Islam & the Welfare State

The commitment of the Islamic state to welfare is derived, according to Dr. Chapra, from the mercy (Rahmah) that the Prophet (peace be upon him) was sent with. Thus, “welfare” and “good life” become synonymous. Ironically, welfare must be understood in its general and comprehensive meaning that includes all aspects of human life, the economic aspect is but one of them. Chapra feels that there exists abundant evidence to make it “absolutely unjustified not to term the Islamic state as a welfare state.”2 El-Ghazali expresses this concept of welfare saying:  “The objective of Shari'ah, as far as people are concerned, is five-fold: The protection of their religion, life, mind, offspring, and property. Thus everything that implies promoting these five things (or any of them) is Maslahah (interest) and everything that implies harming them is Mafsadah (harm).” The economic implication of this comprehensive welfare concept is that the Islamic state is responsible for the following:

1. To eradicate poverty and to create conditions for full employment and a high rate of growth,
2. To promote stability in the real value of money,
3. To maintain law and order,
4. To ensure social and economic justice,
5. To arrange social security and foster equitable distribution of income and wealth,
6. To harmonize international relations and ensure national defence.”

In the course of the fulfilment of these responsibilities, the Islamic state resorts to tools like planning, undertaking social and physical infrastructure, providing measure for ensuring just wage rates and just prices, economic assistance to the elderly, the disabled, and the handi- caped.

The financial resources suggested by Chapra to meet the requirement of this role of the Islamic government are four: Zakah, income from natural resources, taxation, and borrowing. Zakah’s ratio, collection and disbursement are very well treated in the original sources of Islam leaving not much to be added, while taxation and borrowing still need more elaboration. Chapra suggested that the “right of the Islamic state to raise resources through taxes cannot be challenged.”  Loans may be obtained from the public on the basis of profit-sharing in certain projects or on the basis of their zeal and inspiration. Loans from central bank, although inflationary in nature, may be reverted in a few cases where the anticipated harm of price instability is less than the expected benefit of such borrowing. Although Chapra stressed the principle of justice as far as the size and the distribution of the tax burden are concerned, he did not articulate this principle with respect to the validity of the use of taxation in financing different activities of the Islamic state. How much of these activities can be financed through taxes and how much through borrowing? And how could the economic priorities be listed? What reflects more justice — having higher standard of living for the poor and more taxes, or lower standard and less taxes? What expenses of the state can be financed from each of these three sources: taxes, Zakah, and borrowing?

Questions of this kind deal with the legitimacy and the extent of tax levying. Their answers represent constraints on the economic behaviour of the Islamic state. The role of promoting “economic” welfare that Chapra assigns to the Islamic state requires two sets of activities: production activities that can be summarized as the promotion of better utilization of economic resources which he called, “full employment and high rate of growth”; and distribution activities that may be summarized as the reduction of income differential between the rich and the poor. This is the goal of social and economic justice and the equitable distribution of income and wealth of Chapra. The extent of these two major economic functions of the Islamic state depends on three factors, namely, the endowment of natural resources, the level of technology and the amount of financial resources that can be raised from within and from outside the economy. But since both natural resource endowment and the state of technology are given in any short- and medium-term analysis, and the ratio and categories of disbursement of Zakah are also given, the amount of taxes that the state can legitimately collect becomes a principal determinant of the level of its performing the above-mentioned functions in any Islamic society (one should not forget foreign aid and borrowing).

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