Fiscal justice beyond the tax trap—IV Zakat & Ushr rooted in public trust

A family buying necessities and an owner accumulating wealth do not meet the state on equal terms. Consumption is visible whenever money changes hands. Ownership can remain sheltered behind exemptions, opaque valuations and political influence. A fiscal system that repeatedly reaches the first while accommodating the second cannot become just merely by collecting more efficiently. Our search for an alternative must begin with that imbalance.

Part III distinguished property, wealth and returns. Zakat and Ushr now require equally careful treatment. Their relevance lies in the proposition that possession carries obligations towards others. Their credibility depends on institutions that honour those obligations. Invoking familiar religious language will achieve little if the money enters another opaque fund and the recipient must seek a favour to obtain assistance.

This discussion also sharpens our disagreement with Dr. Ehtisham Ahmad and other advocates of consumption-tax reform. Dr. Ehtisham Ahmad’s 2024 paper recognises colonial inheritance, post-Independence centralisation and geopolitical rents. It also recognises that Pakistan’s general sales tax (GST) operated as a production excise. These are substantial admissions.¹

The question is whether the proposed remedies adequately confront the distribution of economic power, the experience of taxpayers and the conditions under which public institutions earn trust.

Our earlier series, When VAT ceases to be VAT, [Minute Mirror, August 25, 2025] identified the practical failure. Value added tax (VAT) depends on credit for business inputs and timely refunds. Where legitimate credit is denied, tax becomes a business cost; where refunds are delayed, producers finance the state. Gross withholding can compound that burden. A digital platform cannot repair those defects unless the underlying rules and incentives change.²

The same discipline must govern the alternative. Zakat is not a convenient label for a charge on every asset. A Zakatable base requires rules about eligible wealth, thresholds, ownership, liabilities and holding periods.

The familiar 2.5% rate cannot simply be multiplied by national wealth, still less by gross domestic product. Punjab’s official account describes compulsory collection on specified scheduled assets; the State Bank’s 2026 circular separately addresses deductions from specified bank accounts.³ We are proposing institutional improvement, not discovering an institution that Pakistan lacks.

Ushr requires a separate agricultural assessment. A crop is a flow of output; land is a stock of wealth. A tenant who cultivates a crop is not necessarily its landowner. Any proposed schedule must therefore explain liability, production conditions, crop failure, subsistence protection and the relationship with agricultural income tax. Applying one percentage to agricultural GDP would conceal these differences. Existing provincial legislation and assessment rules must be the starting point for reform.⁴

There is Pakistani research to build upon. Nasim Shah Shirazi’s study, published in 1996 using 1990–91 household data, found that a substantial share of programme transfers reached the intended group, but coverage extended to only 2.7% of households. The study also identified limitations in the data.⁵ This is historical evidence of a reach problem, not a current coverage estimates. It demonstrates why the existence of a redistributive obligation cannot establish the effectiveness of its administration.

More recent research makes trust impossible to ignore. Philanthropy in Pakistan, published by Indiana University’s Muslim Philanthropy Initiative in 2025, reports a nationally representative survey of 2,000 respondents. Its findings highlight preferences for direct giving and distrust of state institutions.⁶ This does not establish how much additional money a reformed public fund would receive. It does challenge the assumption that people’s willingness to help others translates automatically into willingness to entrust money to government.

The institutional response should be concrete. Publish collections, administrative costs, disbursements and unspent balances on a regular schedule. Independently audit both financial records and beneficiary selection. Give applicants clear eligibility criteria, reasons for rejection and an accessible appeal. Report outcomes without exposing recipients’ identities. Local knowledge can help identify need; unchecked local discretion can also reward connections. Public trust requires a means of correcting both exclusion and favouritism.

Religious purpose also sets limits. The recipient categories identified in the holy Quran, including the poor, needy and indebted, require a defensible framework for allocation.⁷ A Zakat fund cannot become an unrestricted account for every government expense. Nor should equal citizenship depend on eligibility for a particular religious fund. General revenues must sustain inclusive public services and assistance for people outside its remit. Reform must accommodate doctrinal diversity and lawful exemptions rather than treat them as administrative nuisances.

Manan Aslam and Shahzaib Shaoor’s recent Business Recorder article usefully presents Zakat as complementary social finance.⁸ That distinction matters. Greater formal collection may partly redirect payments already reaching families through private channels.

Government receipts can rise without an equivalent increase in total resources reaching people in need. Our evaluation must ask who receives more, who receives less and whether improved targeting compensates for any displacement of existing support.

Consider an explicitly hypothetical illustration. An eligible base of Rs. 10 trillion, charged at 2.5% with 60% effective collection, yields Rs. 150 billion before costs. If Rs. 40 billion replaces earlier giving and administration costs Rs. 5 billion, additional resources are Rs.105 billion, assuming unchanged targeting and no other displacement.⁹

These are invented scenario inputs, not estimates of Pakistan’s base or receipts. The example explains why impressive gross totals are insufficient evidence of fiscal success. The same honesty applies to lower consumption-tax rates. Our book’s 8% proposal and the later VAT series’ transitional 10% proposal are distinct policy designs.¹⁰

Neither is a scientifically established optimum. Their performance depends on coverage, compliance, credit, refunds and expenditure commitments. General revenues and restricted social funds need separate accounts; the same payment cannot finance both ledgers. Relief for productive activity must follow a credible financing path.

A research programme should compare actual household resources under alternative packages. Measure consumption-tax burdens, direct liabilities and transfers together; then examine poverty gaps, employment, investment and compliance costs. Provincial pilots can test transparent collection and delivery against a documented baseline. Independent evaluation should track private giving as well as public receipts. Where rates, enforcement and administration change together, the measured effect belongs to the package, not automatically to the lower rate.

This is the substantive challenge to reform orthodoxy: demonstrate that the proposed system protects livelihoods, reaches previously sheltered capacity to pay and delivers accountable services. Collection ratios and international analogies cannot answer those questions alone. Equally, our own alternative must survive the same examination. Its moral appeal is a reason to investigate it seriously, not permission to exempt it from scrutiny.

Pakistan needs neither another imported prescription presented as settled science nor another promise that one levy will pay every bill. It needs a fiscal settlement rooted in its society and open to verification: predictable burdens on productive activity, effective contributions from ownership, and Zakat and Ushr institutions whose accounts and outcomes citizens can inspect. The measure of success is whether people live with greater security and dignity, and whether those entrusted with their contributions can be held answerable.

[To be Continued]

Endnotes

1. Ehtisham Ahmad, “Political Economy of Tax and Digital Transformations in Pakistan,” The Pakistan Development Review 63(2) (2024), pp. 135–160, particularly pp. 138–143. These passages establish the historical and institutional discussion acknowledged here; they do not establish an optimal Pakistani tax rate.
2. Dr. Ikramul Haq, “When VAT ceases to be VAT—II: Withholding, blocked credits & fiscal Balkanisation,” Minute Mirror; read with Parts I and III. The retained Part II manuscript expressly acknowledges common ground with Ahmad while contesting sequencing and institutional design.
3. Punjab Zakat and Ushr Department, “Overview,” describes scheduled assets subject to compulsory collection. State Bank of Pakistan, BPRD Circular Letter No. 03 of 2026, 17 February 2026, forwards the notification dated 16 February 2026 concerning specified savings and profit-and-loss-sharing accounts. Neither source supplies a comprehensive national Zakatable-wealth estimate.
4. Punjab Zakat and Ushr Department, “Rules & Regulations,” lists the Punjab Zakat and Ushr Act 2018, the amendment identified on that portal and the Ushr (Assessment and Collection) Rules 1994. The article sets out design questions; it does not prescribe a uniform current provincial rate or certify a consolidated nationwide legal schedule.
5. Nasim Shah Shirazi, “Targeting, coverage and contribution of zakat to households’ income: the case of Pakistan” (1996). The author’s institutional research record reports the use of 1990–91 Household Integrated Economic Survey data, sample limitations and 2.7% household coverage. The finding is historical and descriptive, not a contemporary causal estimate.
6. Y. Supiyan, S. Siddiqui, J. Cheema, R. Wasif, S. Kesgin, N. Haque and S. Thapa, Philanthropy in Pakistan (2025), Muslim Philanthropy Initiative, Indiana University Lilly Family School of Philanthropy. Institutional abstract: nationally representative survey, n = 2,000. Reported preferences and trust perceptions do not identify the revenue effect of a new public programme.
7. Quran, Surah al-Tawbah, 9:60. The verse identifies recipient categories of sadqat (donations etc); the article does not claim that it specifies one uncontested modern administrative model. Allocation rules require transparent treatment of relevant interpretations.
8. Manan Aslam and Shahzaib Shaoor, “Rebuilding fiscal justice: a Zakat-based alternative to Pakistan’s tax trap,” Business Recorder, 14 October 2026. Their proposal is explicitly complementary to taxation. The displacement issue developed here is an accounting and evaluation requirement, not a measured result from their article.
9. Author’s hypothetical accounting: Rs.10 trillion × 0.025 × 0.60 = Rs.150 billion gross; Rs.150 billion – Rs. 40 billion displaced giving – Rs. 5 billion costs = Rs. 105 billion. All inputs are illustrative. Public cash receipts, additional aggregate welfare resources and distributional gains must be measured separately.
10. Huzaima Bukhari and Dr. Ikramul Haq, Towards Broad, Flat, Low-rate and Predictable Taxes, 3rd edition (PRIME, 2024), as recorded in the series programme; compare Dr. Ikramul Haq, “When VAT ceases to be VAT—III: Rebuilding the invoice-credit chain,” Minute Mirror, 27 August 2026, proposing an interim broad 10% federal goods VAT. The programme records an 8% goods-sales-tax proposal in the book. These rates must not be merged in later modelling.

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.