Taxation in Islamic prespective

Table of Contents
 Introduction

 History on taxation

 Direct & Indirect Taxation

 Islamic opinion about Taxation

 Principles of taxation in Islam

 Types of Taxation in Islamic Perspective

 The Important Role of Taxation

 Areas of Expenditure where bait ul mal is obliged to spend

 Comparison Between Zakat and Taxation

 Conclusion
 Introduction

 Tax is a compulsory payment made to government for services it provides us.

 According to Islamic standpoint tax is that part of the wealth, spent for the welfare of the public, which
comprises, besides others, the poor and the needy
 Jurists agree that Taxes can be imposed to meet the needs of the state including administration, welfare and
development that cannot be done solely by Zakat money. The need to levy taxes is also important because it
will lead to public dissatisfaction and violence if the state is unable to meet its needs on account of shortage
of resources (avoidance of damage will get priority over doing of good)
 History on Islamic taxation
 In origin, the permanent sources
of revenue for the Bait ul-Mal (State Treasury) should be sufficient to cover the obligatory
expenditure of the Islamic State. These revenues that Shar’a (Islamic Law) has defined are:
Fai, Jizya, Kharaj, Usher, and income from Public properties .
 The financial burdens placed on modern states today are far higher than in previous
times.
 the Bait ul-Mall's permanent sources of revenue may be insufficient to cover all the
needs and interests
 Allah (swat) obliged
the State and the Ummah to remove any harm from the Muslims

 the Messenger of Allah (saw)

said: “It is not allowed to do harm nor to allow being harmed.”
 Therefore, Allah (swt) has obliged the State to collect money from the Muslims in order to
cover its obligatory expenditure.
 The State achieves this by imposing taxes upon the Muslims
such that these needs and interests are fulfill,.
 These taxes should only be taken from people’s surplus wealth .
 DIRECT VS INDIRECT TAX

Particulars Direct Tax Indirect Tax

Meaning Direct Taxes are the taxes that are levied on
the income of individuals or organizations
For Example : Income Tax, Corporate Tax
Nature of Tax Progressive
Indirect taxes are those paid by
consumers when they buy goods and
services.
For Example :Sale, Excise & Service Tax
Regressive

Taxable Event Imposed on Income/Wealth Imposed on Goods & Services

Shifting of Burden Cannot be shifted Can be Shifted

Tax Evasion Probably Less Probably More

Inflation No Inflation Inflation

 Is the tax system part of Islamic finance?
For many Islamic perspectives we should avoid putting tax on people .many scholars' condemn
putting tax on people . Many scholars considered it totally prohibited. Some other scholar's allowed it
when there is genuine need. And the government fails to meet its financial obligation. Then they put
taxes in a fair way. Some other scholar's says if the government is fail to meet its financial obligations
it means there is a problem in the way it conduct its self because Allah the creator provide people with
what is enough for them ,had they follow his instructions. If they do not follow his instructions then
they will have these financial problem's and the government before it impose taxes on people it has to
revisit the way it functions ,once they follow the guideline given by Allah, they will see that Allah will
provide them and they don’t need to impose taxes on people.
 Principles of Tax policy in Islam

 Simplicity
 Productivity
 Flexibility
 Ability to pay
 The Principle of Equity
 The Principle of Certainty
 The Principle of Convenience
 The Principle of Economy
Comparison Between Zakat & Taxation
ZAKAT
Religious Obligation
Levied only on Muslims
Payment is Must
Rate is fixed
Heads of Expenditure is fixed
Collected from rich and spent on poor
TAX
An Economic need of state
Imposed on All
It can be Remitted
Rates are changed subject to condition
Tax Revenue are spent for all rich & poor
 There are six areas of expenditure the Bait ul-Mal is obliged to spend upon. If
insufficient funds are available then taxes will be imposed upon the Muslims
to meet the expenditure. These areas are:

The expenditure upon Jihad and what is necessary for it.

 Expenditure on military industries
 Spending on the poor, needy and welfare
 Expenses such as the salaries of soldiers, civil servants, judges, teachers and the like who
provide services for the benefit of the Ummah.
 Expenses due in the form of services and caring of the Ummah.
 Expenditure upon emergencies like famines, earthquakes, floods and enemy attacks.
 Conclusion

On the basis of the legal evidences and historical study it has been held that the Islamic state has the authority
to levy and collect taxes and to use these funds for the projects of social welfare. Imposition of such taxes does
not violate any tenant of sharia and it was practiced by the Holy Prophet ( ) and his companions. Islamic state
can impose extra taxes provided the taxes are levied for benefit of the people in emergencies, or genuine needs
of the state; tax income is carefully applied & honestly spent; and the charge, assessment and collection of
taxes should be governed by principles of equity, justice and fairness.
 References
• http://www.kalifaat.org/pdf/FundsintheKhilfahstate.pdf

• The Role of Taxation, Expenditure and Debt in an Islamic Economy by Dr. Abdel-‐Rahman Yousri
Professor of Islamic Economics University of Alexandria Egypt

• https://www.taxjustice-and-poverty.org/fileadmin/Dateien/.../Islam/Islam_Tax.pdf

• https://www.researchgate.net/publication/311587935_Islamic_Perspective_on_the_Impact_of_Ethics_and_Tax
_for_Nigerian_Economic_Development

• Nafik, M. (2012).Comparison Between the Modern and Islamic Concept of Taxation, Proceeding of the 2012
International Conference on Business and Management, Phuket – Thailand. P.19-21