The viability of a state depends on the ability of its government to collect necessary revenues and distribute them on the collective needs. The Holy Prophet (Sall Allah-o-alaihe wa sallam), after establishing the tiny state of Medina, turned his attention to this vital necessity. Besides voluntary contributions to finance battles and other social obligations, zakah was levied on the wealth of the Muslims. This was the only tax which was prescribed in the Quran and implemented by the Prophet (Sall Allah-o-alaihe wa sallam), although the state’s jurisdiction to levy more taxes was kept intact.
Zakah is one of the five pillars of Islam. It is an article of faith and mentioned in the Quran for a number of times. It is an ‘ibadah like prayers and fasting and denial to pay it or deliberate evasion is equivalent to renunciation of faith in Islam. In many respects zakah is a unique institution, incomparable to other taxes imposed by a state. Firstly, it is a tax on wealth and not on income. Second, it is collected from the rich and spent on the poor. The expenditure heads of zakah have been specified in the Quran. It cannot be diverted to any other use. Third, it is a comprehensive social insurance which covers almost all risks in a Muslim society, without being essentially a contribution to the zakah fund. Fourth, zakah is distributed primarily, in the locality from which it is collected. Fifth, the rates, exemption limits and basic rules have been laid down by the Holy Prophet (Sall Allah-o-alaihe wa sallam) and are unalterable for all times to come. Sixth, it is a self-sufficient institution which meets its own overheads and costs. Seventh, the law and its operation is so simple that even illiterate people can follow and practise it. Eighth, the exemption limit is so low that a very large proportion of population participates in raising this fund. Nineth, the rules of distribution recommended that zakah should be a source of giving economic strength on a permanent basis so the people could become earning members of society rather than learn to live on charity. Tenth, by definition zakah is to purify the wealth of the people. So it is considered to be an ‘impurity’ of the wealth which is set aside. The value system of the society is such that those who afford not to receive it consider it a disgrace to receive any held Zakah. It is not being respectful in a Muslim society to live on Zakah of others, although those who pay consider it as one of their socio-religious responsibility to do so.
Besides zakah, there was other sources of revenue in the Islamic state, but they were incidental to war economy. The Holy Prophet (Sall Allah-o-alaihe wa sallam) had to fight many defensive and offensive battles. It gave rise to the question of anfal (booty) and jizya (poll-tax). The basic law of anfal was decreed in the Quran (8:1) and elaborated by the Prophet (Sall Allah-o-alaihe wa sallam). It was ordained that khums (one-fifth) of anfal should be credited to the Baitul Mal (State Tresurey). In this way khums became a regular source of revenue for the state. Similarly, those lands which were conquered without clash of forces were considered fai. Fai also become a source of state revenue as a result of certain conquest without fighting. Jizya (poll tax) was levied by the Holy Prophet (Sall Allah-o-alaihe wa sallam) on the Christians and the Magians, who accepted the suzerainty of Islam on payment of a fixed sum.
Later on ‘ushur’ (custom duties) were also levied on the non-Muslim merchants, because Muslim merchants had to pay similar duties on the lands of non-Muslims.
The Holy Prophet (Sall Allah-o-alaihe wa sallam) enjoined upon the Muslims the payment of sadaqa on ‘Eid-ul-Fitr’. It was to pay in the form of cash or kind of a specified rate by the rich (Sahib-al-Nisab) to the poor. The Sadaqa-tul-Fitr was obligatory and collected by the state, although it could be paid to the poor people on individual level as well.
The administration of Zakah and other revenues was at elementary stage during the life time of the Prophet (Sall Allah-o-alaihe wa sallam). But the general framework was laid down. The ‘amileen (Zakah collectors) were given detailed instructions for the collection of Zakah. Similarly, the zakah paying public was informed of their duties regarding the payment of dues. Similarly, basic code for the expenditure from zakah fund was also prescribed.
The instructions of the Holy Prophet (Sall Allah-o-alaihe wa sallam) regarding the collection and distribution of state revenues attach a sanctity to the Baitul Mal. The Baitul Mal came to be identified as a trust of Muslims and Caliph was its trustee. He was accountable for each penny spent from it. However, with the degeneration of the Muslims this concept also faded away and the corrupt rulers used Baitul Mal as their privy purse.
Source: Economic Teachings of Prophet Muhammad (peace be upon him): A Select Anthology of Hadith Literature on Economics, Muhammad Akram Khan. Republished with permission.