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Zakat and Tax : Conceptual Difference

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This informative article covers similarities and dissimilarities between Zakah and Tax, legality of Raising Taxes in addition to Zakat, the concept of probable Taxes in an Islamic State and Assets on Which Zakat is Payable.  Interesting readers may enjoy this and clear their concept. Written by- Shah Abdul Hannan (Former Secretary, Ministry of Finance, Govt. of the People’s Republic of Bangladesh. )…

 

” Zakah” in the lexicon means a thing which increase gradually. Lisanul Arab1, a major book on

the meanings of Arabic words, explain it as “cleanliness, gradual increase, excess, praise”. In the

technical Shariah meaning, Zakat means that part of wealth whose payment has been made obligatory by Allah and His Prophet (SM). Similarly, giving of specified part of the wealth who are entitled to get it, is also called Zakat.2

Giving this wealth is called Zakat because it cleanses the heart and mind of the payer, it cleanses also his wealth ( in the ultimate economic analysis). It gives increase to the poor in the sense that he gets something for his benefit and his mind is satisfied which is a psychological increase.3

On the other hand, Tax is an obligation imposed by the state on the citizens. Taxation is required to cover government expenditure. For a long time, governments imposed taxes to raise revenue only to cover the cost of administration and defence, and in the case of despotic monarchs for personal expenditure of the ruler.4 Now a days, taxes are no longer levied for defence and administration only, but also for the purpose of furthering social and economic policy of the state.

Similarities and Dissimilarities Between Zakat and Tax

There are some important similarities and dis-similarities between Zakat and Tax.

Similarities

  1. Zakat is liable to be collected by force like tax, if the payer does not pay it willingly. This position is applicable where the state compulsorily collects Zakat, and in modern days, has legislated accordingly. The Quran and the Sunnah make it very clear that it is the obligation of an Islamic state which follows Islam to collect Zakat. An important proof in this regard is the decision of Hazrat Abu Bakr (R.A.), the first head of the state of the Islamic Khilafat, to wage war against those who denied to pay Zakat to the state.5

2.Zakat collected in an Islamic state has to be kept in the state Treasury, in a separate account, like tax. Zakat is collected by the state through Zakat officials (Amelina Alaiha). However, if Zakat is collected by Non-government organizations or communities, these should be kept safely as in the case of any public fund.

  3.Zakat, like tax, is paid though there is no direct and equivalent economic benefit is obtained by the payer This is a different matter that Zakat payer expects return in the life hereafter and the tax payer may receive some service from the state in return but there is no direct co-relationDissimilarities

  1. There are also important conceptual and other differences between Zakat and Tax. Primarily, Zakat is an Ibadah (act of worship) which Allah has made compulsory on human being, to express gratitude to Him and to obtain His nearness (Taqwa). Tax is not the same thing as Zakat. Tax is a social obligation without having special sense of gratitude to Allah or to obtain nearness to Allah while Zakat is essentially a matter between Allah and His servants, but tax has been primarily a matter between citizens and the state authorities..

 

  1. Zakat is based on Nisab, any wealth below a limit is exempted from Zakat. This is not true in case of many taxes in modern times. Concept of exemption is there in case of tax but it is applicable only when and where the Government or Tax authorities specifically prescribe.

 

  1. Zakat is a permanent and regular system. None can change it in any way. On the contrary, most of the taxes undergo change from time to time.

 

There is difference in the objective and intent between Zakat and Tax. As Allah has said,

“Take from their wealth Charity (Zakat) so that thereby you make them clean and pure and pray for them. Your Prayer (for them) is a source of comfort for them. Allah is All hearing, All-knowing” … (Tauba : 103)

The intent of Zakat is to make wealth pure ( in moral sense) and cleanse the heart of human beings from greed and hoarding. The object of Zakat is spiritual as well as economic. But the object of tax is much more mundane and worldly. Tax could never achieve the moral and spiritual objectives of Zakat in any time of history.

There is difference between Zakat and tax in respect of the utilisation of respective fund whereas tax can be spent for any purpose. Zakat is meant to be spent for specified objectives which are mainly provision for the poor (poverty alleviation), to free debtors from the debt, to free the people in bondage, for the way farer and for the good of the people i.e. Fi Sabi Lillah.6

3. Legality of Raising Taxes in Addition to Zakat

Whatever were the differences in the early writings of Fuquaha (Jurists) of Islam in early period of Islam, there is no serious disagreement among the Fuquaha or Islamic Economists of the current time, as regards of the legality of imposition of taxes in addition to Zakat. Rather a consensus is likely to be prevalent in this regard. Current writings of Islamic Economists, Fuquaha and recent books of Fatwa of the competent Ulama justify this view.

Dr Yusuf Al-Qaradawi in his monumental work Fiqh-uz-Zakat (Law of Zakat) has given the following arguements in favour of imposition of Taxes by Islamic states, if needed :

Firstly, in his chapter on “whether there is right on wealth other than Zakat”, it has been stated that jurists have, by and large, agreed on this point that in the case of genuine need for Muslims, tax can be imposed even after Zakat.

Secondly, there are needs which cannot be met by Zakat resources i.e. running of general administration, national infrastructure building and so on. This requires imposition of taxes beyond Zakat. Jurists are on the opinion that “which is necessary to complete wajib is wajib (obligatory).

Thirdly, general principle of Fiqh is that “avoidance of damage will get priority over doing of good”. If proper economic duties are not performed by the state due to lack of resources, this will lead to serious public dissatisfaction and create violent situation. As such, the state has to obtain required amount of resources through taxes for carrying out its duties

Fourthly, Allah has made it obligatory to carry out Jihad (defence of Islam and Islamic territory and to put an end to oppression anywhere in this world) through employing one’s life and wealth.7 This is a duty beyond Zakat. To carry out a major Jihad in this age, if needed, there is no other way but to raise resources through taxes.

Al-Qardawi also mentions that evidence against taxes beyond Zakat from the Hadith are either weak or not unequivocal, whereas the evidence in support of dues other than Zakat from the Quran and Sunnah are very strong.8

There is also consensus among scholars now a days, that even if people pay other taxes, the obligation of payment of Zakat does not lapse. Zakat has been made compulsory, in part, on the Muslim citizen in Pakistan, through promulgation of Zakat and Ushr Ordinance,even though the Muslim citizens pay other taxes such as Income tax, sales tax, import tax. However, Zakat paid is deducted from total income liable to income taxation.

The same provision has been made in Zakat Ordinance of Bangladesh though Zakat payment here is optimal . The Ordinance and the rules made thereunder provide for the items liable to Zakat, Nisab thereof and the rates of Zakat. The Zakat rules of Bangladesh is given in Appendix-A . In Bangladesh also, Zakat Payment does not mean that the payer can escape other taxes

There is no reason why other taxes would not be paid if Zakat is paid, because the purpose of Zakat levy and the purpose of taxation, as discussed before in the paper, are very different. Zakat can not meet the need of general revenue.

4. Probable Taxes in An Islamic State

What sort of tax can be levied under Islamic system after payment of Zakat ? In my view, all sorts of taxes in whatever name can be levied under Islamic system, as long as revenues are needed for the development and defence of the country and for social welfare.

It is not necessary to levy special tax on the non-Muslims. As long as the non-Muslims pay taxes like Income tax, Customs duties, Value Added Tax,etc. as token of their obligation and obedience to the state, there is no need for a special tax only on Non-Muslims. Islamic states of Iran, Pakistan, Saudi Arabia,do not think it necessary to impose a special tax on Non-Muslims in particular name.

This is also the view of the great jurist of the current age Dr. Yousuf Al-Qaradwabi. He mentions that Umar bin Al-Khattab, the 2nd Khalifa of Islam on the request of the Christians of Banu Taglib dropped ‘zizia’ and imposed another tax (as at that time there was no modern tax payable by all). Dr. Qaradawi wrote, ” Real situation of present time is that the non-Muslims do not want to pay Zizia. No Muslim state is realising this also. They can pay another tax equal to Zakat. It is not necessary to name it as Zizia…………………… “9

Hazrat Umar (RA) wanted to realise ‘Zizia’ from Banu Taglib. Hazrat Numan Ibn Zuraa (RA) said “Banu Taglib is an Arab tribe, they did not like to pay Zizia……….”, then Umar imposed another tax ……….. Imam Abu Obaid had written that he (Umar) took from Banu Taglib tax but did not keep the name of ‘Zizia’, but kept the name ‘Sistanit Sadaqah’…… It has been mentioned in the tradition that “Allah has planted truth in the tongue and heart of Umar …….. Imam Abu Ubaid says, it is one of the most beautiful acts of Umar (Kitabul Amwal).10 (Dr Monzer Kahf during discussion on the paper mentioned that Zizia is not revelent in the modern states as these are not conquered territories rather these states mostly have been established by the joint struggle of the Muslims and non-Muslims. Syed Abul-Ala Maududi has also stated in his book “Rasail Wa Masail” (Vol. IV, page 158, Bangladesh Edition published by Syyed Abul Ala Maududi, Maududi Research Academy, Moghbazar, Dhaka) in response to a question on rights of Non-Muslims that Zizia is applicable only in case of citizens of conquered territories and not applicable to the non-Muslim citizens of country like Pakistan and Bangladesh).

  1. Conclusion

 

As we have seen one of the major objectives of Zakat is poverty alleviation. The issue is, can Zakat be spent on Non-Muslims for this purpose. Though a number of Jurists have viewed that Zakat can be spent on non-Muslims, the majurity view is that for poverty alleviation of Non-Muslims non-Zakat resources should be spent. There is no disagreement on the point that poverty alleviation and welfare of non-Muslims is an important concern for an Islamic state.

In my view Zakat receipt would be sufficient in most of the countries which have attained mid-level development in making provision for the poor and the unemployed. It may not be sufficient in some countries where there is massive poverty. These countries need other resources to tackle the problem of poverty.

Footnotes

10 Lisanul Arab,

2 Dr Yusuf Al-Qaradawi, Fiqhuzzakat, Vol.- I, Introductory discussion.

3ibid, Vol-1, Dr Yusuf Al-Qaradawi, quotes Imam Taimia, Imam Nabwi and others in this

regard

4 A Text book of Economics, J.I. Hanson, Chapter-30 on Public Finance.

5 Syed Amir Ali, the History of Saracens, also books of Hadith.

6Al-Quran – Sura : 9, Ayat : 60

7 Sura Tauba : 41, Sura Hazrat : 15, Sura Saf : 11 and many other verses of the Holy Quran.

8 Fiqh-uz-Zakat, Vol-2]

9 Dr Yusuf Al-Qaradawi, Fiqhuzzakat, Vol.- I, “Zizia” Section.

10 Dr. Yusuf A-Qaradwabi, Law of Zakat, Vol.1, Chapter-2.

ANNEXURE – I

MINISTRY OF LOCAL GOVERNMENT

RURAL DEVELOPMENT,CO-OPERATIVE & RELIGIOUS AFFAIRS

Religious Affairs Division

OFFICE OF THE ZAKAT BOARD, DHAKA (NOTIFICATION)

Dhaka, the 24th August, 1983

No. S.R.O.332-L/83 – In exercise of the powers conferred by section 15 of the Zakat Fund Ordinance, 1982 (VI of 1982), the Zakat Board, with the prior approval of the Government, is pleased o make the following rules,, namely :

The Zakat (Collection and Utilisation) Rules, 1983

1. Short Title – These rules may be called the Zakat (Collection and Utilisation) Rules,1983

2. Definition – In these rules, unless there is anything repugnant in the subject or context, –

a) “designated bank” means such bank or banks as may be designated by the Board; and

b) “nisab” means the minimum number, quantity or amount of assets the possession or     ownership of which makes a person liable to pay Zakat in accordance with Shariah.

3. Assets, Rate an ‘Nisab’ for Payment of Zakat – The assets on which, and the rate at which, Zakat, Zakat is payable shall be such as specified in columns 2 and 4 of the Schedule annexed to these rules and the ‘nisab’ for payment of Zakat shall be such as specified in column 3 thereof.

4. Payment of Zakat – All payments to the Zakat Fund shall be made in any branch of the designated bank for credit to the account of that Fund maintained in such bank.

5. Central Collection Account –

(1) There shall be a central collection account of the Zakat Fund to which all deposits in the     Zakat Fund in different branches of the designated banks shall be transferred.

(2) The accounts of central collection account may be opened in one or more designated bank   and shall be maintained in the name of the Board.

(3) The central collection account shall be operated by the joint signatures of the       Administrator and such other member as may be decided by the Board.

6. Utilisation of the Zakat Fund :

(1) The moneys credited to the Zakat Fund shall be utilised, among others, for the following     purposes, namely :-

a) to institute scholarships or stipends for such poor students who or whose parents possess     no property whatsoever, or possess only such property as it does not constitute a ‘nisab’.

b) to help orphanages, dispensaries, vocational training institutes, etc., for maintenance of or   for rendering medical assistance or training, as the case may be, to such poor or destitute     who are eligible to receive Zakat money in accordance with Shariah; and

c) such other purposes for which Zakat money may be utilised under the Shariah.

(2) The allocation of funds for the purposes specified in sub-rule (1) shall be made by the  Board.

7. District Zakat Committee

(1) There shall be a Zakat Committee in each district to be called the District Zakat       Committee consisting of the following members, namely :

a) Deputy Commissioner of the district or, in case of his being a non-Muslim, a Muslim   Additional Deputy Commissioner to be nominated by the Board, who shall also be its     Chairman.

b) Officer in Charge of the Local Islamic Cultural Centre, who shall also be its Secretary; &

c) such number of other members not exceeding seven to be appointed by the Board.

Provided that two-third of the total number of members shall be from amongst Muslim Scholars

(2) The members of the District Zakat Committee appointed under clause (c) of Sub-rule     (1) shall hold office for a term of three years.

(3) Any member of the District Zakat Committee may be removed from office by the Board     at any time without assigning any reason.

(4) The District Zakat Committee shall be responsible for distribution in the district of the     allocations made by the Board for the purposes mentioned in rule 6 in accordance with     such directives as may be issued by the Board from time to time.

8. Up to fifty percent of the money credited into Zakat Fund from each district and transferred to the Central Zakat Account as aforesaid shall be placed at the disposal of the District Zakat Committee for distribution locally for the purposes mentioned in Rule 6 above.

9. Zakat Year – For the purpose of maintaining accounts of the Zakat Fund under the Zakat Fund Ordinance,1982 (VI of 1982), the lunar year commencing on the first day of Ramadan and ending on the last day of Shaban shall be a Zakat Year.

  1. Annual Report – The Board shall, as soon as possible, after the end of every Zakat year, publish a report on its activities during the preceding Zakat Year including a statements for that year.

 

[ By order of the Board]

Administrator,

Zakat Fund and Ex-Officio Secretary

Zakat Board
THE SCHEDULE

(See Rule- 3)

Sl.No Assets on Which Zakat is Payable Nisab for Payment of Zakat Rates at Which Zakat is Payable
1.2.3.

4.

5.

6.

7.

 

Cash in hand or Bank; share certificate; bond and the like (face value); amount received on maturity or as survival benefit or on surrender from life insurnce during a year; amount received on final settlement or on non-refundable withdrawal from provident fund during a year.Gold, Silver, precious metal, ornaments of gold and SilverStock in trade of commercial and industrial undertakings.

Agricultural producer … … … … … …

Animals … … …. … … … … … ..

a) Sheep or goat; … … … … … …

 

b) Cows,buffaloes or other bovine animals

Mineral production … … … … … …

Other assets …. . …… …………………

 

Value of 52.5 tola of silver7.5 tola in case of gold; 52.5 tola in case of silver; and value of 52.5 tola silver in case of gold and silver mixed.Value of 52.5 tola silver

5 wasaq or 948 kilograms per crop

40 (forty)

30 (thirty)

Any quantity

As per Shariah

 

2.5 % of the amount2.5 % of the market value.2.5% of the book value or market value (at the option of Zakat payer.

10% of produce in case of non-irrigated land and 5% of produce in case of irrigated land, or value thereof.

i) for owner of 1 – 39 heads : nil

ii) for owner of 40 – 120 heads : 1 sheep/goat

iii) for owner of 121 – 200 heads : 2 sheep/goats

iv) for owner of 201 – 300 heads : 3 sheep/goats

v) for owner of every complete : additional hundred head …………. 1 sheep/goat be added.

i) for owner of 1 – 29 heads : nil

ii) for owner of 30 – 39 heads : 1 year old calf

iii) for owner of 40 – 59 heads : 2 years old calf

iv) for owner of 60 head or more : 1 year old calf for each 30 heads

20% of the market value of mineral excavated

As per Shariah

[By Order of the Zakat Board]

Administrator, Zakat Fund & Ex-Officio Secretary, Zakat Board.

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