The Zakat and Ushr (Zakat of land), one of the fundamentals of Islam, refers to the obligation of every wealthy muslim to give charity to those who are poor, handicapped, disabled, widows and orphans who, under normal circumstances, are not in a position to make their living. These target groups of the society, taken collectively, are called Mustahequeen. The ‘Wealthy’ is defined in terms of Sahib-i-Nisab, i.e. who has assets equal to the value of 88.3 grammes of gold or 612.32 grammes of silver. The minimum standards of charity are specified in the annual rates of Zakat determined in the Islamic Sharia:

2.5 per cent on gold, silver, and money,
10 per cent on produce of rain-fed land,
5 per cent on produce of irrigated land, and
5 per cent on privately extracted minerals.

Ushr is collected in cash from every land-owner, grantee, allottee, lessee, lease holder or land holder at the rate of 5 per cent of his share of the produce as on the valuation date, after deducting one-third of the total produce if land is tube-well irrigated and one-fourth if rainfed. Ushr is payable only if produce accruing to a person is at least 5 wasqa (948 Kgs.) of wheat or its equivalent in case of other crops. Land revenue is not charged on the land if its produce has been charged for Ushr. The Ushr liability is computed on self-assessment basis.¹

¹ Although there is a provision to exempt marginal farmers from Ushr payment, the non-progressive implications of a flat rate tax need to noted.

The payments on account of Zakat and Ushr are supposed to be made voluntarily; but in the absence of such a practice, it becomes the responsibility of the state to enforce the system of Zakat collection and distribution.

Zakat collection must be spent in payments to Mustahequeen while the Ushr collection can also be utilized in social welfare projects. Moreover, Ushr collection in a locality must be spent in the same locality whereas no such restriction exists for Zakat funds.

As an anti-poverty policy, Zakat has superiority over other policies in many respects. Unlike other policies (mentioned in the preceding section) where it is hard to approach the poor without benefiting the rich, the Zakat system exclusively deals with the poorest sections of population since it is only the extremely poor who, under the rules, are entitled to benefit from Zakat. In this sense, Zakat acts as a safety net providing protection against extreme poverty and malnutrition.

In the process of Islamization of the economy, the present Government promulgated on June 20,1980 the Zakat and Ushr Ordinance which became operative with immediate effect in the case of Zakat while the provisions relating to Ushr came into effect from March 15,1983.

Compulsory Zakat deduction at source is made in respect of all those bank deposits, shares, securities, and insurance schemes which earn profit or dividend. These include eleven assets:

(i) Saving Bank Accounts

(ii) Time Deposits Accounts

(iii) Fixed Deposits Accounts paying profit periodically

(iv) Fixed Deposits and Certificates paying profit on encashment

(v) National Investment Trust Units

(vi) Mutual Funds Certificates of Investment Corporation of Pakistan

(vii) Government Securities

(viii) Shares

(ix) Annuities

(x) Life Insurance Policies

(xi) Provident Fund.

On items (i) and (ii) Zakat is deducted each year on the first day of the month of Ramazan, whereas in the case of other assets, on the date on which the first return is paid or on the date of encashment, or withdrawal or maturity. The exemption limit or the definition of Sihib-i-Nisab is determined by the prevailing market value of 612.32 grammes of silver. The amount thus collected by the financial institution is deposited in the Central Zakat Fund which then makes releases to all the provinces for onward distribution through Zakat Committees constituted for this purpose.

Comprehensive institutional arrangements have been made for the enforcement of the Zakat system (i.e. collection and its distribution among Mustahequeen) through constituting Zakat Committees and councils at all levels and in all provinces.

Institutional Arrangements

About 82 per cent of the Local Zakat Committees are located in rural areas. These committees not only disburse Zakat earmarked to them by the Provincial Zakat Councils, but also collect Zakat on voluntary basis.

Total Zakat collection through both mandatory deduction and voluntary collection amounted to Rs. 856 million, 908 million, and 1,028 million respectively during 1980/81, 1981/82, and 1982/83. The collection for 1983/84 upto March 1984 amounts to Rs. 958 million. The amounts of Zakat released to the Provinces for onward disbursement for the same periods are Rs. 750, 500, 750 and 750 million.¹

¹ Ministry of Finance, Government of Pakistan, Pakistan Basic Facts 1982-1983. Islamabad 1983.

Zakat funds are being used for three purposes:

i) Rehabilitation of Mustahequeen,
ii) Scholarships to Mustaheq Students, and
iii) Cash payments to Mustahequeen.

The activities in the rehabilitation include providing sewing machines to widows and poor girls, arranging dowry for marriages of orphan girls, and opening small business for those active members of population who are unable to do any work due to lack of finances. Almost 30 per cent of the Zakat disbursed is being utilized for these programmes.

A Zakat scholarship scheme has been introduced for Mustaheq students in all kinds of institutions and at all levels of education. In 1982/83, 32,600 scholarships were granted to Mustaheq students. During 1983/84 (upto February 1984), more than 60,000 scholarships were awarded at all levels.²

² Central Zakat Administration, Ministry of Finance, A Brief Introduction to the Zakat and Ushr System in Pakistan. Mimeo., 1984.

Under cash payments, subsistance grants are given to the Mustahequeen either directly or through some institution, such as hospital, Deeni Madaris, etc. The amount of grant is not fixed but is need-based. Under the existing institutional arrangements, there is not much problem in identifying and approaching the poor for this purpose. The members of the Local Zakat Committees which are responsible for distributing subsistence grant in a locality are chosen from the residents of that very locality and as such they personally know each and every person living in that locality.

The details of the uses of Zakat for all the three purposes may be seen in Table 6.6.

For 1981/82, over two million Mustahequeen on national basis were assisted through Zakat, out of which 1.8 million belonged to the rural areas¹. Assuming that 30 per cent of the rural households are below poverty line, it implies that over 50 per cent of the rural poor families are being approached and assisted through Zakat scheme. Considering the meagre amount of grant in certain cases, one cannot claim that all these families have crossed the poverty line; yet it is evident that at least destitution or worst type malnutrition is being taken care of Secondly, the scholarship scheme is designed to tackle poverty as an obstacle in the way of achieving the educational goals of the poor. The scheme is being further enlarged with a view to ensuring that no student who is willing and capable of acquiring education is deprived of the opportunity simply because of his or his parents’ financial inability. Thirdly, the programme for permanent rehabilitation intends to enable the poor to become a respectable earning member of the society rather than depending permanently on dole. To quote from the Finance Minister’s inaugural address of the Annual General Meeting of the Pakistan of the Pakistan Society of Development Economists (March 17,1984).

“Direct financial assistance is now being provided to the bottom 10 per cent of all families in the country. Increasingly, an attempt is being made to use Zakat funds for the permanent rehabilitation of the Mustahequeen and for the institutionalisation of assistance to the deserving sections of the society. Personal charity is being replaced by a dignified and constructive support and rehabilitation of those below the poverty line as a national responsibility” (P. 18).

¹ The rural portion of the total Mustahequeen benefitted has been estimated by using the proportion of the Local Zakat Committees located in rural areas (82 per cent).

Table 6.6 Pakistan: Uses of Zakat Funds

Source: Central Zakat Administration, Ministry of Finance, Government of Pakistan.

Being quite recent in its enforcement, the only experience of Ushr collection attained so far pertains to the year 1982/83. The preliminary statistics currently available for this period are reported in Table 6.7.

Table 6.7 Pakistan: Ushr Assessment and Collection

(Rs. Million)

As compared to the value added of agricultural crops, these figures appear to be substantially on the low side. In order to have a more realistic picture one will have to wait till the system gets established. However, on the basis of the provisions of the scheme, one can estimate the likely collection of Ushr and its welfare impact (see Table 6.8).

It may be seen from table 6.8 that, if properly implemented, Ushr collection would provide an amount of over 800 million Rupees to be used exclusively for the economic uplift of the rural population. A part of it may be combined with Zakat and distributed amongst Mustahequeen whereas a part may be utilized to finance social welfare projects in the rural sector. The former is expected to reduce rural poverty by directly increasing the purchasing power of the extremely poor, while the latter will improve their quality of life through setting up a vast structure of social services/amenities. If the entire Ushr collection is used in cash payments to the needy at the rate of Rs. 50 per family per month, it can benefit 1.4 million or 44 per cent of the poor families. Even if it is assumed that the grant of Rs. 50 per month enables only half of the poor families to cross the poverty line, the Ushr scheme alone is capable of reducing the incidence of rural poverty by 22 per cent.

Table 6.8 Pakistan: Estimates of Likely Ushr Collection