1/4 of the world’s people already subject to large annual wealth tax to tackle poverty. Has anyone told Piketty?

March 27, 2015

     By Duncan Green     

A few years ago, I sat next to a young muslim guy from Birmingham on a plane, and he told me how frustrated he was with the Zakat-mainway his community’s annual act of alms-giving, known as Zakat, was managed – no accountability, no real checks on where it goes or what it achieves. I’ve wondered about that ever since, so yesterday I went online to watch the launch of An Act of Faith: Humanitarian Financing and Zakat, a new report by the Global Humanitarian Assistance (GHA) programme. The report is excellent. Here’s my summary and a few comments:

What is Zakat?

All of the world’s major religions contain some element of almsgiving, but Zakat is different because it is mandatory for all Muslims who are able to pay it, and is one of the five pillars of Islam. The word Zakat can be translated to mean ‘purification’ or ‘growth’. Through Zakat, Muslims are required to give a proportion – traditionally defined as one-fortieth, or 2.5% – of their accumulated wealth for the benefit of the poor or needy (and other recipients as highlighted in the verse of the Qur’an, below).

“Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (To Truth); for those in bondage and in debt; in the cause of God; and for the wayfarer.” (Qur’an 9:60)

Has anyone told Thomas Piketty and the inequality campaigners that we already have a global wealth tax in place. And rather a large one, affecting one in four of the world’s people?

Donations overtake receipts in Indonesia

Donations overtake receipts in Indonesia

What are the Numbers?

The short answer is we don’t know, but it’s a lot of cash. The paper cites previous global estimates of anywhere between US$200 billion and US$1 trillion a year. A speaker at the launch (couldn’t find the names on the webpage, sorry) pointed out that 2.5% of the combined GDP of the Middle East and North Africa comes to $65bn a year.

According to the report:  ‘Data we have collected for Indonesia, Malaysia, Qatar, Saudi Arabia and Yemen, which make up 17% of the world’s estimated Muslim population, indicates that in these countries alone at least US$5.7 billion is currently collected in Zakat each year.

We estimate that the global volume of Zakat collected each year through formal mechanisms is, at the very least, in the tens of billions of dollars. If we also consider Zakat paid through informal mechanisms, then the actual amount could be in the hundreds of billions of dollars.’

Zakat and Humanitarian Response

Islamic countries are central to humanitarian response both as recipients and (increasingly) as donors. Between 2011 and 2013, international humanitarian assistance from governments within the Organization of Islamic Cooperation (OIC) grew from US$599 million to over US$2.2 billion, a growth in the share of total international humanitarian assistance from governments from 4% to 14%. A speaker at the launch claimed that Turkey is now the world’s third largest humanitarian donor (Syria, Somalia). At the same time, an estimated 75% of people living in the top ten recipient countries of humanitarian assistance in 2013 were Muslim.

The report found that ‘between 23% and 57% of Zakat currently collected is used for humanitarian assistance, depending on the context in which it is raised and used…. the amount of Zakat potentially available in both Indonesia and Pakistan could meet all current requirements to respond to domestic humanitarian emergencies, with significant amounts remaining to cover other areas of Zakat spending.’

How is Zakat collected?

Government-collected: Zakat In Islamic and Muslim-majority countries is collected and distributed by the state. Six Zakat UScountries have legally enforced payments of the Zakat; for three of these, the responsibility of the state for collecting Zakat appears in the national constitution.

Independent collection and delivery agencies: In some Islamic and Muslim-majority countries, the government oversees the collection and distribution of Zakat, but independent agencies are given a license to manage the process. This is the case in Malaysia, for example, where individuals can choose which approved agency they pay their Zakat to.

In countries where Zakat is not managed by the state and there is no governing body overseeing collection and distribution, Muslim citizens can choose how to pay their Zakat and to whom. Many Muslims living in Muslim-minority and/or non-Islamic countries choose to pay their Zakat to charities or other NGOs, which use the money to fund their own programmes.

Mosques: Mosques collect large sums of Zakat, particularly in non-Muslim countries with no centralised or government-managed Zakat collection agency. Zakat collected by mosques may be spent on the mosque itself – such as on upkeep or renovations – or it may be distributed by the mosque to local people in need. Some may also be passed onto a third-party organisation, such as an Islamic charity or international NGO.

Individuals: Some Muslims believe that Zakat should not be paid via a third party; rather that it should be a direct transaction between the person giving (the muzakki) and the person receiving it (the mustahiq). Many people therefore give their Zakat directly, perhaps to someone in need who lives within their community, or to someone further afield with whom they have connections. In this way, funds given through Zakat may contribute to money sent abroad in the form of remittances.

Could Zakat provide big new flows of money for humanitarian response?

Potentially. However, ‘there are a number of possible barriers that will need to be overcome if Zakat is to fully realise its humanitarian potential’. According to the report, ‘These fall into two main categories:

• Logistical – such as streamlining and formalising how Zakat is collected, by whom, and how it is channelled to the humanitarian response community.

zakat calculator

• Ideological – such as how best to manage conflicting opinions on whether non-Muslims can benefit from Zakat and where it can be used. The question of whether non-Muslims can benefit from Zakat is central to discussions concerning the compatibility of Zakat with humanitarian principles.

To begin to address these barriers, interested parties need to focus efforts in five areas:

1) Humanitarian donors and agencies should engage in discussion with academics, Islamic scholars, theologians and practitioners, and share learning on the use of Zakat for humanitarian assistance.

2) An independent and credible global body that has taken part in these discussions needs to provide guidance on the parameters of reasonable interpretations of Zakat.

3) Actors at all levels – including small, local Zakat-receiving organisations, national and international NGOs, and the UN should work together to improve channels between Zakat funds given and the international humanitarian response system.

4) Resource-mobilisation efforts should focus on increasing Zakat revenues and channelling new funds to humanitarian assistance, rather than redirecting existing funds.

5) Efforts to increase the use of Zakat for humanitarian assistance should be combined with those of the wider development community to ensure a complementary approach.’

The main additional points that came across on an intermittent webstream from the launch were:

a) serious problems in internationalizing flows of Zakat, due to the proliferation of counter-terrorism and money laundering controls on flows such to countries like Somalia

b) huge suspicion both of governments and international organizations (bureaucracy, theft), leading to a call for an organization such as the Islamic Development Bank to set up some kind of Zakat International (apparently they are doing some initial thinking about it). Some thought the 2016 World Humanitarian Summit in Istanbul would provide the perfect launchpad for some kind of initiative.

c) Insistence that this should be a two way process. Not just about how to hoover up Zakat to fund a western-designed humanitarian system, but also about what that system can learn from Islam.

What did I miss?