to contributors.

This has prompted the Federal Territories Islamic Religious Council Zakat Collection Centre (PPZ-MAIWP) to intensify efforts to strengthen public understanding and broaden access, ensuring these mechanisms are utilised effectively and reach those most in need.

To appreciate how zakat and wakaf operate, it is important to distinguish their roles. Although often mentioned together, they serve different functions within the community — one providing immediate social support, the other building long-term communal assets.

Zakat is a Shariah-mandated contribution that becomes obligatory once specific conditions are met. Distributed to eight eligible groups (asnaf), it functions not only as an act of worship but also as a formal redistributive mechanism embedded in Islamic law. Unlike casual charity, zakat operates within a defined framework to ensure funds reach those most in need. Monthly zakat collections, for example, help sustain vulnerable households, cover essential medical treatments and provide education assistance to low-income families — forming a year-round safety net.

Wakaf, by contrast, is voluntary and designed to generate long-term, continuous benefit. It is a highly encouraged form of charity in which the rewards continue as long as the contribution remains useful. Modern wakaf initiatives now extend far beyond traditional land donations, encompassing classroom equipment, dialysis machines, public clinics, community learning centres and even the development of mosques — all of which provide sustained benefit to the public.

In Malaysia, zakat contributors receive a notable financial incentive: they are eligible for a 100% income tax rebate. This applies to various forms of zakat, including zakat on wealth and zakat fitrah, covering income, savings, gold and silver, shares, business earnings and even Employees Provident Fund (EPF) contributions, says PPZ-MAIWP CEO Datuk Abdul Hakim Amir Osman.

“Every ringgit paid in zakat directly reduces the income tax payable. For example, an individual with an annual tax liability of RM5,000 who pays RM1,500 in zakat would see their tax bill reduced to RM3,500 after the rebate.

“Companies that fulfil their business zakat obligations are also eligible for a 2.5% tax deduction on their annual aggregate income. For individuals and corporations with substantial tax commitments, these incentives can significantly support annual financial planning,” he explains.

Wakaf offers a different set of advantages. Individual and corporate contributors qualify for a 10% tax deduction from their aggregate income under Subsection 44(11)D of the Income Tax Act 1967. Beyond tax incentives, wakaf plays an increasingly important role in social development by funding welfare projects across education, healthcare, economic empowerment and emergency relief.

“Importantly, wakaf is open to non-Muslims as well, and its benefits extend to the broader community regardless of religion, background or social status. Contributing through PPZ-MAIWP also offers greater convenience and transparency, allowing contributors to access transaction records, receive digital receipts and clearly track how their contributions are managed and distributed,” Abdul Hakim notes.

While public awareness of zakat has improved in recent years — as reflected in the steady growth in collections, which rose to RM1.13 billion in 2024 from RM1.03 billion in 2023 and RM932.22 million in 2022 — the amount collected remains inadequate to meet rising distribution needs. This is especially true for the urban poor in the Federal Territories, who face significantly higher living costs.

“Although awareness of zakat is increasing, PPZ-MAIWP still faces several challenges, particularly concerning the urban poor. The high cost of living in urban areas means this group relies heavily on zakat assistance for basic needs such as food, education and medical care. There is also a perception among some members of the public that zakat collection in the Federal Territories is already high, prompting them to pay zakat in other states instead,” Abdul Hakim says.

Another hurdle is the low awareness of the 100% income tax rebate, with many still viewing zakat solely as an act of worship rather than a strategic financial instrument. Abdul Hakim emphasises that contributors must understand the difference between a deduction and a rebate — the latter directly reduces the amount of tax payable.

“Some payers also fail to make zakat payments within the same financial year, making them ineligible to claim the tax rebate. Others prefer giving zakat directly to asnaf instead of through authorised bodies such as PPZ-MAIWP. Without an official receipt, it becomes difficult for them to substantiate their claims to the Inland Revenue Board (LHDN),” says Abdul Hakim.

He adds that the mosque and surau infrastructure has long relied heavily on zakat funds, but the amount collected is insufficient to support all needs. PPZ-MAIWP is therefore encouraging the community to perform wakaf so that dedicated funds can be used more effectively for infrastructure development, allowing zakat to be fully channelled into supporting asnaf.

“The public no longer needs to own land or large assets to perform wakaf. Cash wakaf allows contributions to be channelled to identified projects — from education and healthcare to social development — enabling more individuals and companies to participate in building the community.

“Although wakaf does not qualify for a tax rebate, contributors can enjoy a tax deduction under Subsection 44(6) of the Income Tax Act 1967. If an individual with a taxable income of RM60,000 donates RM1,000 to wakaf, their taxable income is reduced to RM59,000. This lowers the final tax payable while allowing them to support community development. Wakaf contributions do more than fulfil a religious recommendation; they create lasting impact that benefits future generations,” Abdul Hakim says.

Abdul Hakim urges all Muslims to fulfil their zakat obligations before Dec 31 to enjoy the income tax rebate and stand a chance to win prizes under the Year End Zakat Campaign.

“I call on all Muslims, especially those in the Federal Territories, to settle their zakat before the year ends. Paying zakat and contributing wakaf not only fulfils religious duty but also offers practical financial benefits while strengthening community development. With this approach, our contributions become more meaningful — ensuring our worship and charity are Akhirnya Sempurna, bringing benefit in this world and the hereafter.”

To make payments easier, PPZ-MAIWP has expanded its secure digital channels. It is notable that it is the first zakat institution in the world to accept zakat payments using digital assets.

Payment options include the Zakat Portal (www.zakat.com.my), the MyZakat app, mobile and digital counters such as Amil To You and Ride2U, as well as internet banking, bank counters, e-wallets, Pos Malaysia and authorised collection agents. Contributors may also pay zakat via the 1-300-88-5757 hotline.