There was no central authority in the pre-Islamic days. So nobody knew anything about the income and expenditure of the government. It was the Prophet (PBUH) who first established a central government in Arabia. He was the first who instituted a public treasury in Madina. During the days of prophet of Islamic state had following sources of revenue:
In order of importance zakat has been given the second place in the Quran. It is compulsory for all well to do Muslims. Zakat was levied on a) animals, camels, cattle and other domestic animals, b) grains, fruits, dates etc. c) gold and silver and d) merchandise.
A certain minimum of property was laid down which would make one liable to pay zakat. For example, gold or silver below the value of 200 dirhams was free from this tax. The zakat on land produced was collected at 10% if the land was watered by a stream or rain. This tax on land was called ushr. A person had to pay zakat on his land, when the yield from the land exceeded five ass-loads. In the case of merchandise and even gold and silver tax of 2.5% was levied.
Jizya was levied on the non Muslims in lieu of military service and for the protection of their lives and property. The Muslims used to return the Jizya in case of their failure to protect the lives and properties of the non Muslims. In the days of the prophet every male member capable of paying the zakat was required to pay only one dinar per year. This tax was not new. Before holy prophet it was prevalent in Persia under the name of Gezit and in Rome under the name of Tributrem Capitis.
Non Muslims had to pay for Kharaj (land tax) for possessing land. The institution of kharaj was prevalent among the Persians and the Romans, first came into being in Arabia after the conquest of Khyber by the Muslims. The prophet fixed half of the produce of their land as Kharaj.
Weapons, horses and other properties were included in khums or ghanimah. These articles when left by the unbelievers in the battlefield were taken by the Muslims. Four-fifth of the booty was distributed among the Muslim soldiers and the remaining one fifth was deposited with the treasury. The letter portion of the booty was used according to the instructions of the Quran for the support of the prophet’s relatives, poor and the needy wayfayer and for the general good of the Muslim community.
The word al-Fay was generally applied to the lands in the conquered territories which came under the possession of the state. There were certain crown lands under the Prophet and the income of these lands was utilised for the general good of the Muslim community.