The Islamic Tax System – Part I


In the first part we shall look at the taxes which a Muslim is obliged to pay. According to the Islamic Law (Sharia) all Muslims having a minimum threshold annual income (Nisab) are ordained to pay taxes as described below: 

  • Zakat
  • Fitra on Eid Al Fitri (Eid after the Holy month of Ramazan)
  • Udhiya (Animal Sacrifice) on Eid Al Adha (Eid after the Hajj)

 Definitions of these terms:

  • Nisab is the Arabic term used for defining the poverty line.
  • Zakat is an annual tax which should be paid on all of your personal monetary, gold, silver savings and agricultural produce. The importance and significance of Zakat under Islamic Law can be gauged from the fact that it is one of the five pillars of Islam.
  • Fitra is a festival tax collected before the Eid Al Fitri prayer the purpose of which is to subsidize and help the poor people of the area to enjoin in the festivities of Eid Al Fitri.
  • Udhiya is the animal sacrifice given on the day of Eid Al Adha in the memory of Prophet Ibrahim (Abraham) (PBUH) who sacrificed his son Ismaeel (Ishmael). The meat from the sacrifice is divided into three equal parts. One part for the poor people, the other part for your relatives and the third part for your household.

 The calculations of taxes: 

  • Zakat is calculated at the rate of 2.5% on all of your monetary, gold and silver savings. However on Agricultural produce the calculation differs depending on the kind of land you have. If it is a dry land then you are obliged to pay only 10% of your produce. If it is a wet land then you are obliged to pay 20% of your produce. Therefore the range of Zakat is between 2.5% to 20% of your total wealth after the end of the year.
  • Fitra is a purely variable amount calculated based on the cost of living index pertinent to the locality you live in at the time. In the United Stated the amount is fixed at $8.00 per member of the household and in India it is about INR Rs 50.00.
  • The udhiya is the animal you choose to sacrifice. It is obligatory only on the adult members of your household. There is no restriction on the kind of animal and is left to ones discretion and generosity. The generally acceptable single unit of sacrifice is a goat, sheep or lamb. The cow and camel constitute multiple units of sacrifice. For example sacrificing a cow is equal to 7 sheep’s.

 The Obligation of Zakat: 

  • The Islamic ruling (Fatwa) on those who don’t pay the Zakat willingly without any justification is Apostasy.
  • The Quran says: Take a portion of their (The Muslims) wealth as zakat (9: 103)
  • The Quran says: The proceeds of the Zakat are for the poor and the needy, and for those employed in connection with their collection and distribution, for those whose hearts are to be comforted, and for the freeing of slaves, and for those burdened with debt, and for those striving in the cause of Allah, and for the comfort of the wayfarers. This is an ordinance from Allah. A1lah is All Knowing, Wise. (9:60).
  • The verse just cited requires the state to establish a department for the collection and dispensation of the Zakat.
  • As Abu Bakr (RAH) was the Khalifa (successor) after Prophet Mohammed (PBUH) it was his obligation to collect the Zakat in the way as the Holy Prophet himself collected it. That is why he affirmed that if any Muslim, who paid Zakat to the Holy Prophet, would withhold from him as little as the nose-string of a camel that he used to render, he would acquire it from him by the sword if necessary.
  • When some tribes of Medina refused to pay the Zakat to the new government of Khalifa Abu Bakr (RAH) he declared them as Apostates (Non-Muslim)
  • He then immediately waged a war with them in the face of such defiance and rebellion.

 Payment of Zakat during Mughal Rule: 

The extract below is the paragraph from a letter written by Aurangzeb to Shah Jahan who was in confinement at Agra Fort: [Source: Aabad-e-Alamgiri compiled by Inayatullah Khan Kashmiri] exhibits that the Zakat was paid during Mughal Rule even by the Emperor.

“It was written by your majesty, that seizing the possessions of another was contrary to religion. Surely it cannot be unknown to your mind, expansive as the ocean, that the treasures of kings and rulers are for the good of the state and religion; not a personal property or inheritance. From hence it is that the Zakat of such property is not given in personal charity. The Most High commits them for a time to each of the accepted of his presence, for the support of mankind, and resigns to such chosen agent the reins of government; that dealing with all according to the rules of justice, and regarding the rights of claimants with fairness and integrity, he may consider himself merely as a trustee for the pub­lic good. Perhaps, the learned of this age, from fear or flattery, may not have informed your majesty, that no one can claim the public treasure as his sole property.”