Potential Effects of Zakat on Government Budget

Abstract

This paper attempts to study the potential direct and indirect effects of zakat implementation on the Government's budget within the context of contemporary society. In developing the arguments, seven assumptions are made in the article, and the case of pakistan is taken as an example. The author argues that there is a potential direct substitution effect of zakat in replacing certain items of the Government budget that corresponds to the seven recipients of zakat. Hence, the the amount of zakat proceeds spent on them must reduce an equivalent amount in the budget, thus making it possible to release budgetary revenues for other social needs. In addition, the author argues that there are also potential indirect efects of zakat implementation on productivity and the ability to be taxed, on aggregate consumption and investment, on empolyment, and on the amenability of zakat to be a tool of government economic policy.

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