1. IntroductionThe government improves the functioning of the market system by providing an adequate legal basis and promoting competition. The government also provides some goods for which there is no rivalry in consumption and non-excludability of benefits. Many quasi-public goods are also provided by the government because of their large external benefits. To finance these goods and services, businesses and households are required to pay taxes. Taxation is one way the government can reduce income inequality. Taxes are adopted to correct the over-allocation of resources associated with negative externalities. Taxation is a method of transferring resources from the private to the public sector. In the early centuries of the Islamic State, only zakat was collected from Muslims and the Islamic tax was introduced by Caliph Umar Al-Khattab which is imposed on non-Muslims. The purpose of this report is to distinguish between conventional taxes and Islamic taxes.2. Types of Conventional Tax, Zakat and Islamic Tax2.1. Conventional TaxTax is a financial charge or other levy imposed on a taxpayer (a natural or legal person) by a State or the functional equivalent of a State such that failure to pay is punishable by law. The government imposes many types of taxes. For example, personal income tax, corporate income tax, payroll tax, sales tax, and property tax. Type of Tax Meaning Personal Income Tax Households or an individual collected. Payroll Tax Workers pay the full tax levied on their earnings and part of the tax collected by the employer. Corporate income tax depends on short run (SR) or long run (LR). In SR, the entire tax falls on the employer, while in LR it falls on workers who have lower wages. Sales Tax Taxes t...... middle of paper...... are distributed and necessarily given to low-income groups because Islam promotes justice and brotherhood.3.6. Tax burden, avoidance and evasion Tax burden is a cost and burden that could possibly be passed on to consumers through market mechanisms (depending on the elasticity of supply and demand). For a Muslim, Zakat is a religious duty and never a burden and therefore should not be passed on to other people. Tax avoidance manipulation of one's business within the law in order to reduce taxes. A believer is normally happy when his income and wealth increase and therefore he would pay more Zakat and not avoid Zakat. Tax evasion is illegal manipulation of one's business to reduce taxes. A believer never carries out Allah's command, such as paying zakat, because when he carries out Allah's command, he will be punished by hell fire. Conclusion