Thoughts on Economics Vol. 20, No. 03 Horizon of Zakat ─ Beyond the Realm of Religious Tax Fauzia hamid Abstract: Economic security plays a vital role in human life. An individual becomes economically secure when his basic needs are met. This again, necessitates high levels of production and employment in an economy. Accordingly, the government of a country, while playing a pivotal economic role, uses different kinds of fiscal tools. Tax is one of such tools. A counterpart tool in Islamic public finance is zakat which is generally considered merely a religious tax. The proposition of the present paper is that, nowhere in the world, in any religion, in any social system or in any economy, an instrument like that of zakat in Islam so vastly significant will be found. In its economics zakat is highly pervading and circumscribing as it has the potential to play a multi-dimensional role and objectives to achieve through its strong macroeconomic implications. As a social principle, it is unique in its nature of organization, as it is destined to carry out the gigantic task of establishment of social justice through creating a built-in social security system. And ethically, it is a scheme for purifying human souls and thus help establishment of an economy free from the vices generally associated with wealth. This paper is a humble attempt to unveil the reasons behind theologically high ranking in importance of the institution of zakat through an analysis of its significance in the socio-economic and moral-ethical life in Islam and consequently shows how it crosses the boundary of being only an ordinary tool of fiscal policy. I. Introduction 1.1 Economic Security ─ the Most Significant Ingredient of Human Life Since his creation, man is confronted with economic insecurity and is ever active to find out ways and means to attain satisfaction of his wants. Economic security is assured for an individual by some form of income, which is sufficient to meet his basic needs as defined on the basis of some standard. This may come from any remunerative work, from the ownership of assets or from publicly financed safety net programmes. At present, only a small fraction of the world’s population seems to be economically secure in this sense. Many urban people in the rich countries today feel insecure because Associate Professor, Economics Discipline, Khulna University, Khulna. 52 Horizon of Zakat…………….. jobs are increasingly difficult to find and keep, as in recent times, in most of these industrialized countries, the rate of growth of new jobs is failing to keep pace with the rate of growth of the labour force. Moreover, nominal wages though have risen but their value has been sharply eroded by inflation, leading to decline in real wages in many parts of the world. For many people, the only option is self employment; which again is constrained by the low financial capability of the common people. As a result, those at the bottom of the ladder find it difficult to make both ends meet. In the rural areas, the poorest farmers have little access to land; and even those who have some land or option of productive investment, often find it difficult to do it effectively because they have little access to credit. Homelessness is another problem. In many parts of the globe a major portion of the population constitutes what is sometimes called a ‘floating population’. Many of them, however, can rely on family support; yet that system is rapidly breaking down. Hence, without the assurance of a social safety net, the poorest cannot survive even a short period without an income; but in most of the developing countries social security systems are constrained by budgetary limitations. 1.2 The Most Sought for Targets of an Economy Economic security, as defined above, is influenced by the performance of an economy or more specifically by the level of national income of a country. Commonly, saving and spending form two broad income channels for the spontaneous flow of all-round economic activity in a country. Spending makes up what is called effective demand, representing in its turn the potential markets for goods and services. A stimulus to spending, therefore, implies a stimulus to new employments, incomes, products, services, industries, trades and so on. Among other things, the health of an economic system depends directly upon the continuous investment process, which is made possible through saving an appreciable slice of current income. In brief, an appropriate balance between saving, investment and spending help a country make big strides on the road to development1. No doubt, it is very easy to draw a rosy picture of prosperity with the brush of imagination; but truth is always bitter than fiction. Modern capitalistic world, with its mass production and unequal distribution of income, has developed a high savings economy. This unplanned hoarding or in other words savings- spending mismatch is leading to frequent economic collapses that were never encouraged before. Again, in reality, output, employment and price do not move smoothly over time; rather they fluctuate around the trend line. Mild rate of these ups and downs have never been the concern of economists as in most cases they Thoughts on Economics 53 automatically correct without any outside policy intervention. The problem is with prolonged depression and boom; as in these cases, it is a dilemma for the economists to choose the right policy in right time and apply it in the correct place in correct time. Moreover, development is not purely an economic phenomenon; instead it should be perceived as a multi-dimensional process involving reorganization and reorientation of entire economic and social systems. While economic progress is an essential component of it, it is not the only one. Experience of the 1950s and 1960s, when a large number of third world nations did achieve the overall UN growth targets but the levels of living of the masses remained unchanged, signaled that something was very wrong with this narrow definition of development. Hence economic development was redefined in terms of reduction of poverty, inequality and unemployment, and improvement in the spheres of health and nutrition2. Hence, the overall equation, in this context is not that simple. If dearth of production has been the unique reason behind poverty and consequent miseries; then an increase in the same would have been the straight forward solution. In that case, in the transition period, there would have been ‘poverty amidst poverty’ but not ‘poverty amidst plenty’. The reality is pointed out as, ‘Poverty amidst plenty is a striking feature of the American scene. Our nation is the richest in the world, yet millions of people are poor, and millions more that do not live in poverty are poor relative to others. Poverty amidst poverty is easier to understand and even condoned. But in a land of abundance, it is difficult to comprehend why some people are inadequately fed, clothed, and sheltered3.’ It is, therefore, clear that, production growth approach alone cannot do; instead, a comprehensive approach is needed to attain economic efficiency and distributive equity. Accordingly, economic growth, development, economic stabilization, equitable distribution of income, and poverty eradication has become the most sought for targets of mankind; and, an increase in output, employment, investment, and a decreasing trend in income inequality, incidence of poverty and price fluctuation is considered the symbol of a healthy economy. II. Objectives of the Study Tax revenue being the larger part of government receipts and payments has significant influence over the economy; and, therefore, an appropriate tax structure is a pre-requisite for a healthy economy. Islam being a complete code of life has very distinctive policy prescriptions for the economic sphere also. In the field of Islamic public finance, institution of zakat is such a policy. This 54 Horizon of Zakat…………….. study is an attempt to show that, zakat, though generally considered a religious tax, is an institution whose circumference is the widest in the socioeconomic and moral-ethical spectrum of the whole community. The paper, therefore, attempts to establish that zakat is not a single tool but an institution comprising of comprehensive policy package which encompasses not only economic aspect but simultaneously covers sociopolitical and moral-ethical dimensions. Accordingly, the broad objective of the study is two-fold. In the one hand it attempts to analyze how the institution of zakat through its strong macroeconomic implications fulfills the objective of establishing a balanced economy, and through its social implication establishes a just society. On the other hand, it intends to show, how the moral and ethical value embodied in it persuades human being to attain welfare in its true sense. III. Assessment of Zakat as a Tax 3.1 General Principles Underlying Taxation and Social Spending Islamic View Islam does not elaborate a theory of taxation per se, but gives certain core principles to be used in each space and time context to help and guide the state and society meet their objectives and goals. It is in the area of distribution of income and wealth that Islam lays emphasis by providing a list of target beneficiaries and by outlining the fiscal responsibility of the state towards them. Five principles together constitute the basis of taxation and social spending in Islam; which are: bear ability of financial burden, avoidance of concentration of wealth, under-privileged as beneficiaries of government expenditures, spending for social causes and social burden/collective responsibilities to be shared by everyone according to ability4. 3.2 Conception of a Good Tax System Conventional View A tax system, in order to achieve some distinct objectives of an economy needs to be designed on the basis of an appropriate set of principles, called canons of taxation. Four fundamental canons of taxation are: canon of equality, canon of certainty, canon of convenience, and canon of economy. Besides these, there are canon of productivity, canon of buoyancy, canon of flexibility, canon of simplicity, Thoughts on Economics 55 and canon of diversity. In general, the tax structure being a part of the economic organization of a society should fit in its overall economic philosophy; and above all, it should be dynamic in nature. 3.3 Assessment of Zakat from Conventional and Islamic Viewpoints The literal meaning of zakat has been spelled out as to thrive, to grow, to increase, to be pure in heart, to be fit, to purify, to sanctify, to chasten, integrity, guiltless, blameless, sinless, honesty, justify, righteousness etc5. Lisanul Arab explains it as, cleanliness, gradual increase, excess, praise. In the technical Shari’ah meaning, zakat means that part of wealth payment of which has been made obligatory by Allah (SWT) and His Prophet (SAW). Similarly, giving of specified part of the wealth to those who are entitled to get it is also called zakat. That is, it refers to the transfer of ownership of particular assets of reference people (ahle-nisabs) to another particular reference people for the noble cause of divine satisfaction. Zakat possesses all the characteristics of a good tax system as mentioned above. It also conforms to the principles of bearing ability of financial burden, avoidance of concentration of wealth, under-privileged as beneficiaries of government expenditures, generous spending for social causes and social burden/collective responsibilities to be shared by everyone according to ability. In general, Islamic laws are characterized by some distinctive features. They are time consistent, positive, perpetual, eternal, comprehensive, and are free from the influence of human desires and passion or any kind of bias towards any segment of mankind. Zakat, being a divine system, possesses all these qualities, which is sufficient to establish its excellence over any kind of man-made system. Regarding collection of any kind of tax, the most obvious problem, which arises, is that of tax evasion in the form of concealing of income by the taxpayers and rich persons not at all registering them as taxpayers. Contrarily, paying of zakat is treated as a form of ibadah by a faithful Muslim, and therefore, it will be paid up by the payer even in the absence of any external compulsion. Moreover, zakat enhances production, as it is imposed only on those types of wealth, which have the inherent characteristics of growing. As a result, paying of zakat does not seem to be a burden for the payer. The process of collection of zakat is also very much easy, as there is no need to establish tax departments and employ huge number of officials. Moreover, in case of zakat, the burden is not borne by the low income-people, and again, those who bear this burden are not liable to bear it indefinitely (as zakat is payable only by the ahle-nisabs). Conversely, there are many indirect taxes which fall upon 56 Horizon of Zakat…………….. the poorer sections of the society. While dimension of zakat expenditure is comprehensive, as it covers heads like medicare, employment opportunity, housing facility, educational privilege, food and clothing provision, etc. while tax receipts may be spent in any sector as the state wishes. Furthermore, this divine system has deeper economic, social and cultural significance in the entire body politic of the Islamic society and state; as it is intended to simultaneously attain welfare and economic objectives; in comparison, tax has only economic significance and that also is very limited in its dimension. Moreover, while taxes are payment for services received or as beneficiary charges, zakat payment is representative of man’s altruistic character and ethical-moral worth, as by paying of it man doesn’t expect any earthly return from any one. Income tax being imposed on current income, in one sense encourages hoarding. But zakat acts as a deterrent factor against hoarding through channeling such money in the income-expenditure flow of the economy. It thus encourages investment by its payer as otherwise he will be losing his wealth on an annual basis in the form of payment of zakat. It is also different from wealth tax; while in the case of former, nisab is fixed; in the latter case the exemption limit is flexible. Moreover, in general, zakat-nisab being far below the above limit set for wealth tax; it is often observed that when the conventional tax system fails to collect any tax from the people of a certain income group, an Islamic economy is able to collect zakat from the same income group. IV. Economic Significance of Zakat 4.1 Zakat Vehicle for Journey to Growth, Development and Stabilization The institution of zakat, through its strong macroeconomic implications, has the potential to attain multidimensional economic objectives, which is not possible in case of any single tool of conventional fiscal policy. This is because, zakat simultaneously acts as income tax (in case of hoarded cash income), wealth tax (in case of hoarded gold, silver, etc.), production tax (when imposed on mineral products, cattle, and on produced crop in the form of ushr), sales tax (when applied on traded articles), and profit tax (if hoarded in cash form). In its trail, therefore, zakat can successfully carry out the multifarious functions of encouragement to production, investment and employment, revenue collection, economic stabilization, control of inflation, elimination of income inequality and poverty alleviation. Initially, Thoughts on Economics 57 disbursement of zakat increases aggregate demand, which in turn boosts up investment, production and employment through multiplier effect. This, again, brings about higher value added, higher profits, and lowering of prices. Simultaneously, demand for labour also increases, leading to decrease in general unemployment level and increase in real wages. All these improvements help stabilize the economy along with equitable distribution of income and more importantly eradication of poverty. 4.1.1 Saving-Spending Balance The richest sector of the globe is said to have been suffering from the symptoms of such an economic sickness, which has its root cause in savings- spending mismatch. From time to time, different programmes have been recommended for achieving the lost balance between saving and spending. These include government spending as adequate as to counter-balance the excess savings, which expenditure is financed either by public borrowing, or on the basis of taxation to reduce the excess savings and increase investment by reducing the willingness to save and increasing the willingness to spend; measures to increase individual security and reduce the pressure to save, such as, adequate social security against old age, unemployment, dependency and all forms of inability; modification of distribution of income to ensure that profits do not increase disproportionately at the expense of wages in particular; measures to increase the spending power of low income groups; etc. In this context, zakat can serve to act as a double-edged weapon to keep the disturbing forces underlying both saving and spending in healthy check; and thus, such an elaborate bundle of measures and policies, as suggested above will simply be needless in an Islamic economic order, which is free from the practice of imposition of any form of interest. As a consequence of absence of interest-earning and taxation of hoards, no room for excess saving is left, and, hence, requirement for large-scale public spending also ceases. The principle of zakat, inter alia, stands for aversion to excess savings and all kinds of hoards and as such promotes the inclination to invest, while reducing the inclination to save. Individual security is also provided in the scheme of distribution of zakat proceeds, as this fund is, so to say, a social security fund to insure against all kinds of accidents and disabilities that generally prompt a man to save or hoard. No doubt, the immediate effect of zakat is, however, to reduce aggregate demand in some degree, but, since it transfers money from a class of people whose marginal propensity to consume (MPC) is less to a 58 Horizon of Zakat…………….. group of beneficiaries whose MPC is high; it means that incremental income spent is higher for the receivers of zakat than its payers. 4.1.2 Hoarding-Investment Balance While investment is the mover of an economy, uninvested illegal earnings and hoarding is a serious obstacle towards economic advancement. The institution of zakat has the potentiality of simultaneously tackling these two apparently opposing economic functions. Being a tax on wealth, it automatically puts a check on the accumulation of hoarded capital or idle wealth in cash form, permitting only such funds as liquidity that is necessary for transaction purposes. Since it is imposed on net wealth, regardless of whether the capital is utilized or not, it implies that certain quantity of wealth is being drained thereby reducing the existing level of wealth both cash and kind to the extent paid out in the form of zakat. If there remains no alternative for investing this wealth, through paying zakat every year a wealthy fellow is very likely to gradually get poorer till he comes below minimum wealth line (the level for being ahle-nisab). To avoid this situation, every potential zakat payer is likely to be motivated to investing their wealth so that it continuously grows so as to compensate for the payment of zakat. Moreover, exclusion of means of production and housing from zakat taxation provides an incentive for investment in plant and equipment, and its consequent utilization. It also encourages economically productive activities vis-à-vis speculative activities, and investment in construction of houses for own use. 4.1.3 Production Enhancement and Employment Creation As the foregoing discussion suggests, through initiating investment of idle wealth and encouraging a high level of capital utilization; zakat can help boosting up production. This, in the final analysis, by promoting employment and income in the economy, significantly contributes to economic growth. On the other hand, as a result of zakat transfer, effective demand of the beneficiaries is raised. Hence, zakat not only forces to invest but also creates effective demand for the consumption of the enhanced production. This is so, because in general, zakat finances consumption expenditure of the poorest groups in a society. Given that the propensity to consume at low levels of income is high, the multiplier effect of the increased consumption is substantial. In other words, in the trail of zakat expenditure, effective aggregate demand goes up significantly, which leads to increased employment, output, income and consequently, economic growth. Moreover, zakat expenditure for provision of essential public goods and services to those who would not otherwise have access to them, increases beneficiaries’ overall Thoughts on Economics 59 health, education and productivity levels. The same holds true, when zakat fund is used to provide training facilities or to create employment opportunity for the unemployed and underemployed. In such a case, zakat contributes to economic development and growth in an indirect way. Zakat also reduces structural unemployment, which mainly arises in the deprived sector of the economy characterized by low human capital, poverty, age and debility; as in an Islamic economy zakat expenditure is put aside and ear-marked for alleviating precisely the structural problems of the society, of which structural unemployment is a major issue. 4.1.4 Achievement of Economic Development The most prominent expenditure verse of the Holy Qur’an, ‘Alms are for the poor And the needy, and those Employed to administer the (funds); For those whose hearts Have been (recently) reconciled (To Truth); for those in bondage And in debt; in the cause Of Allah; and for the wayfarer: (Thus is it) ordained by Allah, And Allah is full of knowledge And wisdom.’ (9:60), includes the category, fi sabil Allah, literally meaning ‘in the way’ or ‘for the cause’ or ‘sake of Allah (SWT)’. It is the most comprehensive category of zakat; which encompasses all efforts directed towards facilitating collective life through promoting collective welfare. It thus includes efforts aimed at protecting life, religion, liberty, property and the fundamental human rights; or efforts which remove ignorance, promote knowledge and social good and reduce hardships arising out of emergencies of any nature. While other categories are clearly defined, it seems that flexibility has been divinely provided through using this terminology to meet the needs of ever-changing circumstances. However, in the absence of emergencies, zakat under the fi sabil Allah category should be used to provide infrastructural facilities and creating work opportunities for the poor and needy6. 4.1.5 Attainment of Economic Stabilization In a growing economy, demand must grow in order to maintain full employment of labor and full utilization of capacity at stable prices. The economy is not performing satisfactorily unless it is almost continuously setting new records of production, income, and employment. Indeed, insufficient demand leads to unemployment, idle capacity, and lost production; and, excessive demand induces inflation, bringing forth little or no gains in output and real income. Stabilization neither means leveling off of peaks and troughs in production and employment nor does it means holding overall demand for goods and services stable. The objective of stabilization policies is to minimize these deviations from a rising trend, not from an 60 Horizon of Zakat…………….. unchanging average, i.e., to keep overall demand in step with the basic production potential of the economy. Zakat has significant economic stabilizing influence. It can be used as a counter-cyclical tool in the sense that during a downturn, zakat disbursements can be increased, while they can be decreased during an upturn. Similarly, when the economy is operating much below its full-employment potential, zakat expenditures may help increase aggregate demand, thereby reducing the output gap; and when the economy approaches or reaches full-employment, zakat expenditures may be reduced proportionately. In a dynamic analytical context, this process goes on until the whole economy turns out to be saturated through raising both production and distribution level, increasing national income and finally reducing the chances of depression by bringing about stability in the process of consumption and production. This stability indirectly furthers more and more investment. Thus the dynamics of zakat is that it can simultaneously develop a consumption and production pattern conducive to a balanced economy free from not only the curses of inflation and depression but also can successfully combat the recent phenomenon of stagflation. Moreover, zakat surpluses, when they occur, can be saved for harder times, to be used for infrastructural and development purposes and to be transferred to the needier regions of the economy, or can be used in a combination thereof. 4.2 Control of Inflation With varying rates, inflation in these days is a worldwide phenomenon. As a result, cautious fiscal measures are called for in order to curb it. Capital being the vital part of the production process and interest being paid in return of capital; interest payment constitutes a major part of total cost of production. Obviously then, to recover this, entrepreneurs incline to charging high prices for the goods and services produced by them. In Islam trade is encouraged and usury is forbidden as is cautioned in the Holy Qur’an by saying, ‘….Fear Allah and give up what remains of your demand for usury, if ye are Indeed believers.’ (2:278). Islam thus modifies the process of pricing aimed at covering of interest cost and motivated by profit maximization. Instead, it emphasizes the concept of total human welfare and encourages working through principles of co-operation and limited competition at both individual and state levels. It is, therefore, not a rational behaviour for an Islamic entrepreneur, if he treats making money or earning profits not as a means to an end but an end in itself. This de-emphasis on profit motive, instead of de- emphasizing production, stresses on efficiency in production through Thoughts on Economics 61 avoidance of wastage, minimization of cost and selection of optimal technique of production. In this context, zakat plays its role through curbing excess demand on one hand and increasing supply of goods and services on the other. 4.3 Reduction in Income Inequality In an economy where private business initiative and enterprise is allowed there will definitely arise differences among persons regarding earning and amassing of wealth. Islam though recognizes the presence of this inequality; but in no way supports its existence. The verse ‘What Allah has bestowed On His Messenger…. belongs To Allah s − to His Messenger And to kindred and orphans, The needy and the wayfarer; in order that it may not (Merely) make a circuit Between the wealthy among you….’ (59:7) not only condemns concentration of wealth in the hands of a few but side by side introduces the institution of zakat to act as a balancing factor in this respect. If this system works then the unprivileged class are benefited through receiving different types of government allowances, transfer payments, subsidies etc. Hence, the prime importance of zakat lies in effectively transferring surplus income of the wealthy people to those lying below the poverty line and to prevent further accumulation of wealth in the hands of a few and thus make wealth cycling in the nook and corner of the social segments. As a result difference between the rich and the poor is narrowed down as far, as is natural and practical. 4.4 Revenue Collection Rate of zakat though small, but the purview of zakat is extensive; as it covers assets and income of all sectors. In this case, the problem of evasion, generally encountered in all types of tax is also supposed to be absent. Hence, if implemented effectively, it is expected to collect a large sum as government revenue. Moreover, as it is imposed on hoarded income and wealth, it is likely to be able to raise a fund higher than the case of any other single tax (either income tax or wealth tax). Furthermore, revenue will be invariably high due to inclusion of the agriculture sector (including crop production, poultry, fishery, livestock, forestry, mining etc.). 4.5 Poverty Alleviation Islam makes all out efforts to eradicate the curse of poverty from the society. Accordingly, Islamic policy for poverty alleviation involves aspects like (1) positive measures including income growth, functional distribution of income and equal opportunity in all spheres of human life, (2) preventive measures including control of ownership of property and prevention of those malpractices that may lead to concentration of wealth, and (3) corrective 62 Horizon of Zakat…………….. measures involving transfer of wealth from the rich to the poor, including compulsory transfers (zakat), recommended transfers (sadaqah and infaq), encouragement to give wealth in the way of Allah (awqaf), beneficial loan (qard-e-hasana) etc7. The fundamental significance of zakat is reduction in the incidence of poverty. Islam presents a unique and obligatory scheme for eradication of poverty through the institution of zakat. The prescribed eight heads of zakat expenditure are the poor, the needy, persons engaged in zakat administration, the new Muslims, the bonded slaves or captives, those who are in debt, the destitute wayfarer and in the way of Allah (SWT) (verse 9:60). Five out of these, viz., the poor, the needy, the debtors, the slaves (to be freed from captivity) and the travelers in need, clearly exemplifies the fact that in the ultimate analysis zakat acts as a tool for poverty alleviation. While zakat contributes directly to poverty alleviation through paying to the first two categories, by paying to other heads it alleviates the same in an indirect and comprehensive way as it tries to remove the causes of poverty. Islam addresses the issue of poverty in a holistic manner, bound by the paradigm of tauheed (unity of Allah SWT); which holds that He is not only the unique owner, but also the sole distributor of wealth and distributes it unevenly with a purpose; a purpose to test mankind’s obedience. As said, ‘Allah has bestowed His gifts Of sustenance more freely on some Of you than on others: those More favoured are not going To throw back their gifts To those whom their right hands Possess, so as to be equal In that respect. Will they then Deny the favours of Allah?’(16:71). It is mandatory for those who get or receive more, to help the ones who get less. In turn, those who get less have the right to receive help from those who get more and at the same time they have to struggle for better lives. The Prophet (SAW) is reported to have said, ‘The hand that is above is better than the hand that is below.’ (Al- Bukhari). V. Zakat and Social Justice 5.1 Modern View of Social Justice In the conceptual framework and in a broad sense, establishment of social justice is a matter of distributional equity, of sharing development opportunities between present and future generations. Each individual is entitled to a just opportunity to make the best use of his or her potential capabilities. In this context, the basic thought comes from many pioneers, as ‘It is justice, not charity that is wanting in the world8. ‘Men and women, both Thoughts on Economics 63 should be given power over their lives and opportunities to live according to their own values and aspirations9.’ Interest in the concept of social justice is not new. Today’s belated return to it means reclaiming an old and established heritage rather than importing or implanting a new diversion. The roots of the concept can often be traced to early periods in human history. As Aristotle wrote, ‘Wealth is evidently not the good we are seeking, for it is merely useful and for the sake of anything else.’ A similar strain is reflected in the writings of Quesnay, Lagrange, Adam Smith, Malthus, Karl Marx and John Stuart Mill. The point to ponder over here is that, by mentioning Aristotle, though the theoreticians take history as back as twenty-five centuries, but just after his reference, through a high jump, they cover the so called ‘dark age’ of modern history and refers to eighteenth century political economists. In doing so, they either knowingly or unknowingly fail to mention the contribution of Islamic teaching in the field of much discussed concept of social justice, along with many other fields of knowledge; which flourished during the above mentioned period. Islam, some fourteen centuries ago sew the seed of justice as, ‘O David! ….judge you Between men in truth (and justice)………’(38:26). And, ‘Say (O Muhammad): “My Lord has commanded Justice;……’(7:29). 5.2 Social Justice in Islam Social justice in Islam is a comprehensive concept. It embraces all sides of life and all aspects of activity; and is concerned alike with perception and conduct, with the heart and conscience. The values with which this justice deals are not only economic values, nor are they merely material values in general; rather they are a mixture of moral and spiritual values together. Thus in the Islamic view, life consists of mercy, love, help, and a mutual responsibility among Muslims in particular, and among all human beings in general. Islam does not demand a compulsory economic equality in the narrow literal sense of the term, because, such equality will arrest the development of outstanding ability and make it equal to lesser ability. It will also prevent those who have special gifts, from using that to their own advantage and to that of the community, and thus depriving the community and the individual from the fruits of those gifts. Islam does, of course, acknowledge a fundamental equality of all men and a fundamental justice among all, but over and above that, it leaves the door open for achievement of preeminence through hard work, personal potentiality, perseverance, and diligence and so forth. ‘…Allah will Raise up, to (suitable) ranks (And degrees), those of you Who believe and who have Been granted 64 Horizon of Zakat…………….. Knowledge.’ (58:11). Islam, then, does not demand a literal equality of wealth, because the distribution of wealth depends on men’s endowments, which are not uniform. Hence absolute justice demands that men’s rewards be similarly different and that some have more than others, so long as human justice is upheld by the provision of equal opportunity for all. Islam demands a competence for every individual, in order to remove the fear of destitution. It prescribes the claims of the poor upon the wealth of the rich, according to their needs, and according to the best interests of society so that social life may be balanced, just and productive. Thus through inclusion of various aspects of life, material, spiritual, intellectual, religious, and worldly, the concept of justice is so organized, that all its ingredients are related together and thus furnish a coherent unity in which it is difficult to neglect any one of its various integral parts10. 5.3 Vision of Islam The ultimate goal of Islamic way of life is to promote welfare of all human beings on the earth. This is the goal towards which the Muslims are called five times a day along with call for five daily prayers, which exemplifies the importance of the concept of welfare in the Islamic worldview. Undoubtedly, there seems to be any difference of opinion among all societies, that the primary purpose of development is to promote human well being; there is, however, considerable difference of opinion in the vision of what constitutes real well being. While in societies, guided by secular and materialist worldview, the primary measure of development is a rise in income and wealth, Islam emphasizes both spiritual as well as the material contents of well being. In fact, there are some needs, which are spiritual and non-material in character and need not necessarily become satisfied as a result of increase in income. Instead, single-minded preoccupation with wealth may in fact hurt the satisfaction of these needs, which are nevertheless, important and cannot be ignored. Moreover, the goals of human brotherhood and the well being of all would remain a hollow concept having absolutely no substance if socioeconomic justice does not accompany them. As Al-Qur’an says, ‘O you who believe! Stand out firmly For Allah, as witnesses To fair dealing, and let not The hatred of others To you make you swerve To wrong and depart from Justice. Be just: that is Next to Piety: and fear Allah…’(5:8). In Islamic terminology injustice refers to all forms of inequity, exploitation, oppression Thoughts on Economics 65 and wrong-doing. One of the essential requirements for ensuring justice is the protection of life, property and honour of every individual in this world. For this, it is necessary to have certain values or rules of behavior and to enforce them effectively11. 5.4 Social Security in Western Society Most people derive security from their membership in a group, a family, a community, an organization, a racial or ethnic group. The extended family system, for example, offers protection to its weaker members, but rapid pace of modernization in both economies and societies are leading to breaking down of extended families and also causing erosion to long held moral norms and values. Social security in the western scheme means economic security provided by the government in the form of unemployment insurance, post- retirement pension scheme, subsidized or free medical and housing facilities for the disabled etc.; and is generally financed by tax revenue. In the socialist countries, conceptually everything is owned by the state, therefore, the state has to arrange for all the social sector requirements. In this system, social security is established through legislation of the harshest type manifesting the most oppressive and deprivation measures against those who have12. 5.5 Islamic Conception of Society An Islamic society by definition is circumscribed by some social, political, religious, moral and legal principles in accordance with the commandments of the Holy Qur’an. Islam is dedicated to universal brotherhood, social and economic justice, equitable distribution of income, and to individual freedom within the context of social welfare. Moreover, since the society is the primary institution in Islam (and not the state), the emphasis is on the human being rather than on state power. Mankind being the ends as well as the means; unless they are motivated to pursue their self-interest within the constraints of economic well-being, neither the ‘invisible hand’ of the market nor the ‘visible hand’ of central planning can succeed in achieving socioeconomic goals13.Al- Qur’an says, ‘O mankind! We created You from a single (pair) Of a male and a female, And made you into Nations and tribes,…. Surely The most honoured of you In the sight of Allah Is(he who is) the most Righteous of you…’(49:13). According to Islam, human body is a vehicle for the soul, which is left behind 66 Horizon of Zakat…………….. while the soul journeys on to another dimension. It is this sense of a larger future that binds human being with the rest of humanity. 5.6 Zakat − the Islamic Social Security System Zakat, created the first universal welfare system in human history, which is the core of the social security in Islam and is not a matter of state legislation but a duty of the fortunate brothers of the community to share in the misfortune of their fellow brothers. Along with zakat, Islam encourages, and in some cases emphasizes other spending (both personal and social); which, though not compulsory, but due to their mentioning in the Holy Qur’an along with obligatory zakat, they also often become an ingredient of social security system in an Islamic state. In Islam, charity starts from the family, and accordingly, Islam has made a man responsible for the fulfillment of basic needs of his family, his neighbours and relatives and at large of the whole community. This responsibility is reminded as, ‘…do good-To parents, kinsfolk, Orphans, those in need, Neighbours who are near, Neighbours who are strangers, the Companion by your side, The wayfarer (you meet), And what your right hands possess:…..’ (4:36). Accordingly, instead of leaving the issue of spending for the poor as governed by individual desire, Islam has fixed a right of the poor in the wealth of the rich through the commandments of the Holy Qur’an. The Prophet (SAW) has declared, ‘He is not a true Muslim who eats his full stomach when neighbor is hungry.’ (Bukhari). And: If a single person were to sleep hungry in a town, then Allah’s protection is lifted from that town – (Masnad Imam Ahmad). Thus, zakat, constituting the major part of the comprehensive social security guaranteed by Islam, is much broader than the Western welfare measures. While the latter provides only material assistance to the needy, the former provides material, spiritual, ethical and moral assistance for all, irrespective of colour and status; thus positively affecting every aspect required to fully bloom the human life. Moreover, in this case, no premium for the insurance is required to be paid by the incumbents. 5.7 State Responsibility An analysis of the verse (9:60) reveals that the whole affair of collection and disbursement of zakat is bound to be a collective one. In Islam, one of the most important tools for establishing social justice is zakat; and, therefore, Allah (SWT) ordains the state to ensure provision of basic needs of every citizen for his reasonably comfortable living, based on current standard. Moreover, it has made it a collective obligation of the society to satisfy the Thoughts on Economics 67 needs of all those who are not capable of helping themselves because of some inability over which they have no control. The government is to carry out this responsibility basically through zakat fund; which, if fails to cover the total need, the state has to arrange fund from general tax-revenues or from other sources. Islam also stresses on state responsibility to take care of the matter by creating fund either through mobilizing resources available in a state or adopting any other policy in conformity with the Shari’ah. To alleviate poverty Islam put special emphasis on ‘infaq fi sabilillah’ meaning to spend in the way of Allah (SWT). It is very significant to note that Almighty Allah (SWT) has taken on Him the special responsibility of helping His poor servants by describing this action as spending for His cause and way. As the verse reads, ‘Who believe in the Unseen, Are steadfast in prayer, And spend out of what We Have provided for them;’ (2:3). Injustice and Islam are, at variance with each other and cannot coexist without either of the two being uprooted or weakened. It is faith which creates an enabling environment, both at personal and social levels, that is conducive to the strengthening of family and social solidarity. But faith alone cannot, however, help realize human well being. It is unrealistic to assume that, as a result of belief in Almighty Allah and accountability before Him in the Hereafter, all individuals will become morally conscious. This makes it incumbent upon the state to play a complementary role. The Prophet (SAW), therefore, clearly stated that, ‘Allah (SWT) restrains through the sovereign more than what he restrains through the Qur’an.( Bukhari) The Qur’an can only give values; it cannot by itself enforce them. It is the moral and legal responsibility of the state to do so and ensure justice and the well being of the people14. The Qur’an being a constitution requires its own independent and free state where its unique socioeconomic and political system can be implemented. The Qur’an says: ‘(They are) those who, If We establish them In the land, establish Regular prayer and Give Zakat, enjoin The right and forbid wrong:…,’(22:41). Here, ‘establish them in the land’ means, establishment of an Islamic state by the believers, who, bestowed with the authority to rule will 68 Horizon of Zakat…………….. establish salat and materialize zakat, will themselves abide by justice and forbid people from doing anything, contrary to the divine code. VI. Ethical Implication of Zakat 6.1 Islamic Ethical System Islamic ethical system takes root in the Islamic worldview of human being; according to which man is essentially a spiritual and moral being and is characterized by the distinguishing feature of sense of moral judgement. On the other hand, Islamic conception of nature, which contains His bounty, is that, it is meant for human use within the limits set by the Divine law. Man, being created as servant of and made vicegerent and trustee of Allah (SWT) on earth, is bound to worship Him and also has the objective of managing and developing the world in accordance with His plan. Men can serve Allah (SWT) through ibadah, which implies observance of religious rituals like salat, zakat, siyam and hajj. According to Naqvi, Islam provides a complete code of life, which is unique for its predominant emphasis on ethical norms. In this system, man occupies the central place in the universe, which has been created for a purpose, and not created aimless. A man is both an individual man and a collective man. As Allah’s (SWT) vicegerent on earth, he is bound by the Divine rules, but he is free to accept them or reject them, and therefore, is responsible for his deeds. Accordingly, he identifies four axioms: unity, equilibrium, free will and responsibility as the basis of scientific analysis of Islam. The concept of unity relates only to Allah (SWT) and differentiates the Creator from the created, requiring unconditional surrender by all to His will. Equilibrium is necessary at both the individual and collective levels. Within us, there is a world of errant desires and erupting ideas, which must be contained and held together in correct proportions to produce a just human being. Moreover, man has freedom of choice. But he will have to take responsibility for what he does in his free will. This human freedom applies both to the ‘individual man’ and to the ‘collective man’. Despite freedom, Islam does not allow absolute and unqualified right to private property, but sanctions the right of society to a portion of this15. 6.2 Islamic Concept Regarding Human being and Success in Life Man, by nature, is selfish and greedy. He is never satisfied with the things he has. This is true not only for those who are poor and needy but also for those who are rich or at least are not needy in the true sense. Hence, if man were Thoughts on Economics 69 allowed unhindered and unchecked greed, he is sure to become not only for his own self but also for others a perpetual danger. So, it is incumbent to divert his trends to sublime ordeals and eternal truth, which can be achieved only through implanting religious faith in human mind and practising religious activities. Religion is to create moderation and guide him to earn his living lawfully, and enable him to save himself from extremes, which weaken his soul and body too. Islam aims at turning man to value this ‘truth’, to know of his own self and not to plague his life with sorrows and sadness or troubles and tortures after jumping into the whirls of whims. The concept of success in life in an Islamic society is not one of economic success in this material world. Instead, Islam emphasizes achievement of welfare both in this life and in the life Hereafter. This success, therefore, is not confined to the opportunities of acquiring all the best to be found in the material world for own self or for even one’s own family. This success lies in the development of oneself to such an esteem that correctly represents him as the vicegerent of the Supreme Creator. According to Islam, only the harmonious development of the spiritual and material aspects of human being can help attain this position, that is, promotion of economic welfare is only a necessary part, and not the predominantly important part of human life. 6.3 Islamic View on Wealth and Poverty In Islamic view, Allah (SWT) is the absolute owner of all the wealth. As said, ‘To Allah belongs The dominion Of the heavens And the earth; And Allah has power Over all things.’ (3:189). Man, as the vicegerent of the Almighty is the trustee of that wealth. Said that, ‘Believe in Allah And His Messenger, And spend (in charity) Out of the (substance) Whereof He has made you Heirs. For those of you Who believe and spend (In charity) for them Is a great Reward.’ (57:7). According to Islam, there appears no wrong in the ownership of personal property for ensuring self-betterment. But, side by side, it circumscribes the ownership of wealth by ethical norms and values in order to ensure societal safeguard and economic prosperity. Islam considers poverty as one of the greatest vices. In Traditions, poverty and hunger has been depicted as grave dangers, which can cause a great setback from which an individual, a society, faith and belief, manners and morals, words and deeds, thoughts and culture cannot remain safe and protected. In the Holy Qur’an poverty and immoral activities have been equated as, ‘The Satan threatens You with poverty And bids you to conduct Unseemly. Allah promises You His forgiveness And bounties. And Allah cares for all And He knows all things’(2:268). It means that poverty is a kind of punishment from Almighty Allah (SWT). Contrarily, affluence has been reckoned as reward of good 70 Horizon of Zakat…………….. deeds as, ‘If the people of the towns Had but believed and feared Allah, We should indeed Have opened out to them (All kinds of) blessings From heaven and earth; …..’(7:96). Islam, therefore, announces a regular effort against poverty and hunger, and, accordingly, it declares due share of the poor in the wealth of the rich. 6.4 Importance of Need-Fulfillment in Islam and Stand Regarding Work Effort and Begging Mankind, being both the end as well as the means of development, it is imperative to satisfy some of the essential needs of the human personality. One of the most important needs of human beings is their dignity and self- respect. Another is security of their life, property and honour. The foremost need is obviously, justice. Commitment of Islam to human dignity and justice and brotherhood leads to another requisite, which is removal of poverty and need fulfillment of all. Since begging degrades a person’s dignity, Islam severely condemns seeking charity from other people without any reasonable demand. Prophet (SAW) disapproved of begging as, ‘Do not beg anything from people.’ (Abu Dawud). Islam, therefore, on one hand, urges on need fulfillment through an individual’s own effort, as, ‘And when the Prayer Is finished, then may you Disperse through the land, And seek of the Bounty Of Allah:….That you may prosper’ (62:10); on the other hand, it makes collective obligation of a Muslim society to manage opportunity for everyone to earn an honest living in keeping with his ability and effort. 6.5 Ethical Implication of Zakat Islamic economics places equal emphasis on subjective and objectives issues. Besides socioeconomic implications, it has ethical, moral, and religious dimensions. According to Imam Abu Hamid al-Ghazali, ‘The very objective of the Shari’ah is to promote the well being of the people, which lies in safeguarding their faith, their self, their intellect, their posterity and their wealth’16. Though some scholars are in favour of adding a few more requisites; but most of them agree that all others are corollary of these five. 6.5.1 Safeguarding of Faith Faith is the most important element, as it helps provide the right direction to all human efforts by injecting a meaning and purpose into life. In Islam zakat has been accorded high priority by making it an inseparable part of the Islamic way of life, non-observance of which tantamount to rejection of faith itself. Al- Qur’an associates salat and zakat with faith and ethics as, ‘It is not righteousness That you turn your faces Towards East or West; But it is Thoughts on Economics 71 righteousnessTo believe in Allah …To spend of your substance,…To be steadfast in prayer, And give zakat,...’ (2:177). 6.5.2 Safeguarding of Self Zakat means purifying, enriching or enhancing. What does it purify, enhance and enrich? It purifies the mind and soul of both the payer and the receiver. As declared, ‘Those who spend their wealth For increase in self-purification, (92:18). How does it purify? As there is Allah (SWT)-given right of the needy in the wealth of the rich, so unless it is handed over to the actual owner, the whole of the wealth remains illegal for its owner and as soon as this claim is realized, the rest of the wealth becomes pure and legal for the actual owner. Through developing a sense of sanctity and by creating a state of mind free from lust and greed, zakat purifies the mind of the payer and enriches the soul of the Muslims. It also purifies the society from the curse of poverty and vices attached with the possession of extra wealth. 6.5.3 Safeguarding of Intellect and Posterity No civilization can survive if its future generations are unable to respond successfully to the challenges of time. Family is the first school for the moral upbringing of a child and, therefore, its atmosphere must reflect the luster of Islamic teachings. This necessitates financial solvency of the families, because, neither faith, nor morality, nor spiritual excellence can remain intact by the severe bight of poverty17. Schooling also plays a vital role in moral upbringing of and providing requisite skills to, such that they can contribute effectively to the moral-intellectual and technological development of their societies. Fulfillment of basic need like medicare, is also indispensable. In this context, verse (9:60) is a clear manifestation of the fact that, zakat predominantly aims at fulfilling of all these needs. 6.5.4 Safeguarding of Wealth Without wealth, the goal of ensuring human wellbeing cannot be realized. It is ultimately Allah (SWT) who grants income and wealth (i.e., the ability, means and suitable conditions for earning) and therefore, sharing of the benefit of the resources at one’s disposal and contributing toward alleviating public wants is justified and only reasonable. Al- Qur’an strongly argues to convince that social wants are next to personal wants and their satisfaction should have a high ranking in one’s consumption/expenditure function. If this understanding 72 Horizon of Zakat…………….. is internalized, it can make available a vast reservoir of resources for the benefit of an economy. VII. Concluding Remarks Critics of Islam have time and again attacked the institution of zakat to show its invalidity as an instrument of fiscal policy in a present day modern state. In this connection the point to ponder is that, zakat in itself is not the end but a means to achieve an end. Moreover, it is not supposed to replace the existing tax system; instead it is assumed to be incorporated in it. It is the responsibility of the philosophers, scholars and economists alike to make the system of zakat meet the challenge of the time. The institution of zakat is designed to be a core element of an Islamic socioeconomic policy framework, through its linkage with wealth on the taxation side, and target beneficiaries’ and target expenditures on the disbursement side. Hence, if properly understood and applied, it can become a major redistributive and stabilizing factor in an Islamic economy. Zakat thus, provides a starting point as well as a point of reference, a criterion by which the performance of an economy and its policies can be judged and evaluated. Hence, as a religious ritual, a moral obligation, a legal right and duty, and as an economic policy instrument, zakat has been given so high an importance in the Islamic value system. Islam operates on the inner, spiritual side of human nature, rather than on the external. It is from the depths of the conscience rather than on the surface that it seeks to reform man. The centre of Islam and the field of its action is human life in its entirety, spiritual and material, religious and worldly. It is at once worship and work, religious law and exhortation. Islam has one universal and integrated theory, which covers the universe and life and humanity. Likewise, social justice in Islam is a comprehensive phenomenon. The foundations on which Islam establishes justice are absolute freedom of conscience, complete equality of all men and firm mutual responsibility of society. Significance of the institution of zakat becomes clear when considered from this viewpoint. The system of zakat; in its trail, serves two purposes: an inner refinement of the conscience, to foster the belief in the inherent solidarity of mankind; and help materialize, attainment of social justice in its true sense. Thoughts on Economics 73 REFERENCES 1. Sharif, M, Raihan, Islamic Social Framework, Bangladesh, Islamic Foundation, Bangladesh, 1980, p. 120. 2. Michael, P. Todaro, Economics for a Developing World, An Introduction to Principles, Problems and Policies for Development, Longman Group Limited, London, 1977, p-87,95. 3. Sharp, Al, M., et al, Economics of Social Issues, BPI-IRWIN, Homewood, Boston, USA. 1990. p. 269. 4. Irfan Ul Haq, Economic Doctrines of Islam : A Study in the Doctrines of Islam and Their Implications for Poverty, Employment and Economic Growth, International Institute of Islamic Thought, Herndon, Virginia, U.S.A., 1996, p. 184. 5. Cowan, Milton, ‘Mu’jamul Lugatul Arabiyyatul Muasia’ (Arabic- English dictionary). 6. Mohammad Zafor, Islamic Alternative to Poverty Alleviation : Zakah, Awqaf and Microfinance: Bangladesh Perspective, paper presented in an International seminar titled ‘Islamic Alternative to Poverty Alleviation: Zakat, Awqaf and Microfinance, Islamic Economic Research Bureau, April 2007, Dhaka, Bangladesh. 7. Huq, Begum Ismat Ara, Poverty Alleviation Through Islamic Micro Financing - A Case Study of Bangladesh, paper presented in an international seminar titled ‘Islamic Alternative to Poverty Alleviation: Zakat, Awqaf and Microfinance, Islamic Economic Research Bureau, April 2007, Dhaka, Bangladesh. 8. Mary Wollsstonecraft, A Vindication of the Rights of Woman, 1972, quoted in, Human Development Report 1994, (UNDP), Delhi, Oxford University Press, Bombay, Calcutta, Madras, p.14. 9. Thomas Paine, Human Rights, Second part, 1972, ibid, p.14. 10. Qutb, Sayyid, Social Justice in Islam, (translated: John B. Hardie; revised:Hamid Algar), Islamic Book Trust, KualaLumpur, Malaysia, 2000, p.45. 11. M. Umer Chapra, The Islamic Vision of Development, Thoughts on Economics, Vol. 18, No. 03, July-Sept 2008, Islamic Economics Research Bureau, Dhaka, Bangladesh. p.7. 74 Horizon of Zakat…………….. 12. Woes of the Welfare State A Special Report, The Time, Dec, 1980, p.14-15, quoted in Mohd. Zohurul Islam, Islamic Economics, Islamic Foundation, Bangladesh, May 1987, p.173. 13. Chapra, M. Umer, Islam and Economic Challenge, Leicester, The Islamic foundation, 1992. 14. Chapra, 2008, p. 15-16. 15. Naqvi, Syed Nawab Haider, The Islamic Ethical System, in Ethics in Business and Management, (edited by Abul Hasan, M., Sadeq and Khaliq Ahmad, Islamic Foundation, Bangladesh, 2004, p.25. 16. Al- Ghazali, al-Mustasfa, 1937, Vol.1, pp. 139-40. 17. Chapra, 2008, p. 26. BIBLIOGRAPHY *Abul Hasan, M., Sadeq and Khaliq Ahmad, Ethics in Business and Management, (edited), Islamic Foundation, Bangladesh, 2004. * Abdul Hannan, Shah., et al., (edited), Zakat and Poverty Alleviation, Islamic Economics Research Bureau, Dhaka, Bangladesh, 1998. * Ali, Abdullah Yusuf, The Holy Qur’an, Goodword Books, in association with IPCI: Islamic Vision, Birmingham, 2001. * Al-Imam Zain-ud-Din Ahmad bin Abdul-Lateef Az-Zubaidi, Summarized Sahih Al-Bukhari (compiled from Sahih Al-Bukhari by M. Muhsin Khan), Maktaba Dar- us-Salam, Riyadh, Saudi Arabia, 1994. * Ali, Mohammad Keramat, The Message: Selected Verses from The Holy Qur’an, UPL, Dhaka, 1993. *Al-Qardawi, Allama Yusuf Economic Security in Islam (translated), Muhammad Iqbal Siddiqi, Islamic Book Service, New Delhi, 1997. *Irfan Ul Haq, Economic Doctrines of Islam A Study in the Doctrines of Islam and Their Implications for Poverty, Employment and Economic Growth, International Institute of Islamic Thought, Herndon, Virginia, U.S.A., 1996. *Islam, M. Zohurul, Islamic Economics, Islamic Foundation, Bangladesh, May 1987. * Sayyid, Qutb, Social Justice in Islam, (translated: John B. Hardie; revised: Hamid Algar), Islamic Book Trust, Kuala Lumpur, Malaysia, 2000. *Sharif, M.Raihan, Guidelines to Islamic Economics: Nature, Concepts and Principles, Bangladesh Institute of Islamic Thought (BIIT), 1996, Dhaka.
Pages to are hidden for
"Horizon of zakat fauzia hamid"Please download to view full document