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Zakāt (زكاة) is one of the Five Pillars of Islam. According to traditional Islamic sources it is a fard (obligatory) tax required of Muslims, amounting to about 2.5% of one's wealth over the course of a year. Slaves and horses owned by Muslims are exempt from this taxation.
It is obligatory to distribute zakat among eight different categories of recipients, based on a verse in the Qur'an:
Thus we have the following categories:
Needy (masakin): According to some scholars, they are those whose economic status is worse than the poor (fuqara’). The difference is a technical difference, but the principle is that neither of them possess in excess of their personal needs any type of wealth that is equal to the value of nisab.
Zakat collectors (‘amilin alayha): This refers to those individuals commissioned by the head of the Islamic government to collect Zakat. This isn’t applicable today.
Those whose hearts are being reconciled (mu’allafah al-qulub): This was an avenue to dispense your Zakat in during the early days of Islam. The Zakat money would be given to three types of people:
- Those disbelievers from whom it was perceived that by giving this donation, they would embrace Islam.
- To the leaders of the disbelievers in order to save the believers from their evil.
- To those who have just accepted Islam. This payment would be made to elevate their spirits.
According to the Hanafi scholars, this avenue is now abrogated. (Sharh Fath al-Qadir, 2:265)
Emancipating slaves (fi ‘l-riqab): Zakat money can be used to purchase a slave from his master in order to set him free. Again, this is inapplicable.
Debtors (al-gharimin): This is regarding a person who despite having assets at his disposal, he is overwhelmed with debt and the debt exceeds the value of his assets.
Those in the cause of Allah (fi sabil Allah): According to the majority of scholars, this refers to and is restricted to only those people who are engaged in Jihad (military struggle).Travellers (ibn al-sabil): This refers to those travellers who are in a desperate situation and have no access to their personal money. Money nowadays can be wired across the globe in a matter of minutes, hence, one who has the ability to receive his money, will not be allowed to take Zakat or Sadaqat al-Fitr.
It is estimated that Muslims annually donate zakat sums amounting to tens or even hundreds of billions in US dollars for needy causes.
There is an exception that non-Muslims can receive zakat "to attract the hearts of those inclined towards Islam", which is one of the eight categories of zakat recipients (although scholars of the Hanafi school of jurisprudence consider this category to be abrogated ), and it is permissible to give sadaqah (regular, voluntary charity, not the obligatory zakat) to poor non-Muslims. 
This has led to mainstream Islamic charities, like Islamic Relief, almost exclusively focusing their humanitarian work and funds in Muslim majority nations or areas in non-Muslim countries which are heavily populated by Muslim minorities, with noteable exceptions such as the 2010 Haiti earthquake and floods in central China. In the aftermath of the 2010 Pakistan floods, many Christian survivors were denied aid supplied by Muslim charities.
One of the eight purposes of zakat is "in the cause of Allah" (fi sabilillah). This is widely interpreted in Islamic jurisprudence, but invariably includes jihad. In the classic manual of Shafi'i fiqh it is for "those fighting for Allah, meaning people engaged in Islamic military operations for whom no salary has been allotted in the army roster (but who are volunteers for jihad without remuneration)." There have been numerous cases of Islamic charities all over the world funding jihad and even terrorism.
An example of modern-day conflicts where those who are participating are considered in Islam to be fighting in "the Way of Allah" and where "zakat must be spent", include, "Palestine, Kashmir, Eritrea, Ethiopia, Chad, Somalia, Cyprus, Samarqand, Bukhara, Tashkent, Uzbekistan, Albania and several other occupied countries."
Donation and Taxation
Islamic terms are often not completely analogous to the commonly-accepted/non-Islamic concepts they are mostly associated with. In Islamic terms, zakat is both a tax and a charity, and no problem is seen with discussing it as both, along with actual voluntary Islamic charity (i.e. the sadaqah). But by its commonly-accepted definition, it is strictly a tax.
When considering compulsory taxation in most non-Islamic nations, it is charged on certain goods and is taken by the state from individual yearly earnings and then in part distributed to those within the state who are unemployed, or other public services, such as the state's military services. In essence, this tax functions similarly to zakat, with the state distributing portions of the tax revenue for welfare purposes in accordance with the benevolent values of the society.
Like taxes, zakat is a fard (obligatory) requirement from Muslims, amounting to about 2.5% of one's wealth over the course of a year. It is levied on five categories of property—food grains; fruit; camels, cattle, sheep, and goats; gold and silver; and movable goods—and is payable each year after one year’s possession.
The collection and expenditure of this zakat throughout Islam's history has been a function of the state. The compulsory payment was collected and distributed by the state under the Prophet Muhammad, the Rightly-Guided Caliphs, the later Caliphate, and is even collected and distributed by the state in some theocracies today (for example, Saudi Arabia).. The first Caliph, Abu Bakr, enforced the collection of zakat from Arab tribes that had rebelled after Muhammad's death (see Ridda Wars).
Thus a full implementation of zakat via a state apparatus makes it, in all but name, a tax. In countries where zakat is not enforced and administered by the state, an individual Muslim decides which specific causes to support, and such activity can more clearly be described as (obligatory) charitable giving. This is not to doubt the great generosity of spirit and charitable intentions of individual Muslims giving zakat even in countries that enforce it.
Further, as mentioned above, besides Zakat, Muslims also give Sadaqah, which is voluntary charity that can be given to anyone in need, and is mentioned 13 times in the Qur'an such as in the following verse:
- Zakat - A hub page that leads to other articles related to Zakat
- Islamic Relief and the Myth of Non-Discriminating Muslim Charity
- Biggest Islamic Relief revenues are from “secular” government agencies
- Aid Flotillas: Save Haiti from a cholera outbreak, not Hamas from itself
- Haiti: Islamic ‘Charity’ Means More Mosques
- "zakat (Islamic tax)", Encyclopedia Britannica, accessed November 16, 2013 (archived), http://www.britannica.com/EBchecked/topic/655448/zakat.
- "Narrated Abu Huraira: Allah's Apostle said, "There is no Zakat either on a horse or a slave belonging to a Muslim"" - Sahih Bukhari 2:24:542
- "Narrated Abu Huraira :- The Prophet said,"There is no Zakat either on a slave or on a horse belonging to a Muslim." - Sahih Bukhari 2:24:543
- Oxfamblogs.org: 1/4 of the world’s people already subject to large annual wealth tax to tackle poverty. Has anyone told Piketty?
- Shaykh Faraz Rabbani, "Zakat Cannot Be Given To Non-Muslims", SunniPath Q&A, July 3, 2005
- Muhammed Zakariyya Desai, "Imam of our Masjid has given Fatwa that Zakat can be given to non muslims", Ask Imam, Fatwa No. 15407, July 22, 2007
- Haytham bin Jawwad al-Haddad, "The way of giving Zakat al-Fitr in non-Islamic Lands", IslamicAwakening, Article ID: 984, November 20, 2002 (archived), http://www.islamicawakening.com/viewarticle.php?articleID=984.
- Ahmad ibn Naqib al-Misri, Nuh Ha Mim Keller (Ed., Trans.), "Reliance of the Traveller: A Classic Manual of Islamic Sacred Law", sections; h8.7, h8.14, h8.24.
- Sheikh Muhammed Salih Al-Munajjid, "Giving zakaah to kaafirs", Islam Q&A, Fatwa No. 21384
- Pakistan: some Christians denied aid unless they convert to Islam - Catholic Culture, September 6, 2010
- Ahmad ibn Naqib al-Misri, Nuh Ha Mim Keller (Ed., Trans.), "Reliance of the Traveller: A Classic Manual of Islamic Sacred Law", sections; h8.7, h8.17.
- Imam's Corner, "Zakat-ul-mal (Zakat)", The Islamic Association of Raleigh, December 30, 2004
- One example is the World Assembly of Muslim Youth which was stripped of its charitable status after a Canada Revenue Agency investigation linked it to a Saudi-based group that financed Islamic terror campaigns by al-Qaeda, but there are literally dozens of other examples easily found via a Google search.
- Yusuf al-Qaradawi, Fiqh az-Zakat: A Comparative Study
- "Spending Zakah Money on Jihad", IslamOnline, March 9, 2011