Mubarak Zeb Khan reveals where the Zakat deducted from our banks is supposed to go, but doesn't

The collection of Zakat on savings accounts and financial instruments has remained static at around Rs4 billion for the past three years, reflecting that the collection is not keeping pace with the economic growth. The government received an amount of Rs3.938 billion in Zakat in the fiscal year 2012 as against Rs3.915 billion in the previous year, reflecting a minor growth.

This poor Zakat collection is attributable to structural and policy level lacunas in the collection and its disbursement system. Generally, people withdraw money from their accounts on the advent of Ramazan or present an undertaking to prevent deduction of Zakat from their accounts.

The collection and disbursement of Zakat on state level was introduced by Ziaul Haq in June 1980. In order to escape this enforced Zakat collection people would either draw out their money before the first day of Ramazan or file an affidavit claiming to be from a non-sunni sect. Now the system is more flexible and anyone can file a Zakat exemption form. People avail this facility due to lack of trust in the government as previous regimes have all too often used the Zakat fund for their own purposes.

According to the seventh National Finance Commission (NFC) Award, announced in 2009, Zakat collection and distribution was devolved to the provinces, but the central government was reluctant to follow through with this plan. The then minister of religious affairs, Syed Khurshid Ahmad Shah had taken the decision that the centre would continue Zakat collection until 2015.

So this denial of constitutional rights to the provinces by the previous PPP-led coalition government may surface again because provinces were also not getting due shares from the collection by the central government. Currently, the federal government distributes the Zakat amount collected among provinces on the basis of sixth NFC award and 1998 census instead of the seventh NFC award.

Currently, Zakat is levied on accounts and financial instruments. The nisab (minimum amount) for Zakat deduction has been set at Rs41,872 for the year 2013. And Zakat is being charged only on 11 assets contained in the first schedule of the Zakat and Ushr Ordinance-1980.

These assets which are subject to Zakat deduction include saving bank accounts; notice deposit accounts and receipts, fixed deposit accounts and receipts; saving/deposit certificates accounts and receipts; National Investment Trust (NIT) units, Investment Corporation of Pakistan mutual funds certificates, government securities on which the return is receivable by the holder periodically, securities including shares and debentures of companies and statutory corporations on which return is paid, annuities, life insurance policies and provident fund credit balances.

Under the Zakat and Ushr Ordinance 1980, property was exempted from the levy of Zakat because that was covered under the collection of wealth tax. But the government abolished wealth tax in the year 2002 therefore making a strong case for the imposition of Zakat on real estate.

The government raised more than Rs5 billion revenue annually under the Wealth Tax Act 1969, from property assets before it was annulled in 2002. And the rate of Zakat and wealth tax was also the same, which stood at 2.5pc. This means that the levy of Zakat was limited only to savings accounts and savings instruments.

Currently, Zakat funds go for medical treatment of poor patients at 14 national level hospitals and health institutions including the Nishtar Hospital (Multan), CGH (Rawalpindi), Kidney Centre (Karachi), the Khyber Teaching Hospital (Peshawar), Government Lady Reading Hospital (Peshawar) and the Lady Dufferin Hospital (Quetta). The country’s leading hospitals are also given an annual grant of Rs500 million, while the remaining amount is distributed among provincial Zakat councils.

The overall Zakat amount goes under eight major heads — guzara allowance, education stipends, stipends for students of deeni madaris, healthcare, marriage assistance to unmarried women, education stipends (technical) and Eid grant along with the 14 designated hospitals. On individual basis, a deserving family gets Rs3,000 every six months. Unfortunately, due to scarcity of funds, there is hardly any person who is satisfied with the assistance received from the Zakat fund.

The major flaw in the distribution of Zakat is that the money is given without assessment of the person’s need. As a result a large number of non-deserving people claim Zakat payment. The general public and local Zakat committees are responsible for all this undue payment of Zakat to non-deserving people. In short, the government needs to take some practical steps to revive the confidence of the people in the Zakat system, its collection and disbursement among the needy people of the country.