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Follow Up: Categorizing Salary As Produce
@UmerQureshi So I did watch the videos you shared but they in no way answered my contentions as there was still no detailed explanation of this viewpoint. I thought maybe I hadn’t communicated my questions properly so I would make a new post about it and detail it as much as I can so maybe you’ll get where I’m coming from. Again, why this matters to me so much is that Zakat is obviously a very important pillar, an obligation, and it’s scary to be in the wrong especially if Ghamidi Sahab holds an opinion about it that is distinguished from all others, and it would specially matter a lot to people like me given the influence he has had on us and as we hold him in the highest regard.
So to start off, I would share my basic understanding of modern day economies and contrast it with the pre-modern world and then state why I am not convinced that the ushr of harvest applies to salaries (or the services sector as a whole). So in the pre-modern world, agriculture/farming was the primary source of production and not only that but the primary driving force of economies in agrarian societies too. It requires land, months of care, attention, labor, skill, which ultimately culminates into a tangible or consumable good or product. Now fast forward to modern-day economies, which the three-sector model represents accurately. A basic definition from wiki: “The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials (primary), manufacturing (secondary), and service industries which exist to facilitate the transport, distribution and sale of goods produced in the secondary sector (tertiary).”
Agriculture as production can be classified as both primary or secondary given the advance in technology in the farming sector, but most of all other types of production/manufacture of all final goods and products in modern economies falls in the secondary sector. For clarity: “In macroeconomics, the secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in construction. This sector generally takes the output of the primary sector (i.e. raw materials like metals, wood) and creates finished goods suitable for sale to domestic businesses or consumers and for export (via distribution through the tertiary sector).”
Now let’s establish the link between the secondary and tertiary (services) sector. Elaborating on this: “The tertiary sector consists of the provision of services instead of end products. Services (also known as “intangible goods“) include attention, advice, access, experience and affective labour.
The tertiary sector involves the provision of services to other businesses as well as to final consumers. Services may involve the transport, distribution and sale of goods from a producer to a consumer, as may happen in wholesaling and retailing, pest control or financial services. The goods may be transformed in the process of providing the service, as happens in the restaurant industry. However, the focus is on people by interacting with them and serving the customers rather than transforming the physical goods.
Service industries are those not directly concerned with the production of physical goods (such as agriculture and manufacturing). Some service industries, including transportation, wholesale trade and retail trade are part of the supply chain delivering goods produced in the agricultural and manufacturing sectors to final consumers. Other services are provided directly to consumers. These include health care, education, information services, legal services, financial services, and public administration. In the three-sector model of the economy, widely used in the 20th century, the service sector was assigned the role of transporting, distributing and selling goods produced in the manufacturing (secondary sector), and was therefore described as the tertiary sector of the economy. However, the majority of service employment is now found in activities that are not directly related to the production and distribution of physical goods. In the context of the three-sector model, these are referred to as the quaternary and quinary sectors.”
Since the later part of the 20th century, the services sector has dominated economies, and its definition has not been limited or linked to the supply chain of the secondary/production sector only, as defined by quaternary/quinery sectors. For detail: “The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy. This consists of information technology; media; research and development; information-based services such as information-generation and information-sharing; and knowledge-based services such as consultation, entertainment, broadcasting, mass media, telecommunication, education, information technology, financial planning, blogging, and designing. Other definitions describe the quaternary sector as pure services. This may consist of the entertainment industry, to describe media and culture, and government. This may be classified into an additional quinary sector.”
Now that all this is clear, this is where I have problems with assigning the 10 percent Zakat to ALL of the service sector in every form as Ghamidi Sahab says because of a lot of questions that arise, in addition to it being very problematic and burdensome for people. As established above, even wholesale trade or retail forms a part of the secondary sector. But according to Ghamidi Sahab, a wholesaler or retail trader would pay 2.5 percent annually on all profit and inventory, but on the other hand an employee let’s say working in the sales development sector, who generates leads, makes sales calls, reaches out to consumers, markets the product and increases sales, while essentially both are connected to the secondary sector in the same way, he has to pay 10 percent on every paycheck. It doesn’t even make good financial sense as many employed people even run credit deficits at the end of months and are living paycheck to paycheck and ten percent taken out of every paycheck is very burdensome for people. But my argument is not that, what’s obligatory is obligatory, my question is the application of the production rate on the services sector. What I understand from Ghamidi Sahab’s viewpoint is that it has become a proper sector now, which it wasn’t in the Prophet’s era, but how does it make the salaries similar to production of tangible goods or products? I think it can be safely established that the services sector and production sector are distinct from each other, and as I stated, a wholesale/retail trader and an employee both would fall in the services sector, but according to this view one would be less burdened. And then we come to the quaternary sector, which as defined above, would be completely unlinked from the production sector, but according to Ghamidi Sahab even he would pay 10 percent on every payment he gets for his service, whether he be a financial consultant or a doctor, and that doesn’t make sense too. Just because the services industry has become a proper thing doesn’t make their compensation similar to production of tangible goods and services, as it is payment for their labor/service whether it be mental or physical. And as for the quaternary sector, lets discard the example of the laborer, what about other services in that era or ancient times in general, like for instance tanning (leather work from animals), physicians/doctors, metalwork, pottery, blacksmiths, tailors, cloth designers, I mean the traders/merchants had to buy goods to trade, what if addition to primary products they also traded products from the secondary category as mentioned in the examples above, were the people who were giving such services or producing such things liable for 10%?
This is what I meant by the analogy of laborers working on farms during the Prophet’s era, because their service made the production possible, not that they were compensated well enough. An employee working in the warehouse of a big manufacturing/production company, or on the machines would be exactly like the farm worker, but according to this view, now because he is a part of a proper services sector, he has provident funds, he has a contract, benefits, so now his pay is also production, this is what doesn’t make sense to me. As far as services go, even Caliph Abu Bakr RA (I read a hadith on some website) was given a share of the Bait-ul-Maal for his expenditures as he was busy in state affairs, isn’t this an example of service too? But my overarching point is that in every such analogy that can be made between today’s services sector and the pre-modern Muslim world’s economy, not one such example can be seen, and I’m sure they all paid 2.5% annually. Also, the Prophet only set a Nisab of dates for harvest, so we can safely say every other form of compensation for any labor/service during that era was exempted from production Zakat. So in light of all this, not in a negative way, but I just feel that this opinion is not very well thought out in detail, as all these contentions have never been addressed in any of the videos I have come across, which is very unlike Ghamidi Sahab. I saw Dr. Shehzad Saleem’s video too where he said that it it is your hard work and skill that is producing something but that is not a very helpful definition. Ghamidi Sahab also justified it like this that employees are essentially production units but production units are essentially inputs used to produce the output, even a machine used is a production unit, so this isn’t a very good reasoning. I can know nothing about agriculture and hire people to do it for me and manage my farms but the 10 percent would be liable on me not my employees or managers, because I own the product. According to this categorization, I can define produce then in any way I want. I can say the profits any businessman earns, he is in turn ‘producing’ these profits so now 10 percent has to be given. So I think just the fact that services have now become a proper sector is not enough to make salaries a form of produce in the same category as agricultural harvest, as it is after all intangible and is a compensation not an end-product. I have tried my best to explain it all, and would really like if someone could engage all the points I made. And lastly, are there students of Ghamidi Sahab who have had the opportunity of personally being under his tutelage and have disagreed with his opinion of Zakat on salaries? And in turn can we disagree with this opinion too? Would love to know more about it. Many thanks in advance.
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8 Replies
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Follow Up: Categorizing Salary As Produce
updated 1 month ago
2 Members
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Replies
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@faisalharoon Sir could you kindly go through my post? Some posts by others are very regularly and aptly answered but this is my second post that went unseen.
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Just an addition: “Service industry, an industry in that part of the economy that creates services rather than tangible objects. Economists divide all economic activity into two broad categories, goods and services. Goods-producing industries are agriculture, mining, manufacturing, and construction; each of them creates some kind of tangible object. Service industries include everything else: banking, communications, wholesale and retail trade, all professional services such as engineering, computer software development, and medicine, nonprofit economic activity, all consumer services, and all government services, including defense and administration of justice. A services-dominated economy is characteristic of developed countries. In less-developed countries most people are employed in primary activities such as agriculture and mining.” – Brittanica
Just to demonstrate that things like agriculture, mining, or anything related to the making of actual products is defined as completely distinct from the services industry, and just to reiterate, wholesale and retail trade is also considered a part of the services industry, how come 2.5% annually on them but on salaries 10% everytime? Would love some clarifications. Just because it has become industrialized, I fail to understand how salary is categorized as the same things as agricultural harvest/produce. TIA
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@UmerQureshi could you please go over it? Still waiting for a response
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Please try to post your question in accordance with the Ask Ghamidi Code of Conduct.
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One point I’d like to mention is that I do not think that a retail trader and salaried employee are same when it comes to their income. One is trading goods and earning from that trade, which can fluctuate from 0/loss to any max. profit amount, the stock-in-trade is something unique to him, which is his asset, for which he will be liable to pay 2.5% zakat. And 2.5% zakat for a trader with stock-in-trade in not going to be any less as assumed in the question.
While a salaried individual, even in the same industry, is producing income every month or every year which is not tangible per se, but similar in essence to how tangible production works, not in terms of the production mechanism but as an end result. As tangible production might use capital only or labour only or mix of both but here in salary mode, only labour is being used. And it known from Sunnah that 5%, 10%, 20% exist for production Zakat depending on the presence/absence of capital, labour or their mix. That is why this “ijtihadi application” is done, which means it is ijtihad of a scholar and if one agrees with it then one should follow it and if one disgrees with it then one should not follow it. One is accountable for his honest understanding of religion. And this income is only subject to Zakat if it passes Nisab threshold, and there is option to deduct Nisab amount from the gross production/income before applying 10% Zakat.
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Any post or question that does not meet the Ask Ghamidi Code of Conduct is subject to be removed without notice. Be Nice Be Respectful…
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Thank you for the response Umer Bhai. I wasn’t aware of the community guidelines so thank you for sharing. Will try to comply fully in the future.
Regarding the point you raised, yes you are right and I agree the income mechanism for a retailer and trader is different, but that wasn’t my point. I just tried to respond to every argument I found in all the material I have come across that explains this Ijtihad. So for the point that it has now become a proper industry, I just tried pointing out that the entire services sector/industry includes primarily everything not related to the actual production in any way, and that includes wholesale and retail trade as well, thats why I raised this point. Another reasoning I encountered was that employees are essentially production units now, but production units are itself ‘inputs’, and can range from machines to anything that constitutes a cost of production, and wages are always accounted as such, so that is why I mentioned my second point. Its what ‘goes’ into production, not the actual production. You mentioned the similarity in the mechanism of production and salaries and I don’t understand that. Yes in a literary/wordplay sense you can say that it is our labor that produces our salary, but it is still not analogous to the production that Zakat was applied on (i-e agricultural produce) and is in every way more analogous to a compensation for your labor. I could similarly use these words to define the retailer’s income mechanism, that he uses both his labor and capital investment to produce his income, but 5 % certainly wouldn’t apply there, as the end-result or categorisation isn’t applicable as they both aren’t similar in essence. Same goes with wages. Yes instead of short term hiring on a per day basis you now become a permanent employ with annual packages divided into monthly payments but still, the contractual form has changed but not the essence as its still wages. For example, I joined a company on the 7th of last month and as a result was only compensated for 25 days, for the actual hours that I worked, based off of my pre decided compensation package. So you’re compensated for exactly the hours of labor you put in which account for your workdays. I still don’t see the analogy to the primary or secondary or production/manufacturing sector. And lastly, my other point was that the services industry is very vast as I demonstrated, and apart from contractual salary packages there are also fee for service models in many things like healthcare, financial consultancy etc. And my point was that that analogy could be found even in the past times (blacksmiths, doctors, tailors, tanners) but the production Zakat was never applied. I hope I’ve made myself clear. Would love if you would like to add something. JazakAllah.
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These are indeed very cogent points.
It could prove very beneficial for everyone if you could somehow discuss this issue directly with a Scholar, with all these details.
You can join “Ask Dr. Saleem” session, where questions are answered in an open discussion format with follow-up questions. Following is the registration link:
https://www.ghamidi.org/ask-dr-saleem/
The option to join “Ask Ghamidi live” session is also there, but I personally think that Dr. Saleem’s session will cater to your needs in a better way.
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As far as a retailer/trader is concerned, while making an ijtihad, one can consider both production angle and asset angle. When Sahaba made that ijtihad, they leaned towards the assets angle. It makes sense even today why that ijtihad was made and the reason is applicable even today i.e. sale and purchase of stock in trade (which is a form of wealth in essence) and income mechanism also depends solely on that trade as opposed to income generated by providing a service like in a salaried person case for instance.
As for the prodution unit, a salaried person may or may not be a production unit (this is a separate topic) – but this is from the point of view of the producer/industrialist. We are considering zakat from the point of view of the salaried individual, whether his income is only wealth or there is more to it considering the nature of his job and income generation. This is where that ijtihad is being made. Ghamidi Sahab use the term service sector in a very broad way i.e. where income generation is subject to provision of a service which generally results in a recurring form of income (could be daily, weekly, monthly or yearly).
Question of Production zakat never arose for blacksmiths, tailors etc. in the past and it could never arise even today, because most of this labour falls below Nisab and such people are already exempt from Zakat. This sector evolved in later times where the magnitude of services and returns generated against these services were significant enough to be considered for Zakat purposes this way.
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Thank you for your help and insights Umer Bhai. Would love to pose this question in that session. Yes I understand it again comes down to point of view but I was just curious that you mentioned it was the Sahaba who chose to do the asset Ijtihad on traders but I believed that was done by the Prophet himself in his time no? I mean he himself was a merchant and trading was a big thing during his time. If it had been applied later on then that would be a totally different discussion but my understanding was that the asset Zakat on trade is from the established Sunnah of our Prophet SAW.
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The historical application of this matter reached us from the ijtihad of Sahaba, not as an established Sunnah.
Please refer to the video below from 1:17:23 to 1:18:13
https://www.youtube.com/live/cQn9tcHEoq8?feature=share&t=4643
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