The member nations, at the United Nations Summit in September 2001, made a commitment to work towards a world in which the elimination of poverty and sustained development would have the highest priority. One of the objects set by Millennium Development Goals (MDG) is to eradicate extreme poverty and hunger Pakistan.
For its full implementation MDGs has prepared a Poverty Reduction Strategy Paper (PRSP). Over five years have passed since these programmes are in force but the result is open for all to see to what extent success has been achieved in attaining the said object of the MDG or PRSP; despite the millions dollars that have been spent. It would be appropriate to examine the economic principles set by Islam to eliminate such disparities that exist between the rich and poor in the society.
Islam is not only a religion of worship; but it provides a complete code of life and guiding principles on all aspects of life, such as economic, politics, defence and covers other areas of life. The chief feature of Islamic teachings is that it has not given a fixed system in Economics or in any field but has laid down principles which may be applied in tailoring any system, in any age, whether in economic or other fields.
This flexibility in the systems makes it a modern religion, which facilitates to devise any system within the laid down principles. It does not need to modernise, in a way, as some propagate today to justify their western style of life.
Islam has laid down principles to frame an economic system according to the needs of the time, which among others includes Zakat. It has levied Zakat on every Muslim who is a Sahib-e-Nisab. Islam has fixed a 'Nisab' and a person who fulfils the requirements of a 'Nisab' is called a Sahib-e-Nisab. The Nisab is prescribed to have in possession 52.50 tola or 7.5 tola of silver or gold respectively; or to hold the equivalent value of cash, jewellery or net current assets.
Such a person is liable to pay Zakat on these assets. If he holds less than the prescribed limit of these assets, he is not required to pay Zakat.
The rate of Zakat has been prescribed as 2.5% of the total value of the aforesaid assets, in hand, on the date of the closing of the Zakat year. It may be noted that the prescribed ceiling is in the quantity of precious metals. It has not prescribed the value of assets in possession. Because silver or gold is generally held by every one.
Further their value is also subject to fluctuations from time to time, which have made the system stable. Otherwise, it would have made the system out of date until now. It exists, even after over 1400 years, as it is flexible in character and applicable even today.
Moreover, the prescribed rate of Zakat, of 2.5% on wealth, allows an individual to retain 97.50% of wealth for personal use. This levy can be compared with the levy of the income tax rate, which ranges from 7.5% to 39%, and is a high rate of tax collected by the government and consequently encourages tax evasion and corruption. On the contrary, Islam has fixed a low rate of Zakat, which discourages its evasion. The object of Zakat is to reduce the poverty from society.
It also aims at discouraging the concentration of wealth among a few and for the distribution of wealth among the poor masses, in a justified manner. It does not believe in the equal distribution of wealth as propagated in Communism and Capitalism, which results in the concentration of wealth in a few hands.
Zakat is payable every year. The saheb-e-nisab has been given discretion to choose the date of payment of Zakat from the date when he becomes Sahib-e-Nisab. But once he fixes the date, he must adhere to it permanently. For example normally people like to pay the Zakat in the month of Ramazan.
In that case the 1st of Ramazan will be the date for the payment of Zakat every year on the value of the aforesaid assets, standing on valuation date of Shaban 29/30 of the year.
The other requirement for a Nisab is that a year or twelve months has to pass on the aforesaid Nisab amount, which makes him liable for payment of Zakat. There is misunderstanding that every rupee should be in possession for the whole year only then Zakat is payable on it.
That is not the correct interpretation to be a Sahib-e-Nisab. But once he becomes a Sahib-e-Nisab on the first day of the Zakat year and the next year, on the said date, he is a Sahib-e-Nisab, he will have to pay Zakat. It should be borne in mind that it is not necessary that every asset should remain for twelve months in possession; but a Sahib-e-Nisab has to pay Zakat on the total value of assets standing on the closing date of Zakat year, irrespective of the fact that some assets were brought into possession one or two days before the closing date of the Zakat year.
Nor will transactions that took place during the year be calculated from the date they took place; but they will deemed to be in possession for the whole year.
Moreover there is a misunderstanding that Zakat is payable only on the above mentioned assets in the possession of an individual and businessmen or traders are not liable to pay Zakat on their business assets. That is not the correct concept of a Zakat asset. The zakat liable assets include business assets as well, as discussed below under.
A balance sheet of a company classifies the assets of a business into fixed and current, or circulating assets. The fixed assets comprise of land, building, plant, machineries and other such tangible assets, which are held for the purpose of carrying on the business and not for resale. These fixed assets are, therefore, exempted from payment of Zakat thereon.
However, the current assets, which are normally held for sale or are convertible into liquid asset, that is into cash, are subject to liable for payment of Zakat thereon. Before we discuss the details of such assets, one has to bear in mind that the determining factor to treat any asset, liable for Zakat or not, is based on the intention or 'Neeyat', as it is called in the Sharia, at the time of their purchases.
It has been made clear that all those assets, which have been purchased or held with the intention of resale are assets, liable for payment of zakat. For example, a plot or building or flat purchased with the intention of resale, at an enhanced market price with a view to earn profits thereon, Zakat will be payable on such assets at the market value of the plot etc, prevailing on the date of closing of the Zakat year, if it is not sold by that date. But, in case, if at the time of purchase of such an asset, there was no intention of resale, but the purpose was to make an investment to build a house or let it out, in such a case there will be no Zakat on it.
Moreover, if such an asset was purchased with the intention to build a house on the plot and later the intention was changed to resell it; in that case the Zakat will be leviable only on the sale of the plot on the sale proceeds of it.
(To be concluded)
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