Discussion on the Objectives of Fiscal Policy in an Islamic State
First.of all, I would like to congratulate Dr. Salama for an excellent paper. However, I have two short questions that I would like to ask the author. First, it seems to me that it is not clear in the paper whether the rich states like the oil-rich countries today, may also impose taxes; whether it is permissible for them, that in addition to the funds which they have and which are not absorbed externally or internally, to go ahead and impose more taxes also. The second question is that whether the objectives which can be achieved by taxes can also be achieved, and may be in a better way, through other means. Would it be advisable to still put more taxes?
Dr. Monzer Kahf
I must congratulate the writer of this paper which is really very illuminating but there are one or two questions regarding Kheraj which I would like to ask him. Prof. Waseem Ahmad has said that his doubts regarding the difference between Ushr and Kheraji lands have been dispelled by the honourable author, but I hope that he will also take us into confidence about that. My question is concerning the difference between Ushr and Kheraji lands. As far as I have been able to understand, according to Fatawa-Alamgiri all those lands which were conquered by the Muslims are considered to be Kheraji lands and they are not subject to the rules and regulations which are devised for Ushr lands. This issue is very important for Pakistan where Ushr Ordinance has been promulgated and we should be clear in our mind about this question. The second aspect of my question is that even in the case of the discussion on Kheraj, the author has not given a clear indication of the way of assessments. Not a very clear idea is given as to how it has actually been assessed, although he has given different rates. What actually were the methods and if changes are made in them from time to time what was the basis? We shall be grateful if he can enlighten us on this point.
Dr. Rafiq Ahmed
I have only two or three minor points. I feel that the ghost of Western economists is still ruling supreme. In Islam I think a man who is leading an immoral life, will have no claim on funds from Zakah whereas from the social security point of view, even a man leading an immoral life, even a drunkard, has a legitimate claim over social security. These are fundamental differences between two types of economies. Islam is completely different and I think that earlier we get rid of the Western terminology, the Western values, the Western system, the better it is. Then again I am afraid I will have to be a little critical of the assertion that the Islamic state helps the poor people in terms of providing education and health. This is not helping the disabled. This is helping the able-bodied so that they could function productively in the society. I think that these sectors, the education sector and health sector, have nothing to do with Zakah.
Dr. Mahfooz Ali
I want to make a couple of points. First of all, I think that the author has ignored one very important element in the Islamic fiscal system, i.e. the imposition of Ushr which is also an obligatory levy and the author has not discussed it at all. He has emphasised Kheraj rather too much. In the present day world, the scope of Kheraj is very limited. My second point is that he seems to be pre-occupied with the Western criteria for the imposition of taxes. I think we are not obliged to follow Adam Smith’s canons of taxation religiously. In an Islamic economy we have to use our own criteria. If the criteria given by Adam Smith or any other Western scholar are in conformity with Islamic values, there is no harm in using them but there is nothing sacrosanct about those critieria. In an Islamic economy for example, we may have a “social justice criterion” or a “piety criterion” etc. etc. Then, we should not feel ashamed of having non-material or value-oriented creteria in the evaluation of our taxation system. For example, the imposition of a 10 per cent levy on irrigated land and 20 per cent on non-irrigated land may not be justified according to the economic criteria which Smith has given but is well-justified on our own criteria. My third point is that the author has given objectives of fiscal policy in an Islamic state but he has not discussed how these objectives will be achieved by the instruments that he has suggested. I am not sure how the Kheraj levy will achieve monetary stability for example. This brings me back to Dr. Monzer Kahf’s point as to whether or not it would be better to leave some of these objectives to be achieved by some other instruments of economic policy?
Dr. Munawar Iqbal
I have one or two brief questions to ask. First whether or not there is a list of taxes that are un-Islamic. In our country, there has been a lot of mis-informed talk about taxes on income being un-lslamic, especially after the levy of Zakah. Another question that I want to ask is that Zakah afterall impinges on the same taxable capacity as some of the existing taxes and our law provides credit for the payment of Zakah, in the assessment of the existing taxes. Is it proper or appropriate? If credit is given for the payment of Zakah in tax assessment, does it reduce the element of religious levy that Zakah is supposed to be?
R. M. U. Suleman
Although the paper of Dr. Salama is very valuable, it has not elaborated some of the important points which need to be discussed in the area of fiscal policy in an Islamic economy. There are a number of things that the Muslim scholars have been studying in this field but it seems that there has been very little effort to coordinate the discussion to see the implications of what they have been saying. To give just one example, the author has elaborated the objectives of the Islamic state in the field of fiscal policy. The objectives are very very good and there is no doubt that they need to be persued, particularly the objectives of development and welfare. The question, however, arises as to how do we find resources to undertake all these functions for the state without generating inflationary pressures? Naturally, we would look towards the field of taxation. And it is here that we have often faild to do the job. Dr. Salama has put a great deal of emphasis on Kheraj. Although this will be important land revenue and is certainly important in an Islamic state but not to the extent to which it was important in the past. We have to talk in terms of a number of other taxes and the extent to which these taxes can be levied and the extent of revenue that we will be able to realise through these taxes without over-burdening people. Then we have to look to the other side of the picture also. There have been scholars like Dr. Monzer Kahf, who have indicated that in an Islamic framework the state has a limited power to levy taxes. Then there are others who have stated that in an Islamic state they do not favour income taxes etc. Although most of us will agree that the State has the power to tax, nevertheless it will not be able to collect unlimited amount to finance all its functions. This brings us to the expenditure side. What priorities are we going to give to the various roles which the Islamic state is expected to perform and where we are going to make the savings? It is in this specific area that we have failed most. I do not know of any paper which has been written in this field which would indicate the various functions of the Islamic state and indicate where savings can be made. We all tend to emphasise defence and this is substantial part of the expenditure of the Muslim countries at this moment. Although we may be able to save a substantial amount through elimination of waste and corruption but we need to see how much we will be able to save in this area. In other words what we need to do is to coordinate all these things together and to see really how much we can achieve and we will have to set up priorities for the functions of the Islamic state and then go according to these priorities. We also need to make adjustment in our tax system and in our expenditure pattern so as to be able to avoid the inflationary pressures that we might otherwise generate.
Dr. Umer Chapra
I do not have further questions. I just want to correct a few points which have been made here. First is about the Ushr and Zakah. In Shari'ah especially in the Arabic writings Ushr is a form of Zakah, so it is included in the word Zakah. Secondly, concerning Ushr and Kheraj, you can make the rate of Kheraj equal to the rate of Ushr so, there is no problem. It may be simply a sementical point. Lastly, it was said that an immoral person has no right in Zakah. Well, it is a capable person who has no right in Zakah. Immoral has right in Zakah for his living and other things but definitely, we will not pay him for his drinking.
Dr. Monzer Kahf
To close the discussion, I would like to put one or two questions to our learned speaker which I think might be useful for his revision. One is the issue that in Islamic economy, you may still have conflicts of objectives. How will these be resolved? Related to this problem is the question brought up by Dr. Chapra that you may not have enough financing to achieve all the objectives. Dr. Salama has given an historical purview of what has been done in earlier times in the Islamic economy which can serve as a precedent, to build on. Another aspect of the paper is analytical. Weaving of various elements of what ought to be the fiscal policy and instrumentation and the like of it in an Islamic economy which might meet the test of Islamic principles and at the same time will be useful in the economic growth of under-developed economies of Islamic nations. I think that he has been quite concerned with the first category, i.e. the historical review which is very valuable. However, I would suggest that if time permits, and if resources are available, it will be useful to review some of the experiences of say, the Islamic governments in Spain at the time that the Arabs were in Spain and to review some of the experiences of India, so on and so forth. It is useful to see what are some of the other experiences because what is important is to see whether there was any evolution or a re-interpretation of the basic doctrines or not.
Dr. Ishaq Nadri (Chairman of the Session)
I would like to thank the Chairman and the floor for this constructive discussion. This will be of course taken into consideration in the review. I would just reply to some of the questions.
As to the question whether the oil-rich countries should impose tax or not, of course this is up to the countries. I would like them to impose taxes because this would save us great problems especially of imports. I think it is in the interest of these countries to reduce lavish consumption especially in the case of imports. As far as future resources are concerned, if we want to conserve these resources for future generations, we have to find alternative sources of financing the budget than the oil revenue. This will be in the interest of non-oil-producing countries as well. On the question whether other tools can achieve the objectives listed or not, nobody would say that no other tool would achieve these objectives. Whether fiscal policy is more efficient in this case or not is still a question. I think that even with its limitations, taxation is still one of the most effective tools to achieve some of these objectives either with the alternatives or separately. But I agree with Dr. Chapra that we should see which objectives are more important and we should try to avoid the conflict between these objectives.
One of the commentators has said that I have used the Western type of analysis. In fact I think that the Western analysis have used the Islamic analysis. This is a theory in which I believe and which I hope I have the resources to prove. In the case of canons of taxation, for instance, they were taken directly or indirectly from the books on Kheraj by Abu Yusuf and from the works of Ibn Khaldun. I do not think that using Western terminology is against Islam because everything coming from West is not necessarily against Islam.
On the question about taxes on income as to whether they are Islamic or not, I personally believe that there is no harm if taxes are imposed on the criteria laid here. I would totally agree with the Islamic government to impose whatever taxes they feel necessary to achieve these objectives.
Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.