ISLAM PILLAR 3:
What is Taxation (Zakat) in Islam?
I am only using the term “taxation” for explanation and simplification purposes. Taxation (Zakat) is not like the average tax systems you see being applied by the world governments. It is more like a welfare/financial help/charity program that is here to aid the persons in financial need. Also, I did not use the term charity because charity is known as voluntary but the taxation is obligatory for Muslims. This taxation system is not designed by humans; any human creation has its faults and pros/cons. Zakat is Allah’s creation, the All-Wise, the One who knows what’s best for humanity.
Benefits of Taxation (Zakat)
If the Islamic taxation system is in use by the governments of the world, you wouldn’t see a single suffering person (due to hunger or financial crisis) on the streets and the world would be a better place. Zakat comes from the word Zaka in Arabic which has two meanings: purification and enhancing/increasing. The understanding is that when giving zakat you are technically not losing money, but you are giving a small amount of your wealth to purify it so you will get additional blessings to your money, business and family. In chapter Al-Tawba, verse 103, Allah ordered the prophet Mohammed (PBUH): “Take from their money Sadaqa (Charity) so it can cleanse them and purify them”.
Who pays Taxation (Zakat)?
if someone’s wealth reaches a nisab (a certain amount of wealth) then it is obligatory to pay the taxation. According to the majority of Islamic scholars, the nisab equals to 85 grams of gold or 595 grams of silver. If you own gold then you use the gold nisab and if you own silver then you use the silver nisab. But since our wealth is currency money then we calculate based on the value of cash we own. Do you selet gold or silver to calculate the value of your cash? There are two sides for this between Islamic scholars. One side says that you use the lesser amount which is silver, and the other says you use gold. I highly suggest you consult with an Islamic scholar in your local area as he will be able to give you the correct answer based on your situation.
How to calculate the Taxation (Zakat)?
Islamic taxation (zakat) is taking a small portion of the person’s wealth and giving it to the persons in financial need. Wealth is money savings (in bank/cash), gold, silver, stocks, agricultural goods, investments, trades, etc. The zakat is paid once a year (based on a lunar year/calendar) and it is ONLY 2.5% of your wealth. A brief example: let’s say you earned $10,000 and you don’t need to spend this money so you are saving it and it is Ramadan 2016. If Ramadan 2017 arrives and you still have that $10,000 saved up then you must pay zakat on this amount ($10,000 X 0.025 = $250). If this amount increased or decreased during that year (even if it’s one week before the due date) then you do the same calculation for the new amount. If you do not have wealth and you are just able to cover your monthly expenses with the money you have then you are exempted from paying zakat. Please make sure when you are doing your zakat to consult with your local masjid imams (scholars) because every case is different and I am only giving you a basic idea of zakat.
Who is eligible to receive Taxation (Zakat)?
This is clearly shown in Chapter Al-Tawba, verse 60: “Sadaqat (charities) are only for the poor and the needy and those who are in charge thereof, those whose hearts are to be reconciled and to free those in bondage, and to help those burdened with debt, and for expenditure in the way of Allah, and for the wayfarer. This is an obligation from Allah, Allah is All-Knowing, All-Wise”. You can give zakat to anyone you personally know if they fall within the criteria (besides your grandparents/parents/wife/children) or you can find a zakat box in every mosque/Islamic institution.
One thing that I love about Islamic taxation and charity system is that it is very reliable, unlike those charity institutions you see these days where half of your money is going in their pockets and you don’t even know where the rest goes. As a Muslim, you can put the money right in the person’s hand (who is eligible) and the only one who can evaluate your intentions is Allah. Another point, to be clear on everything, the zakat amount you owe is no longer yours and if you decide not to give it to an eligible person then know that it is haram (forbidden) on you and that you are committing a sin by not giving it away. It is like stealing from the poor and causing them to suffer in their lives. No one will see your actions and no one will judge you, but you are accountable for this on judgment day. Zakat is about love and unity between the rich and poor, where the rich helps the poor financially and the poor helps the rich spiritually (by praying for them).
Zakat Al-Fitr is a small charity that is obligatory on all muslims (regardless of age) in the month of Ramadan. Mosques or Islamic institutions that collect Zakat Al-Fitr have to distribute the money among the poor or others in need before the end of Ramadan. The amount for this charity is usually the average price of a meal in the area where the Zakat is given. Let me use an example to clear the picture; Let’s assume that you’re a married man/woman with 3 young children (1, 3, and 5 years old) and living in the Toronto area in Canada. Based on this scenario, the husbad should give Zakat Al-Fitr for 5 people and the average price of a meal in Toronto is $10, and therefore, the total amount would be $50.
Charity (Sadaqa) in Islam
The non-obligatory/voluntary sadaqa (charity/donations) has an outstanding high reward in this life and the hereafter. Even if you are a low-income person and you want to gain some precious good deeds then it is your opportunity to give sadaqa (since you are exempted from giving the obligatory zakat). In Islam, sadaqa is not only money but can be defined in other ways such as donating your time, helping others in any way, educating others, listening to others, comforting others or even smiling at others. You should know that giving a penny may be nothing to you, but on Allah’s scale it is very high. In chapter Al-Munafiqoon, verse 10: “And spend (in the way of Allah) from what we have provided you before death approaches one of you and he says: My Lord if only You would delay me for a brief term so I would give charity and be among the righteous”. When a person dies, his/her vision becomes solid and clear. The verse refers to the person who wanted to return to life only to give charity because after death he realized how important it is and how much it would have changed his status on judgment day. May Allah make us among those who give taxation (zakat) and charity (sadaqa).