Character of the State.
In the Islamic State under Abu Bakr, the emphasis was on moral values, and the people were not motivated by material considerations. There was no race among the people to get rich overnight.
Islamic laws operated to discourage the amassing of wealth. Islam favored trade, but the faithful were enjoined not to indulge in any unfair practices. In the Muslim society there was no economic exploitation of one class by another, although there were slaves, they were not exploited, and in the families the slaves were treated like other members of the families.
The economic levies.
The economic levies were few. These were limited to Zakat, Ushr, Kharaj, Jizya, and Fay. When the Muslims embarked on their career of conquest “Ghanimah” i.e. the spoils of war became a major source of revenue.
Zakat had some characteristics of a tax, but it was basically a religious obligation. It was levied on the basis of capital assets, and the idea was that one who was endowed with assets should pay a part in the way of Allah for distribution to the poor.
It was in theory an instrument for the equalization of wealth. A scale for the levy of Zakat was prescribed. Usually the criterion was that for every forty rupees of capital, one rupee should be paid as Zakat.
Ushr was a tax on land produce. It was levied at one-tenth of the produce, and hence the name ‘Ushr’-one-tenth.
In the case of land in conquered territories, the landowners had to pay a levy called “Kharaj”. The rate of Kharaj was slightly higher than the rate of Ushr in Arab lands.
In conquered territories where the people did not become Muslims they had to pay Jizya in lieu of protection to be afforded by the State. It was a poll tax payable at a certain rate per able-bodied adult male. The poor, the disabled, and the monks as well as the women and children were exempt from the levy.
Fay was the income accruing from State land.
In the days of Abu Bakr much wealth came to the state on account of the spoils of war. The movable property won as booty on the battlefield was known as “Ghanimah”. Four-fifth of the spoils of war was immediately distributed among the soldiers who had taken part in the battle. The remaining one-fifth went to the State. The State’s one-fifth share was further divided into three parts. One part went to the family of the Holy Prophet, one part went to the Caliph, and one part was spent for welfare purposes.
When Abu Bakr assumed office as Caliph there was no money in the treasury. After the end of the apostasy campaigns, Zakat came to be paid by all the tribes and that eased the situation.
With the conquest of Iraq and Syria untold wealth poured into State treasury. The economic condition of the people improved to such an extent that there was no one to get Zakat. Abu Bakr, therefore, distributed annuities to the entire Muslim community, every one receiving an equal share.
Economic prosperity of the people.
The economic organization of the Islamic State under the Holy Prophet and thereafter under Abu Bakr was unique in the annals of mankind. The State had no salaries bill to foot. All State functionaries at the higher level worked honorably.
Military service was performed on voluntary basis. Nominal taxes were levied on the people, and these were returned to the people as annuities. In most cases what the State paid to the people was more than what it had realized from them as taxes. Under Abu Bakr the Muslim community was thus the most prosperous community ever known to history.