The Islam religion in addition to giving spiritual guidance, also gives economic guidance one of which is the Zakah. Zakah is listed among the five pillars forming the basic foundations of the religion of Islam; it is the third of the five. The word ‘Zakah’ in Arabic means to be purified, to grow and receive blessings. In some texts it is also referred to as Zakat.
Khan describes Zahra as a mandatory levy paid on wealth and agricultural products that are in excess of a specified minimum (the nisab) (Islamic Economics and Finance 195). During the time of Prophet Muhammad, there was a list of the nisab for each asset one could own for example the nisab for gold was 85grams and the nisab for silver was 595grams.
At that time value 595grams of silver was equivalent to the value of 85grams of gold. Times have changed and gold and silver are no longer used as currency. We now have paper money. The value of silver has decreased while that of gold has remained almost the same. Muslim scholars differ on whether to use the nisab of gold or the nisab of silver when calculating the nisab for the current currencies.
Those who support the nisab of gold to be used argue that its value has remained the same over time. Those who argue for the nisab of silver argue that it would be of more benefit to the poor if the nausea of silver is used. Using the nisab of silver will lower the minimum hence increasing the number of people to pay Zakah and hence increasing the amount of money.
The nisab of silver is used in some countries like Saudi Arabia; although the nisab of gold is the most common (Khan 1994). Therefore, Nisab’s value is directly dependent on the retailing price of gold (or silver for the countries that use the nisab of silver) in the world markets as it is equal to a specified amount of gold. In 2012, it was an equivalent of USD$5200.
The nisab should be calculated based on the price of gold on the day that the individual pays the levy. The regulations governing the collection and spending of this fund are based on the Quran and the Hadith; works attributed to the Islamic Prophet Muhammad but are not found in the Quran. In some countries the calculation of nisab is based on the poverty level of the country rather than the price of gold or silver (Ahmad 2010).
The levy has a lot of importance in the Islamic faith. In the Quran it is equated to prayer. The funds collected are given to the needy and therefore act to bridge the differences between the rich and the poor. This levy leads to the development of the economy as the rich cannot just keep their wealth as it will continue decreasing over time as the levy is imposed, thus it forces them to invest (Ahmad 2010).
It develops in people the virtue of generosity and condemns selfishness. It prepares one to get used to the act of giving and when they are required to give up all their wealth for the act of faith they will be ready to do so. Muslims believe that all wealth belongs to Allah and humans are just entrusted with the wealth. They are therefore required to use the wealth as required by the owner.
Giving reminds them not to lay too much emphasis on material wealth. Making the contribution purifies wealth and souls of those who give (Khan 1994). Zakah is not based on all the property one owns since some wealth is considered taxable while other types of properties are exempted from the levy. Wealth that is considered taxable include; livestock, minerals, investments in business including stock, and agricultural products while properties for personal and home use such as furniture and houses are tax exempt.
Property that does not have a specific owner such as taxes collected by the government is exempt from Zakar as it is used for the benefit of everyone including the poor. Property and businesses that are owned by the public such as schools and mosques are also exempted from the levy. An individual cannot pay Zakah on property that was acquired through stealing, corruption or cheating.
The property does not belong to them they therefore cannot pay Zakah for it. Muslim scholars make it clear that if an asset is not named in the Quran or Hadith as Zakatable it does not mean that it is exempted from the levy. The Prophet Muhammad who was the founder of Zakah only mentioned in his works assets that were available during his time.
As people continue to develop new products the zakatable products should be revised in accordance with the current trends. Zakah is usually paid as a percentage. The percentage of Zakah to be paid varies with the type of asset for which one is paying the levy. It is 2.5% of profits from investment and income from work; 5% of Agricultural products that are irrigated; 10% of agricultural products that do not require irrigation or are watered by natural means such as the rain and 20% for minerals.
The percentage is a minimum of what should be paid, if someone is willing to pay more, they can. Wealth has to meet some requirements before the owner pays the levy. The levy is based on the wealth that is with the owner for a lunar year; 355days.An individual begins counting the days once his wealth exceeds the nisab. Agricultural products are an exemption to the rule of the lunar year; Zakah is paid after harvesting.
Zakah for mineral wealth is also paid after acquisition of the mineral and not annually. The levy is imposed only on goods that are developing and increasing. The rule requiring that an asset has to be growing to be zakatable has some limitations; individuals who intentionally make their wealth not to grow are required to pay Zakah. Prophet Muhammad warns such people and calls them lazy.
Wealth that is not growing as an exemption to payment of the levy is limited to people whose property has been stolen or destroyed or whose lack of growth is due to the characteristics of the asset and not the individual’s choice. The goods also have to be under the individual’s control, debts owed are not included in the calculation. Gold or other precious stones that are in the form of jewels are exempted from the levy as long as they are used for the purpose of looking good and not for business.
In the case of land that is used for Agriculture, if it is in the hands of the owner, then the owner pays the levy. In the case that the owner rents out the land without payment, the person who uses the land for farming will pay the levy. Debts are another area where the payment of the levy is unclear. The debtors cannot pay the levy as the money is not rightfully their neither can the creditors because the money is not under their control.
In this century loans which fall under the debt category are common, Muslim scholars differ on opinions whether one should pay the levy for loans or not. It becomes more difficult when one has loans on assets that are tangible. Some people argue that the creditors should be levied as the property belongs to them while others argue that the debtors should be levied as they are in possession of the asset.
Levying taxes on both of them will be against the Muslim laws (Shariah) which warn against duality. Duality in Shariah is defined as dual payment where an asset is levied more than once in the same lunar year. Another issue that has come up with this century is savings such as retirement benefits. The payment of the levy will vary depending on whether the savings are within the control of the individual or they are within the control of the employer.
In the case that an individual is paid retirement benefits, he would be required to pay Zakah when he is given the money. The Quran and Hadith give a description of who should pay the levy. The individual has to meet the requirements of nisab. The individual also has to be an adult of sane mind; children and mentally ill are not required to pay.
There is debate on whether children and the mentally ill can pay Zakah. The Hadith requires that children cannot pay until they reach puberty and the mentally ill cannot pay until they recover. Those who support that the levy should not be imposed on children and the mentally ill argue that it’s an act of worship and therefore requires one to be willing.
The intention is compromised in children and those with psychiatric illness. They also argue that those who have a compromised state of mind cannot develop their wealth. Those who are arguing that those who have a compromised state of mind should be taxed say that the Quran does not provide any exemptions for them (Ahmad 2010).
The individual has to be Muslim in order to make the contribution. Non Muslims are required to pay Jizyah. Zakah is an act of worship and belief in the religion; it therefore cannot be paid by someone who does not believe. In the case that a non believer converts to Islam, he cannot be asked to pay Zakah for the years he did not believe in the Islamic faith.
In some states a tax an equivalent of the Zakah is levied on non Muslims to ensure economic balance. The individual to pay the levy has to be free; Prisoners are exempted from the levy (Ahmad 2010). Zakah is considered mandatory for all Muslims. The Quran also requires that one does it voluntarily. In the case that an individual is too mean and refuses to pay, the state has the authority to collect the payment by force and impose a penalty on the individual.
The penalty is equivalent to half of the defaulter’s wealth. A group of people may decide to evade the levy. War should be declared on them as they would be considered to have rejected the Islamic faith. Some people claim that this law was used during the establishment of the Muslim religion and has since been done away with.
There is no evidence to the effect that the law was nullified and therefore most states are considered to have a right to forcefully collect and to impose penalties on those who have defaulted. Those who evade paying the levy will face the wrath of Allah on the Day of Judgment. Those who evade payment are not considered part of the Muslim brotherhood unless the individual is ignorant of the requirements of Zakah or is new to the Islamic faith (Ahmad 2010).
When calculating the percentage of Zakah to be paid, the individual first calculates all his assets and subtract liabilities. The difference should be more than the price of 85grams of gold. The Individual can then group assets of the same kind together and get the percentage of the total. In the case of money, 2.5% of the total amount of money he has.
The laws of Islam prohibit grouping of different kind of wealth when calculating the percentage profit. The laws of Islam discourage double payment of Zakah. An asset can only be levied once in a lunar year. Zakah on investments is based on the profit and not on the total amount while the Zakah on money and cattle is based on the total amount of assets. Products that are not money such as cattle should be calculated based on the market price at the moment (Ahmad 2010).
Zakah is collected through various means; in some countries it is collected by the state while in others it is collected by organizations specifically for that purpose. The Hadith gives regulations for state collection of the fund. Ahmad says that in as much as the state may collect the contribution, the laws of Muslims require that it should be separated from the national budget (49).
The separation is done to ensure that the money collected achieves its purpose of helping the needy. Payment of Zakah can be traced back to when the Muslim religion was established. Its origin is from the Islamic prophet Muhammad. Khan says that Zakah has existed in all Muslim societies throughout history although during the colonial period it was neglected but it was later restored following the Second World War (An Introduction to Islamic Economics 81).
The main objective of collecting this fund is to provide support to specific groups of people especially those in the lower socioeconomic status. The Quran gives a list of those people who qualify to receive funds collected through this levy and they include; those in need, street children, people who have gotten debts when trying to earn an honest living, individuals who want to convert to the Islamic religion, travelers who have encountered difficulty, debtors, The people who collect Zakah and people who work for Allah (Ahmad 2010).
The needy are those whose assets are below the nisab and those whose property cannot cater for them for the whole year. The poor on the other hand are described as those who have no assets and do not have the capability to work to earn a living. The fund is given to those in debt only if the debts were incurred when they were seeking to satisfy their basic needs (Khan 2012).
Those who incurred debts through gambling or mismanagement of money do not qualify for this fund. This fund is also given to those who fight in the Holy War. Travelers are defined as those who are far away from their homes. In the past slaves also qualified for this fund but they are no more slaves. Allowing collectors of the fund to take part of it ensured that they are not tempted to steal or mismanage the fund.
Some funds were donated to people who wanted to convert to Islam to aid in spreading the religion (Khan 2012). The Hadith prohibits investment of the money collected through the means of Zakah. The money should be given directly to those in need. The family of the prophet Muhammad and his descendants are prohibited from benefiting from this fund.
The Hadith warns that there would be punishment for people who receive funds from Zakah collection yet they are not qualified. It also warns the collectors not to take more than they deserve. There is debate on whether poor people who are not Muslim can qualify for the fund. Some states prefer that before the fund is given to non Muslim; all the Muslim needs should be met.
In addition to the uses listed in the Quran, the fund can also be used for administration purposes in Organizations that manage the fund (Ahmad 2010). According to Muhammad Khan, Zakah has not achieved its expectations because of the limits imposed by governments. Zakah is also not well managed due to a lack of proper methods of accounting and inadequate monitoring.
These are the problems frequently encountered by institutions collecting this fund and should be addressed to ensure Zakah meets its expectations (81). A case in point is Pakistan, they began a centralized way of collecting the fund but to date they still have problems like interruptions in the collection and distribution of the funds (Khan 2012).
The levy is distinguished from other kinds of religious payments by various ways. Most religious contributions are voluntary, Zakah is mandatory. Unlike the other payments, which even the poor can make, this is paid by a specific group of people. The spending of other forms of payments is based on the agreement of the religious leaders. The spending of funds collected through this means is dictated by the church.
In the event that one does not pay other voluntary religious contributions, no punishment is imposed on them. If a person who is Muslim refuses to pay Zakah, they are given a penalty which is half of their wealth (Khan 1994). In summary, Zakah is an obligatory contribution of Muslims who fulfill the requirements of Nisab. Its main function is to help the needy in society and a means of giving back to Allah the greatest.
There are many issues that have changed since the time Zakah was founded by The Islamic Prophet Muhammad to date. The means of collection and the distribution have to be reviewed to be in line with current trends. This should be done in a way that ensures that the reason for the collection of the fund is still met.
Ahmad, Abu Umar Faruq. Developments in Islamic Banking Practice: The experience of Bangladesh Boca Raton, Florida: Universal Publishers, 2010. Print.
Khan, Muhammad Akram. An Introduction to Islamic Economics, Pakistan, Islamabad: IIIT, 1994. Print.
Khan, Muhammad Akram. Islamic Economics and Finance: A Glossary, New York: Routledge, 2012. Print.