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Types of Budget
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The
System of Budgeting
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Classification of Expenditure
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Principles of Expenditure
-
Bait-ul-Mal
In this chapter, if
God will, we shall deal in detail with government budget and
public expenditure.
I- Types of Budget
Budgets in modern
secular states are generally of two types – current budget and
capital budget. Current budget is prepared to meet current
expenditure on civil administration, defence, debt servicing and
other expenses of current nature; whereas capital budget is
prepared to meet for capital expenditure of enduring nature such
as building of infrastructure, educational institutions and health
facilities, tele-communications, defence projects, dams, canals,
power stations, roads and railways.
However, budgeting
in an Islamic state is a little different. All revenues from Zakat,
Ushr and Sadaqat are transferred to BaitulMal (public treasury)
for expenditure on welfare of the poor and needy; while other
revenues from taxes and non-tax resources are allocated for
expenditure on civil administration, defence, economic development
projects, payment of state debt if any, and other items of revenue
or capital nature.
It means that
budget in the Islamic state is of two types: Welfare budget and
general budget. Sources of welfare budget are Zakat and Sadaqat
and it is expended on heads of expenditure mentioned in the Qur’n
(9:60) which concern mainly the welfare and relief of the poor and
have-nots. General budget is financed through taxes and non-tax
revenues, while it is spent on all the current and capital
expenditure of the state pertaining to its general and
administrative activities. However, when funds from Zakat and
Sadaqat fall short of meeting the needs of the poor, the state
would transfer the funds from general budget to welfare budget.
But it cannot be vice virsa i-e, revenues from welfare budget
cannot be transferred to general budget because Allah Himself has
prescribed the heads of expenditure on which Zakat and Sadaqat can
be spent.
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II- The System of Budgeting
The system of
budgeting followed in the Islamic state is that a fair estimate of
revenues from all the resources of the state is carefully prepared
and then distributed for various categories of expenditures. Thus,
in the Islamic State the basis of budgeting is the revenue, which
determines the amount available for expenditure. In simple words,
the system of Islamic budgeting is based on the maxim: “cut your
coat according to your cloth.” Expenditure is determined in
accordance with the quantum of revenues available on account of
taxes and other sources of income of the Islamic State. On the
other hand, the budgeting system being followed these days in
modern states of the world is just the opposite. According to the
modern system of budgeting, an estimate of expenditure under
various heads is prepared and then ways are found to raise the
required finances by manipulating various taxes and sources of
income of the state in order to balance revenue with the
expenditure. Thus, the noticeable tendency on the part of a modern
state is to incur expenditure beyond its means. Huge expenditures
under various heads are undertaken despite scarcity of resources,
which result in substantial deficits. These deficits are financed
through internal and external borrowings, printing of currency
notes, etc. which lead ultimately to inflation and sometimes to
recession and economic depression.
On the contrary,
the Islamic budgetary system is simple, convenient and logical. In
this system we cut our coat according to the cloth available.
Thus, we do not outstrip our means. Expenditure is according to
the revenue available. The budget is normally a surplus or at
least a balanced budget. There is no need of loans or printing of
notes for deficit financing. Thus, the Islamic system provides
safeguards against the dangerous tendencies inherent in the modern
budgets such as heavy debts, inflation, and cyclic depressions and
recessions.
Islam is religion
of moderate or middle way. In spending, the Qur’an has condemned
miserliness as well as extravagance, while moderation in
expenditure has been recommended. Al-Qur’an says:
1.
And let not thy hand be chained to thy neck nor
open it with a complete opening lest thou sit down rebuked,
denuded.
-(17 : 29)
2.
An those who, when they spend, are neither prodigal
nor grudging; and there is ever a firm station between the two.
-(25 : 67)
The principles laid
down by the Qur’an regarding moderation in expenditure are
observed while preparing estimates of public expenditure by the
Islamic state at the time of budgeting.
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III- Classification of Expenditure
Since the Islamic
Shariah has prescribed the items of expenditure in respect of
certain categories of revenues, the classification of expenditure
follows the lines of revenue. In the Islamic State, the revenue
derived is either from Zakat and Sadaqat or from other sources
like Jizyah, Kharaj, etc. Therefore, the broad classification of
the revenues in the Islamic state is as follows:-
1.
Zakat and Sadaqat.
2.
Ghanaim or Spoils like Khums and Fai.
3.
Revenues from Jizyah, Kharaj, Import duties, and
other financial imposts and extra-Sharaih taxes.
The heads of
expenditure of Zakat and Sadaqat funds have been prescribed by the
Qur’an in its verse No. 60 of Chapter 9 which reads as follows:
“The alms are only for the poor and the needy, and those who
collect them, and those whose hearts are to be reconciled, and to
free the captives and the debtors, and for the cause of Allah, and
for the wayfarer; a duty imposed by Allah…………” An Islamic state is
bound-as it is a duty imposed by Allah- to apply the Zakat funds
on the categories of the beneficiaries enumerated in this verse.
Thus, the revealed book of Islam prescribes eight heads of
expenditure in respect of revenues from Zakat and Sadaqat namely:
(1) The poor (2) The needy (3) The collectors of these revenues
(4) Persons whose hearts are to be reconciled (5) Freeing of
captives (6) Freeing of debtors (7) The cause of Allah and (8) The
wayfarers. In the time of the Prophet of Islam and early
Caliphate, Zakat revenues were applied in accordance with Qur’anic
injunctions. Even the modern Islamic state has to apply these
funds on all or any of the heads of expenses listed by the Qur’an.
For second category
of revenues, that is the Ghanaim, the Qur’an has recommended the
items upon which they can be spent by the Islamic state. In its
verse 41 of chapter 8, al-Qur’an prescribes the one-fifth share of
spoils of war for the Islamic state and also mentions the
categories of its beneficiaries. The verse reads: “And know that
whatever ye take as spoils of war, Lo ! a fifth thereof is for
Allah, and for the messenger and for the kinsman (who hath need)
and orphans and the needy and the wayfarer………..” Regarding the
expenditure of revenue from Fai, the Holy Qur’an says: “That which
Allah giveth as spoil unto His messenger from the people of the
townships, it is for Allah and His messenger and for the near of
kin and the orphans and the needy and the wayfarer, that it
becomes not commodity between the rich among you…….” (59 : 7). In
the next verses numbering 8, 9 and 10 of this Surah, mention has
also been made of the poor fugitives (Muhajirin) and the needy
among Ansar of Madinah and also of those who came after them.
Thus, according to the Qur’an, heads of expenditure of Khums and
al-Fai revenues are almost the same, namely: (1) Allah and his
messenger (2) Near of kin (3) The orphans (4) The needy (5) The
wayfarers. The Prophet (PBUH) used to spend his share on his own
needs and on the needs of his family. The share of kinsmen was
disbursed by him among the descendants of Hashim and Abdul
Muttalib. In the times of Hadrat Abu Bakr and Hadrat Umar, the
shares of the Prophet and his kinsmen were spent on the purchase
of weapons for the Muslim armies.
The third group of
revenues i.e. Kharaj, Jizyah, tolls and other financial imposts
which formed major source of governmental income, were spent by
the Islamic state for the expenses of defence, general
administration, public works and all other expenses which cannot
be allowed out of Zakat funds.
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IV- Principles of Expenditure
The following
principles of public expenditure have been laid down by Majallah,
the Ottoman Civil Code, which is based on Sunni Fiqh:
1.
The principal criterion for all expenditure
allocations should be the well-being of the people;
2.
The larger interest of the majority should take
precedence over the narrower interest of a minority;
3.
The removal of hardship and injury must take
priority over the provision of comfort.
4.
A private sacrifice or loss may be inflicted to
save a public sacrifice or loss and a greater sacrifice or loss
may be averted by imposing a smaller sacrifice or loss.
5.
Whoever receives the benefit must bear the cost.
All the above
mentioned five principles should be strictly observed while making
expenditure allocations to various sectors and heads of expenses.
Rule 2, 3, 4 and 5 can also be applied to taxation.
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V- Bait-ul-Mal
Bait-ul-Mal or
public treasury, according to some view, was founded by Prophet of
Islam himself when he established Islamic state at Al-Madinah. But
this view is not supported by majority of the scholars of Islamic
history for the reason that in the reign of the Prophet the income
of the state was meagre which never exceeded its expenses and
hence the need of Bait-ul-Mal was never felt. According to more
current and dominant view, Bait-ul-Mal was first established
during the reign of Abu Bakr who succeeded the Prophet in the year
632, A.D. as First caliph of the Islamic state. With the conquests
of Iraq, Syria and other countries there was considerable increase
in the revenues of the Islamic state which necessitated the
establishment of public treasury. However, Bait-ul-Mal took its
real shape on permanent footing during the rule of Umar Farooq,
the second caliph of Islam. It is during his time that the
treasures of countries conquered from former Iranian and Roman
empires started pouring into Muslim capital which made the
institution of Bait-ul-Mal a powerful and very important
department of the Islamic state.
It is better to
explain the concept of Bait-ul-Mal, as envisaged by early Muslims
who founded it, before we proceed to dilate upon sources of its
income and heads of its expenses. “Every property which belongs to
Muslims in general and not to any Muslim in particular constitutes
a part of the assets of the public treasury (Bait-ul-Mal). It is
not necessary that the property should be actually in the vaults (hirz)
of the treasury for it to be considered an asset of the treasury,
because the conception of Bait-ul-Mal refers to the destination of
the property, not to its actual location. Therefore, every
expenditure which must be incurred in the interests of the Muslims
in general is a liability of Bait-ul-Mal and when it is made, it
is considered to have been made by it, whether or not it has
actually been paid out of the vaults of Bait-ul-Mal; this is for
the reason that a revenue which has gone into the hands of the
public collectors or has been directly spent by them is really a
part of the income and expenditure of the Bait-ul-Mal itself, and
therefore, subject to the regulations governing the same”.
The revenues which
accrue to the Bait-ul-Mal of the Islamic state have been placed by
the classical jurists of Islam under three categories. They are :
(1) the ‘Zakat’ and
‘Sadaqah’ revenues; (2) the ‘ganimah’ revenue or spoils of war;
(3) the ‘fai’ revenues such as Jizyah and Kharaj. These revenues
have already been discussed in detail in the previous chapter.
Since the revenues falling under the second and third category are
no longer available to a modern Islamic state, the same would be
substituted by the modern taxes.
The above mentioned
classes of revenue are maintained distinctly under separate heads
or titles by the Bait-ul-Mal as the items of expenditure to which
they can be allocated are different in Shariah. The Zakat and
Sadaqat revenues can be applied to the heads of expenditure as
prescribed by the Qur’an (in its verse 60 of chapter 9) which
relate mainly to the welfare of the poor; whereas other revenues
are spent by the Islamic state at its discretion to fulfil its
multifarious responsibilities such as establishment of law and
justice, defence, civil administration, transport and
communication, economic development, education and health and
social action programme.
A full-fledged
proper organisation of Bait-ul-Mal existed during the Muslim rule
right from the time of Umar Farooq, the second caliph of Islam.
Central Bait-ul-Mal existed at the capital of the empire under the
direct control of the caliph, whereas at provincial level the
Bait-ul-Mal was controlled by the governor of the province. There
were no commercial banks or central bank during those times. It
appears that all the requirements and needs of the government and
the society used to be met by Bait-ul-Mal which supervised public
revenues and public expenditure, helped the poor and performed
almost similar functions which the ministry of finance performs
today. In addition to that, it also performed the functions of a
central bank except issue of currency, and control of credit and
interest rates which are modern devices.
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