Zakat is the only tax an Islamic government can impose upon its Muslim citizens. It is not merely a charity fund but can be spent on the collective needs of the people as well: The zakat money can be used to pay the salaries of all government officials including that of the head of state, to build all works of public interest, to cater for defence requirements and to establish an Islamic system of Insurance. In short, the system of zakat envisaged by the Qur’ān and Sunnah totally meets the requirements of running a welfare state. Unfortunately, the true concept of zakat has over, the years, altogether vanished from our religio-political scenario. This dissertation is a humble attempt to revive this concept and as such a modest contribution towards the re-establishment of an Islamic Economic Order.
O
The historian’s pen bears witness that man has continued to stumble over the issue of the relationship between a state and its subjects ever since the creation of the first polity at the dawn of civilizational history. In this regard, the right of a state to levy taxes on its public, in particular, has created an unending rift between the rulers and the ruled. An institution which apparently began as a voluntary contribution by the people to relieve a few individuals of their financial responsibilities and entrust them with the development and progress of their collectivity gradually became the most effective means of their own exploitation and persecution.
Taxes were, probably, first imposed in ancient Palestine. The secession of the ten tribes of Israel as recorded in the Biblical Book of the Kings was to an important extent a response to punitive taxation. The ancient empires of Egypt and Babylon obtained revenues from public lands and extracted levies in kind, in the form of forced labour and personal servitude or as a share in the produce of private lands. In Athens, at the time of Pericles, taxes were imposed largely on foreigners and slaves. One who was taxed but failed to pay was guilty of a capital offense. In Rome, along with custom taxes and custom duties, there were certain ‘direct’ taxes. The principal of these was the tributum paid by the citizens and usually levied on as a head tax; later when additional revenue was required the base of this tax was extended to real estate holdings. In the reign of the emperor Augustus (27 BC--14 AD) land and inheritance taxes became a familiar aspect of Roman economic life. Subsequent emperors raised rates and included more and more objects in taxable items: wheat, barley, oil, meat, wood, salt, sales, bachelors and even urinals.
As the Western civilization moved into agrarian feudalism, the principal source of revenue of the governing feudal lord became the rents paid by his vassals in exchange for Military protection he gave them. The Normans brought this system to England in 1066. When King John (1167-1216) tried to enlarge royal power and income with new levies, the feudal nobility rose against him. In 1215, when the barons imposed the Magna Carta on the king, the first principle of modern taxation arose: taxes are to be imposed only by the consent of the governed. It was, however, centuries later before this right came to be formally established---and that too to no avail.
During the middle ages, kings derived most of their income from their feudal holdings, and generally needed to levy taxes only to pay for their extensive wars. Because, ordinarily, such taxes could be collected only with the consent and aid of the nobles and other large landholders, monarchs found it necessary to call these landholders into session to approve such taxation. These sessions of landlords subsequently evolved into parliaments and other legislative bodies. In 1628, the petition of rights deprived the crown of Britain to levy taxes without the consent of the parliament. However, this right, though contributed to a marginal development for the citizens of Britain, subsequently started a bloody struggle elsewhere: The American Revolution was triggered by public resentment over the Stamp Act imposed by the British Parliament in 1765, after the Seven Year’s War. Requiring the colonists to pay fees to Britain, this act called forth protests against ‘taxation without representation’ and was subsequently revoked by the British Parliament. However, tariff duties imposed thereafter on tea and other articles rekindled the protest. The ensuing Boston Tea Party hastened the advent of the American Revolution. A similar story may be told about France. Taxation during the years preceding the French Revolution had become exceedingly heavy with burdensome levies collected by both the king and the church. The taille, initially a broad based tax on the value of income from land, had come to be primarily a tax on the poor farmers, with the nobility, the clergy and the wealthy largely exempted. A regressive system of customs and excise duties also imposed a heavy burden falling primarily on the poor. The taxes were used for financing lavish court expenditures. It is not surprising, therefore, that taxes became a major dissatisfaction with the old regime that culminated in the French Revolution of 1789.
Near the end of the eighteenth century, when the Scottish economist Adam Smith set forth his famous four canons1 about taxation in his celebrated treatise “The Wealth of Nations”, mankind thought that it had finally found the solution to the whole problem. Later Ricardo in his “Principles of Political Economy and Taxation”, and Mill in his “Principles of Political Economy” further developed the thought of Smith in an effort to formulate an ultimate taxation structure acceptable both to the tax imposer and the tax payer alike. The leading writer in the field around the turn of the century was E.R.A. Seligman. In his major work “The Shifting and Incidence of Taxation” (1892), and “Progressive Taxation in Theory and Practice” (1894), he developed the ‘ability-to-pay’ criterion and developed a persuasive theoretical justification for progressive income taxes. Seligman, however, admitted that the ‘ability-to-pay’ doctrine cannot specify a definite rate of progression as the ideally just rate. In recent years, Richard Musgrave of the Princeton University stands out prominently among those who have worked on this problematic issue.
1. “1) One should be taxed according to the ability to pay.
2) The tax should be certain and not arbitrary.
3) The tax should be levied at a time and in a manner most convenient for the tax payer.
4) The tax should be devised so that costs of collection are minimal.”
(ed. by Edmin Cannon, 5th ed. London 1930, Vol II, Pgs 310-12)
However, all this intellectual effort, which though formally bagan with Adam Smith in 1776 and was actually initiated as early as in 1470 by an Italian Diomede Crafa1, has repeatedly failed to settle this conflict between the state and its citizens. The taxpayer’s revolt in I979 in the USA is a recent example of this rivalry which continues unabated to this day.
...fourteen hundred years ago Islam had solved this problem once and for all. While acknowledging the institution of taxation as the most natural agency to run a state, it took away the right to impose taxes from man and divinely ordained the statutes of this institution. It laid down in bold the principles of taxation because they were actually beyond the reach of human intellect: the above mentioned history of taxation clearly testifys to this fact. Furthermore, Islam declared zakat, its institution of taxation, an obligatory act of worship, thereby completely transforming the attitude of the people towards it. Instead of being considered as a burden it became a wholeheartedly acknowledged religious obligation!
O
This brings us to the Islamic concept of zakat. We shall discuss the principles of this institution set forth by the Qur’ān and Sunnah in three sections:
(1) The Nature of Zakat.
(2) The Heads of Zakat.
(3) The Rates of Zakat.
We now take up these in order:
(1) The Nature of Zakat
According to the Qur’ān, zakat has a dual nature: (a) intrinsic and (b) extrinsic.
(a) The Intrinsic Nature: Viewed thus, zakat is an act of worship. This is evident from a number of Qur’ānic verses in which it is mentioned adjacent to salat (prayer), the most important form of worship. The word ‘zakat’ means both ‘to purify’ and ‘to grow’: paying zakat purifys one’s wealth and soul, and it actually increases ones wealth in his afterlife. The Qur’ān stresses both these aspects of zakat:
“[O Prophet!] Take zakat out of their wealth---thou would cleanse them and purify them thereby.” (9:103)
and
“That which ye give in riba in order that it many increase on [other] people’s wealth has no increase with Allah; but that which you give as zakat, seeking Allah’s countenance, it is these people who will get manifold [in the Hereafter] of what they gave.” (30:39)
(b) The Extrinsic Nature: Viewed thus, it is the only tax an Islamic State can impose on its Muslim subjects2. While declaring the requisites of citizenship of an Islamic State, the Qur’ān says:
“And if they repent [from all un-Islamic beliefs], establish salat and pay zakat, leave them alone.” (9:5)
The above verse clearly points out that salat and zakat are part of the public law of an Islamic State, and the only two things which an Islamic government can positively demand from its Muslim citizens. As far as zakat is concerned, after a Muslim has paid it to the government, not a single penny can be further exacted from him3. This is further illustrated by the following two traditions4:
“There is no [legal] share [for the society] in the wealth [of people] except zakat.” (Ibni Maajah: Kitab-uz-Zakat)
and
“After you have paid the zakat of your wealth you have paid [all] that was [legally] required of you.” (Ibni Maajah: Kitab-uz-Zakat)
In this regard, the severe warning sounded by the Prophet (sws) to those who impose taxes other than those ordained by the Almighty must also be kept in mind:
“No tax-imposer shall enter paradise.” (Abu-Daud: Kitab-ul-Khiraj)
(2) Heads of Zakat
The following Qur’ānic verse spells out the heads under which the zakat fund can be expended:
“Zakat is only for the poor and the needy, and for those who are ‘aamils over it, and for those whose hearts are to be reconciled [to the truth], and for the emancipation of the slaves and for those who have been inflicted with losses and for the way of Allah and for the wayfarers.” (9:60)
We take up these heads in order:
1) The Poor and Needy (Fuqaraa and Masaaqeen): The poor and the needy are the foremost recipients of zakat because they are the primary responsibility of the state. It must cater for their basic needs like food, clothing, shelter, health and education. In this regard, the Prophet (sws) is said to have said:
“It [ie zakat] should be taken from their rich and returned to their poor.” (Bukhari, Kitab-uz-Zakat)
2) The ‘Aamils over Zakat (‘aamileen-a-’alaihaa): Under this head, the salaries of all employees of the government including the head of the state can be paid.
3) Those whose hearts are to be reconciled (Muallafatul Quloob): Under this head come all forms of political expenditure in the interest of Islam. There may be many instances, when the affection of certain influential people must be obtained, particularly in border areas where their role can be decisive in the safety of a country. During the time of the Prophet (sws) many tribes were given money under this head to deter them from harming the newly founded Islamic State.
4) Slaves (riqaab): The institution of slavery was totally eliminated by Islam fourteen centuries ago. From this particular head money was given to free slaves. Today, by analogy, this head can be extended to include other recipients. For example, prisoners of war and other prisoners who are unable to pay the fine imposed by the courts can be freed by giving money through this head.
5) Those inflicted with losses (Ghaarimeen): Under this head, an Islamic system of Insurance can be established and all those who are inflicted with economic losses can be compensated. Whether rich or poor the real criterion is that their means of living and its role in the national economy have been destroyed. People who have acquired a loan and are unable to pay it back may also be helped from this money so that they may start afresh and the society can benefit from their abilities.
6) In the Way of Allah (Fee Sabeelillaah): Under this head defence expenditures of a state can be met and institutions for religious propagation as well as all works of public interest like roads, bridges, mosques, hospitals, educational institutions and libraries can be built.
7) The Wayfarer (Ibnussabeel): This implies the welfare of the wayfarer. Circumstances often make a traveller a needy person, in which case, his needs can be fulfilled from this head.
(3) Rates of Zakat
Before we mention the rates of zakat, a mention seems necessary of the items which are exempt from zakat. Nothing except the following three are exempt:
(i) Means of production: eg. tools, machinery etc.
(ii) Personal items of daily use: eg. personal belongings like, house, car etc5.
(iii) A fixed quantity called nisaab.
However, an Islamic government can give ralaxation on any item in the interest of the public or because of any constraint in the collection of zakat on a particular item6.
As far as the various rates of zakat are concerned, three distinct categories can be classified:
1. Wealth: After deducting the nisaab and taking into consideration other exemptions mentioned above, the wealth of a person, shall be taxed annually at the rate of 2%. Tax on trade capital shall also be levied at the same rate by considering this capital to be the sum of cash in hand and cash in trade.
2. Produce: Zakat on produce is deducted at the time of produce and depending upon the various items has three rates: 5%; 10%; 20%
i) 5%: On items which are produced by the interaction of both labour and capital: eg. produce from irrigated lands and industrial produce from factories7.
ii) 10%: On items which are produced such that the major factor in producing them is either labour or capital, but not both. Examples of the former include an artist’s creation like paintings and the works of scholars and intellectuals, while examples of the latter include rented houses, and produce from rainy lands.
iii) 20%: On items which are produced neither as a result of labour nor capital but are actually a gift of God, eg treasure etc.
3. Animals: Only those animals which are bred and reared for the purpose of trade and business are subject to zakat. The details of the rates of zakat on animals can be consulted from any book of fiqh.
O
This is the concept of zakat envisaged by the Qur’ān and Sunnah. From the above details it is clear that zakat is the only tax which an Islamic government can impose on its Muslim subjects8 and that it is not merely a fund for the destitute. Moreover, since there is no basis for necessarily giving it in the possession of an individual (tamleek9), it can be spent on the collective needs of the people as well.
However, after meeting the running expenses of a state, how the revenue needed for development should be obtained is an important question, and though it does not directly relate to our topic, yet keeping in view its profound importance, we end this dissertation while attempting to answer this question.
Revenue for Development
Before we proceed to answer this question, it is important to appreciate that Islam drastically reduces a major part of non-development expenditures of modern day states through a mandatory requirement for those in authority namely: their standard of living must be equal to that of a common man. Furthermore, Islam strictly enjoins the government to plan its expenditure according to its income. It totally forbids an economy which is based on debt, ie, planning a state’s expenditure beyond its income and covering the deficit through other means. However, in emergency situations, the state has a right to appeal to its public for money. Of course, this appeal will only have an effect if the government has established its credibility, and history bears witness that whenever a state whose rulers and administrators lived like commoners and administrated justice appealed for wealth in times of need people presented them with all the wealth they could spare.
In our opinion, the above stated regulation about those in authority, the total elimination of interest in the economy and the imposition of the true concept of zakat will not only generate enough money to meet the running expenses of the state but a considerable amount for development as well. However, a major part of the revenue for development would be obtained by means of all state owned enterprises whose management would be transfered to the private sector through either or both of the following two modes10: (i) selling a certain quantity of shares to the private sector, (ii) imposing kharaaj (tribute) on the party of the private sector which is entrusted with the job of management.
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1. His work “About the Office of
the King and the Good Prince” (De regis et boni principis officio) gives
financial questions more serious treatment than they had probably ever
received before.
2. On non-Muslims, however, who have become citizens of an Islamic state after being subdued through a war, Jazya and other taxes can be imposed.
3. Consequently, Hadhrat Abu Bakr, when he waged war against those who were desisting to pay zakat stated unequivocally: ‘The Almighty has said: Hence if they repent, establish zakat and pay zakat, leave them alone. By God! I shall neither ask for more nor less.’ (“Ahkaam-ul-Qur’ān”, Jassaas, Vol 3, Pg 82)
4. It must be borne in mind that the tradition ‘Indeed in the wealth [of people] there is a share [for the society]’, (Tirmazee: Kitab-uz-zakat) often quoted in favour of taxes other than zakat actually implies a different meaning: it urges a Muslim to spend as much as possible in the way of Allah after paying the mandatory amount ie zakat.
5. If a need arises these personal belongings can be specified by an Islamic government and a law enacted on the basis of the Qur’ānic verse: ‘Eat and drink and do not commit excesses’ (7:31).
6. Exactly on these grounds, to encourage the rearing and breeding of horses in Arabia, where camels were mostly used, the Prophet (sws) exempted horses from zakat. Similarly, vegetables were exempted from zakat because at that time there existed no arrangement for their storage over long periods of time.
7. Zakat on industrial produce must, by analogy, also be imposed at the same rates as those of agricultural produce.
8. It should be clear that the kharaaj imposed on land by Hadhrat Umar was not a tax but actually a form of rental income on state owned lands. Similarly, fai, khums and other similar sources of the Bait-ul-Maal are forms of state income and have nothing to do with taxation.
9. For details see “Taudheehaat”, ‘Masala-i-Tamleek’, Amin Ahsan Islahi.
10. Since this recommendation is actually an integral part of a proposed interest-free economic framework as formulated by our mentor, Mr Javed Ahmad Ghamidi, it would be appropriate to present the other relevant details of this framework as well. It is essentially based on the following three-faceted scheme:
(1) All institutions which provide capital on loan should be completely abolished, and all Banks should be converted into various branches of the Public Treasury (the Bait-ul-Maal), where people can deposit their savings. These branches shall provide protection, exchange and other similar facilities. In return for this service, the deposited money will be invested only in industrial, commercial, agricultural and welfare projects of the public sector with the precondition that without being given any profit on the original amount, the depositers would be returned their money whenever they demand it. This broad-based public sector shall be planned by the government keeping in view the collective requirement and welfare of all the people. It shall finance all projects which need huge investments as part of its basic obligation towards the public.
(2) The public sector so created shall not be run by the government. Leaving it in state ownership, its running and management shall be entrusted to the private sector by adopting either or both of the following two modes, depending upon the circumstances: (i) selling a certain quantity of shares to the private sector, (ii) imposing kharaaj (tribute) on the party of the private sector which is entrusted with the job of management. However, if necessary, the government can keep certain ventures of public interest, like the ordinance factories or the mass media under its own management.
(3) Individuals in the private sector who intend to set up their own business shall be freely allowed to do so. They can pool their money to form a joint venture and employ other means to procure funds. Joint Stock Companies can also play their role in the set up. However, no financial institution shall be allowed to mediate and advance loans. Also the only form of absentee partnership permitted would be one in which people can directly become shareholders in various projects of the private and public sector.
For further details see “Renaissance”, May 1992, ‘Outline of A New Economic Framework’.