The Impact of Zakah & Ushr: Pakistan

The paper has two objectives. The first is to estimate the impact of zakah and ushr on poverty alleviation by utilising the traditional measures of poverty. The second is to asses the impact of zakah and ushr on the average income of lower income deciles.

So far, two studies, Shirazi (1994a) and Malik et al (1994), have been made that concentrated on the first objective only. In these studies calori-intake approach has been used to determine the poverty line. These studies are based on household income and expenditure survey (HIES) 1987-88.

On the other hand, this paper adopts the basic needs approach and uses the latest available data. Also, the second objective has been given due attention. The rest of the paper is organised as follows:

The data set and methodology is discussed in Section II. Section III presents the results, while the last section, IV, concludes the paper.

Methodology And The Data Set

A) Poverty Line

Two approaches have been widely used to estimate poverty line in Pakistan. The first one is the caloric-expenditure approach, used by Naseem (1977), Ercelawn (1990), Malik 1992, 1994), Havinga et al (1990) and Shirazi (1994), which has some short-comings. For example, a minimum required level of calorie intake at a certain income level does not imply that corresponding non-food basic needs are automatically achieved.

The second is the basic needs approach. Researchers like Booth (1892), Rowntree (1901) and Orshansky (1965, 1968) used the basic need approach to determine poverty line. Recently, in Pakistan, Ahmad (1993) and Gazdar et al (1994) also used this approach. Ahmad (1993) estimated poverty line for Pakistan by using basic needs approach. The process he used is described as below:

“The basic needs package consists of food, clothing, housing, health, education, transport, social interaction and recreational facilities. All possible componential needs were identified. The discussions were held with professional economists in federal government, provincial governments, research institutions and universities. A checklist thus prepared was rechecked with heads of different families a team of economists was constituted to arrive at the quantum and value of each componential item of various basic needs separately in the rural and urban areas. These were rechecked with the consumers in different areas.”

The poverty line thus estimated by Ahmad (1993) was accepted by the World Bank with certain adjustments (Gazdar et al 1994). I have adopted the basic needs approach as given by Gazdar et al (1994). However, I have deflated the poverty line to the 1990-91 and 1987-88 prices by using the GDP deflator. Thus the adjusted per capita per month poverty lines based on basic needs approach are as follows:

1987-88        1990-91

Rs 213.17      Rs 281.13

B) Measures of Poverty 

I have used the well-known and commonly used measures of poverty. These are headcount (Hc), poverty gap (Pg) and Foster, Grear and Thorbecke (1984) poverty measure (P2) known as the FGT poverty measure. These poverty measures are explained below:

He = q/n, where q is the number of households below the poverty line and n is the total number of households. This measure gives the proportion of the poor households among the total households.

Where Z is the poverty line and Yi is the income of the ith poor household. Pg is the poverty gap which gives the extent to which the incomes of the poor lie below the poverty line as a ratio of the poverty line.

The FGT poverty measure is as follows:

The higher the value of P2 the greater will be income inequality among the poor and severer will be the poverty.

To estimate the impact of the zakah and ushr on poverty alleviation, the above mentioned poverty measures were estimated before and after including zakah and ushr in households’ income. The difference in the estimates of poverty indicates the impact of zakah and ushr.

C) The Data Set

The data given in HIES (1987-88) and household integrated economic survey (HIES) 1990-91 were used in this paper. The HIES is conducted on annual basis by the Federal Bureau of Statistics (FBS), Statistics Division, Government of Pakistan, covering both rural and urban areas in four provinces of Pakistan except the federally administered tribal areas (FATA), Military-restricted areas, district of Kohistan, Chitral and Malakand and protected areas of NWFP. HIES 1987-88 was based on a national sample, of 18,144 households. The sample size of HIES 1990-91 was 6,516 households, out of which 123 households could not be covered by the FBS for various reasons. The sample size of HIES 1990-91 is small as compared to the HIES 1987-88. It is pointed out by FBS that the HIES 1990-91 data are reliable with rural-urban breakdown only at the national level and there is no guarantee of reliability of results even at provincial levels. However, I have extended the analysis to the provincial level to get some indicative results. Moreover, households that entirely depend on charity are excluded from these surveys [see Kemal (1981) and Malik (1993)]. Another limitation of the data is that zakah and ushr reported in the HIES includes both voluntary and official payments which cannot be disaggregated.

Dr. Nasim S. Shirazi

Source: Poverty Alleviation in Pakistan: Present Scenario and Future Strategy, Mohibul Haq Sahibzada. Republished with permission.