Comments on the Foundations of Taxation Policy

Quran and Sunnah or from any Ijma of the Ummah on any of these issues. The Muslim in later generations cannot be bound by the practices of the early Muslim period. We may look for guidance and inspiration but to deduce laws and principles from early Muslim practices without any references to the basic sources. After all we are bound by Hadood, and Halal and Haram prescribed by the Quran and Sunnah; but I am sorry to say that in supporting his arguments he has not brought any evidence from these basic sources. Another error of methodology is that he has completely disregarded the changing role of state. He has assumed a static situation analogous to the early Muslim period and he has chosen to neglect the march of civilization and the expansion in the functions and the role of Government. Now whereas we are all proud of the early Muslim period and look to it for inspiration; but to assume that all the practices and institutions evolved in that period would be relevant to our conditions is, I think, a serious methodological error. He has placed almost a blind reliance on Fiqh. Once again I say that we have great respect for jurists who have made great contributions and we look to them for guidance but to blindly follow the sayings or rulings of some of the Fuqaha would lead us to serious errors. For example at one place he says that some Fuqaha have allowed the citizens to escape the payment of taxes if they consider it as Zulm. Now who will decide whether levying of a certain tax is Zulm or not. This will be giving a free licence to evasion of taxes. I do not know to whom he is referring because he is not giving any name; but it is quite possible that in a period of oppression and autocracy some Fuqaha might have allowed the Muslims to escape from certain levies, but to argue it now in a responsible system of government, would be opening a flood-gate of evasion of taxes. Similarly, he maintains that custom duty can be levied only on non-Muslims. I do not know in what circumstance this principle was evolved. At present it would raise serious questions of equity. Then in writing this paper, he has made very selective use of the opinion of Fuqaha which again is a very serious methodological error. He has only referred to Kattani and Ibn Hazm and has conveniently forgotten about Mawardi and Imam Abu Yusuf and the very basic principle of Islamic jurisprudence whereby taxation is sanctified. Another serious error in this paper is the legalistic approach. He does not recognize the socio-economic factors in defining the nature and role of the Islamic state. He only takes a very narrow legalistic view and considers the implementation of Shari'ah as the only function of the Islamic state which I think is not a very healthy approach.

Now coming to the substantive issues, I find that there is a complete disregard of fiscal policy in the treatment of this paper. Because of his disbelief in taxation and development, welfare and equilibrium as the objectives of the state, he has chosen not to relate at all to fiscal policy considerations in an Islamic state and how taxation would behave to achieve the objectives of fiscal policy. Then the second substantive comment which I have on his paper is that he has completely disregarded the welfare, equilibrium and development functions of Islamic state. Somehow he visualise that the Islamic state is only concerned with taking care of basic minimum needs and that also through Zakah. I think that we cannot ignore the egalitarian nature of the Islamic society. The whole emphasis so far in our work on fiscal policy has been on improving the quality of life, equity, growth, social justice, and some of the other aspects of economic development. To achieve all these objectives an upward push in public expenditure has to take place in Islamic state and this upward push in public expenditure can be taken care of, to a large extent, only through taxation since some of the other sources are not that easily available. As for his classification of social services, I suggest that although it may be useful in terms of focusing on basic needs, but we may again run into an error because of this classification by disregarding or deemphasing development and improving quality of life in Muslim society. Also in his paper he refers, time and again, to only available sources as determinants of public expenditure whereas in contemporary fiscal economics it is the level of public expenditure that determines the level and sources of public revenue and not the other way round. Finally, he has identified number of sources for financing an Islamic state other than taxation. His sole reliance is on Zakah and some of the other things that I will refer. As far as Zakah is concerned, the only practical example in contemporary history is that of Pakistan and I want to refer to it. In Pakistan, we have, to the best of my knowledge, collected only US $ 100 million from Amwal uz Zahira and this is hardly a fraction of the national budget. Even if we extend the coverage of Zakah and even if we plug all the loop holes, I think that reliance on Zakah as a major source of revenue of the present day state, leads us nowhere. Many scholars have also been arguing on that and let us be realistic about our expectations from Zakah. As for other sources of financing that he has pointed out, take Kheraj for example, I think that even if we get out from the legal difficulties about which lands are subject to Kheraj, it does not offer any real source of revenue. Agriculture has been heavily subsidised by all the governments. Therefore, we can hardly expect anything from that sector. As for Jazia, I doubt very much whether we can talk about Jazia in the contemporary world and can really rely on it as a source of revenue. With respect to voluntary contributions from the public, one could expect something in times of emergency or war, but can we rely on voluntary contributions as a regular source of income? I very much doubt. The only useful item he mentioned is the equity participation where the application of sharakah and mudarabah probably would result in some financing but that would also relate only to agricultural and industrial sectors. In the end I would make a suggestion for improvement in this paper. I think the quality of the paper would have been considerably improved, if he had undertaken a goal-oriented analysis. Defining the goals of Islamic state, then coming down to objectives of fiscal policy and then further defining the objectives of taxation policies in achieving the objectives of the Islamic state and of fiscal policy. That kind of precise and consistent goal analysis might have been much better.

Dr. Abdel Hadi El-Naggar

My first comment on the paper is that the choice of the title is not right. The subject of the title (taxation policy) has been dealt with only in one quarter of the paper. A better title for the paper would have been “Issues of Public Finance in an Islamic Economy”.

The paper hardly contains any original idea. Also the paper lacks logic and coherence. At least some new contribution was expected from the author. He could at least find a suitable name for the Islamic state. To call Islamic state a welfare state is confusing because this ignores the religious aspect of the Islamic state. A Justice State could be a better title for Islamic State.

The author seems to imply that provision of an adequate standard of living is desirable but is not necessary. This would disappoint the poor mass in Muslim countries who look at Islam as their only saviour.

The question of imposing taxes is related to economic goals of the Islamic state like stability growth and efficiency. Therefore, one has to take a flexible approach. The position that the -author has taken is rather extreme.

To say that custom duty should be imposed only on non-Muslims is not correct. Umar applied it on both Muslims and non-Muslims.

Finally, the author seems to insist that contemporary economists must apply Islam in the same way as it was applied in early periods of Islam. This is not justified. It is this approach that causes Muslims of modern times to be reluctant in Islamizing the economy.

Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.