ZAKAT The Wealth Purifier

By ARSHAD SHAIKH

Courtesy: Radiance Views Weekly Delhi

http://radianceweekly.in/portal/issue/nia-credibility-at-stake/article/zakat-the-wealth-purifier/

[Arshad Shaikh PMP is an Electronics Engineer from Pune and holds a Green Belt in Six Sigma from ASQ. A telecom industry veteran, his passion is to write on current affairs, economics, humanities etc. from an Islamic perspective. email: bismillah@gmail.com twitter: @Arshadzzzz]

According to estimates, Muslims all over the world spend $200 billion to a trillion dollars on the poor every year through the medium of Zakat – one of the five pillars of Islam. Contrast this with the total UN budget of $5.5 billion, including all the charity and humanitarian projects the United Nations undertakes. And yet the abysmal level of poverty found among Muslims in a lot of countries demands the need for academic research and introspection on the method of collection and distribution of Zakat.

PURIFYING, NOT TAXING

The lexical meaning of Zakat is “cleanliness, gradual increase, excess, praise”. Allah says in the Holy Qur’ān: “Take, [O, Muhammad (peace be to him)], from their wealth a charity (Zakat) by which you purify them and cause them increase, and invoke [Allah’s blessings] upon them. Indeed, your invocations are reassurance for them. And Allah is Hearing and Knowing.” (Qur’ān 9:103)

In Islam the concept of personal wealth is quite different from secular and materialistic worldviews. A Muslim believes that his wealth is something that is entrusted to him by Allah. He has not earned it through his intelligence and hard work, rather his wealth is only under his temporary custody and he is obliged to spend that wealth in a manner mandated by Allah Who remains its original Owner and Proprietor. Thus a Muslim does not get a feeling of being taxed when he is ordered by Allah to pay 2.5% of his annual savings towards the poor and needy. Zakat is not a tax that one tries to dodge but remains a sought after decontaminant and a purifier of one’s wealth.

TAX EVASION AND

ZAKAT COMPLIANCE

Tax evasion is the illegal evasion of taxes by individuals, corporations and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions. In a Bloomberg story on global tax evasion it was reported that more and more citizens around the world are avoiding taxes by operating businesses off the data grid.

The boom in “shadow economies” leaves government insufficient revenue to provide adequate public services, whether that means health care, roads, education, or even better tax collection. In fact, it is estimated that in 2007, in 162 countries, an average of 35.5 per cent of official gross domestic product slipped through the cracks not counting any fruits from such illegal activities as drug dealing or organised crime. Although there is no secondary data available that would point to accurate levels of global Zakat compliance by Muslims, the growing figures of total Zakat collected can safely allow us to assume that it is not as bad as regular tax evasion.

WHY 2.5% FLAT RATE?

The proponents of a flat-rate tax system say: “In a flat-rate tax regime all are equal. All pay the same percentage taxes, thereby keeping it fair. A person who makes $100,000 a year paying 20% taxes pays $20,000. A person who makes $50,000 a year paying the same 20% tax rate, pays $10,000. Otherwise with a variable or progressive tax system the very wealthy pay less and less per cent the more they make.”

Those opposed to the flat-rate tax system say: “A flat tax unnecessarily punishes the poor and is a terrible idea. A flat tax punishes the poor because the percentage of tax represents much more of their usable income. For example, if you make $100 and there is a flat tax of 30%, that leaves you with only $70 for living expenses. If you make $1000, the flat tax leaves you $700 for living expenses. Obviously, the person that makes more is not as affected by the tax because they have so much left after taxes. This makes the poor poorer and the rich richer. Taxes should be progressive, charging more to the richer and less to the poorer.”

Islam has struck a beautiful balance in the way it levies Zakat by imposing a flat 2.5% rate but it has done so only on the people it considers Sahib e Nisaab (those Islam considers to be rich enough to pay Zakat). To determine the Nisab, there are two measures: either gold or silver. Gold: The Nisab by the gold standard is 3 ounces of gold (87.48 grams) or its cash equivalent. This will vary with the current market value of gold. Silver: The Nisab by the silver standard is 21 ounces of silver (612.36 grams) or its equivalent in cash.

ZAKAT AND

THE WELFARE STATE

A welfare state is a concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life.

The Holy Qur’ān stipulates the distribution of Zakat : “Zakat expenditures are only for the poor and for the needy and for those employed to collect [zakat] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveller – an obligation [imposed] by Allah. And Allah is Knowing and Wise.” (Qur’ān 9-60).

Allowing Zakat funds to be used for the salaries of those who collect Zakat, is an indirect indication to the fact that Zakat has to be collected by the state and disbursed to those indicated by the Qur’ān and the Prophet Muhammad (peace and blessings of Allah be to him). The two main categories who receive Zakat are: (1) The poor (Fuqara) – This refers to someone who has no income. The sheer volume of Zakat funds collected centrally will help formulate a long term plan for poverty alleviation and will help make the poor stand on their own feet. (2) The needy (Masakeen) – They may be who, for instance, may have a job, a house and a car, but their income is below the minimum requirement. Zakat funds can run projects like employment guarantee schemes, minimum wage programmes, car and housing interest free loans, thus improving the quality of life for its citizens. Thus we see that purifying one’s wealth by paying Zakat not only leads to more equitable distribution of wealth but also leads to a welfare state where everyone avails of the minimal provisions of a good life.