About this Blog

This blog is created as a medium to sharing my thought, my life and to write anything i want...
I will try to add some useful information in this blog...
Let's assume this blog as a medium of learning...

I bear witness that there no other God except Allah, and , I bear witness that Muhammad (pbuh) is a servant of Allah and His Messenger...

Wednesday, April 13, 2011

Taxation in Islam

Assalmmualaikum... this is a piece of my work and i would say that it is incomplete since i did not cover many subject or discussion, basically the crucial and important... maybe someday i will be able to do it.. hope so,... by the, this assgmnt i shall submit it latest by tomorrow, yet, i just finished it today... bukan saya malas..saya dah wat dah 2 page hujung bulan 3, then pending sampai saya ada mood nak wat balik...hahahhaha... sediakan maknan n minuman sebab saya rasa amatlah panjang...

btw, to those who interested, i think u should read the books in the reference later.



Taxation in Islam
Taxation is one of the sources for government revenue, which also considered as one of the tools of fiscal policy. In public finance, government expenditure is financed through the taxation. We will dwell about the taxation in Islam in more detail later after the basic introduction on tax in Islamic history.

Tax is money that you have to pay to the government so that it can pay for public services.[1] This money later will be transferred to the possession of government as to expense it wisely, which means to transfer it to the benefit of the citizen as a whole through providing public goods, subsidies and a portion on fiscal policy.
Taxation has been practiced during the Islamic era since during the Prophet Muhammad and onwards as one of the sources for government revenue apart from the voluntary contribution as shown by Uthman bin Affan, whom spend his property in cause of Allah. During the time of Prophet, tax system is not as complicated today because the society live during those day were well informed on the teaching of Islam. Thus, many of them were happily spent their property in cause of Allah. Besides voluntary contribution, the Holy Quran names zakah, jizyah and khumus as the sources of public revenue.[2] While, Ibn Taimiyah sums up all the Shari’ah sources of public revenue under three heads as he says: “Government revenues based on the Book and the Sunnah are three types, ghanimah, sadaqah and fai”[3]

The tax system starts to be practiced in more detail and worked out in the reign of the second caliph, Umar. He also introduced tariffs on merchandise being transported for sale in Muslim territory. In the early centuries of Islam, these conventional sources of public revenue were capable of raising enough revenue to finance government expenses. The rates of taxes and taxable items were subjected to change according to the needs of the economy and paying ability of the taxpayers.[4]

The proceeds from taxation are meant to benefit the community and enhance its welfare status. This feat is accomplished as tax revenues in Islam on the one hand contribute to government coffers and permit the state to fulfill its social obligations, while on the other hand taxes redistribute wealth and encourage investments.[5]

We will dwell on the fai or fay revenue, which is more comprehensive and relevant in our current economic situation and can be practiced by the government in this millennium era. Literally, fay or fai, means return of a thing. In legal terminology, it denotes all property received from the enemy without actual fighting.[6] For ibn Taimiyah, all revenue other than ghanimah and zakah fall under this categories which includes the following:[7]

1)      Poll tax ( jizyah) imposed on Jews and Christian (non-Muslim)
2)      Tribute paid by the enemy
3)      Gifts presented to the head of state
4)      Custom duties or toll taxes imposed on traders of the enemy country
5)      Financial penalties
6)      Kharaj
7)      Unclaimed property
8)      Heirless property
9)      Deposits, debts or usurped property whose actual owner is not known and which therefore cannot be returned.
1      Any other source of income.

These are some of the sources that mentioned by the Islamic thinkers and some of them are in the view of accepting the new source of income for government as long as it is Shariah compliance and does not bring harm to the society.

In Abu Yusuf’s book, that is Kitab al- Kharaj, he elaborated the conditions of taxation:-

1.      Charging a justifiable minimum
2.      No oppression of tax-payers
3.      Maintenance of healthy treasury
4.      Benefiting both government and tax-payers
5.      In choosing between alternative policies having the same effects on treasury, preferring the one that benefits tax-payers.[8]

Generally known, in defining the tax base and tax rate, most of the Islamic thinkers were concerned or they given a special attention on the concept of justice and thorough survey shall be conducted in order to make an accurate tax base and tax rate. As for the view of Ibnu Khaldun can be explained through the Laffer curve, which suggest the light rate of tax, will yield more revenue for the government. In the conventional system, the tax structure is divided into three types, namely progressive, proportional and regressive. While, in Islam, as far as I am aware, it is either progressive or proportional. In some extent, the proportional tax rate is more preferable for Islamic thinkers such as Qudama, Abu Yusuf and others.

            The revenue received shall be spent in the right way and the Ibnu Taimmiyyah had suggested some of its expenditure. In this matter, we will focus on the expenditure from fai’ revenue as suggested by Ibnu Taimiyyah. The fai’ revenue should be expense on the expenditure that will benefit the whole society and the protection of the welfare. It is wise to note that, the sources of it are given back to those who are entitled for it. In this case, since the fai’ revenue is collected from non- Muslim, thus non- Muslim also has the right on the portion of its expenditure. 

One of the prime duties of the states is to defend its people from external attack. Even in the modern age, a sizeable portion of public expenditure of various governments is directed to this end. In the age of Ibnu Taimiyyah, defense was of the utmost necessity, in the wake of the crusades and Mongol attacks. He therefore puts great emphasize on the expenditure on army and auxiliary forces.  Aside from zakah and ghanimah, revenue from fai’ should be spent on them. In one sense they are most deserving of fai’ strictly defined (that is, income obtained from the enemy without actual income). War-widows and their children will also be supported from public revenue.
As for internal peace and security, Ibnu Taimiyyah stresses that fai’ income should also be spent on the salaries and wages of those who guard the territory. An example of such expenditure is amount dedicated to “reconciliation of hearts”. According to him, such money can be given both to Muslims and non-Muslims, so that they might accept peaceful co-existence and mischief among them be avoided. Expenditure on police and other peace-keeping forces may easily be included in this category, or they may be counted with the administrative and ministerial machinery of government.[9]

So, its expenditure shall be comprehensive and benefited the payers of the tax. Some of its expenditure is on defense, administrative services, social security, pensions and grants, education, developmental heads and others.[10]

            Even though the taxation in Islam seems to has no difference with the conventional as discussed above, but, the uniqueness of Islamic taxation can be noticed on the distribution of fai’ revenue where the element of justice has plays a vital role. In order to see the advantage in the Islamic taxation, a further study shall be conducted and be applied in the real world. In the economy activities, the role of Shariah cannot be separated in order to protect or stabilize the environment.


[1] Meaning of tax from Oxford Advanced Learner’s Dictionary, International Student’s Edition  7th Edition
[2] Islamic Economics, Public Finance in Early Islamic Thought by Dr Sabahuddin Azmi (page 29)
[3] Reading in Islamic Economic Thought by Abu al-Hassan M. Sadeq (page143)
[4] Islamic Economics, Public Finance in Early Islamic Thought by Dr Sabahuddin Azmi (page 29)
[6] Islamic Economics, Public Finance in Early Islamic Thought by Dr Sabahuddin Azmi (page 73)
[7] Readings in Islamic Economic Thought by Abu Al-Hassan M. Sadeq (page 145-146)
[8] IBID (page 215)
[9] Readings in Islamic Economic Thought by Abu al-Hassan M. Sadeq (149-150)
[10] Islamic Economics by Dr Sahabuddin Azmi (page 127)

0 comments:

Related Posts Plugin for WordPress, Blogger...