A DESCRIPTIVE OVERVIEW OF ISLAMIC TAXATION
By Ali Reza Jalili
Department of Business
Tel. (603) 428-2327
E-mail: ajalili@nec.edu
This paper is part one of a two-part paper on taxation under Islamic jurisprudence. The first part presents a descriptive overview of Islamic taxation and sets the stage ready for the second part. In the second part, the methodology, philosophy, and impact of these taxes are discussed and the system as a whole is evaluated.
A DESCRIPTIVE OVERVIEW OF ISLAMIC TAXATION
INTRODUCTION
Currently, there are fifty-seven Muslim countries in the world covering one-fifth of the world’s landmass, including some vital strategic areas, and few other emerging Muslim countries are on the horizon. Additionally, Islam is prominent in several other countries and Muslims constitute a sizeable minority in yet other societies. With population of about 1.3 billion, Muslims account for one-fifth of the world’s inhabitants. Given the prevalent high birthrate in Islamic societies, in twenty years, one-third of the world’s population is expected to be Muslim.
Muslim countries today control more than seventy percent of the world’s energy and account for 40% of the global exports of raw materials. Their economic and geopolitical relevance, both as suppliers of energy and raw materials as well as vast rich markets for various goods and services is increasing rapidly. The Western interest in the Muslim world, thus, is not a coincidence. Since the Middle-Ages Muslims and Islamic countries have occupied an important position for the Western governments and societies. The course of history and economic development in the twentieth century has substantially intensified this prominence. The history, politics, economics, sociology, behavioral patterns, and other social aspects of Islam and Muslim communities have been subject of continuous interest and investigation in the West. Parallel to this interest, during the twentieth century, there have been indigenous attempts to revisit and reinterpret Islamic Thoughts and revive Islamic practices in the Muslim societies. In the recent past, this movement has acquired an appreciable momentum as shown through political as well as ideological movements. Siddiqi (1981) lists 700 articles on Islamic Economics alone, covering up to 1975
Few doctrines in the history of humanity have had as strong a hold on their adherents as does Islam. For devote Muslims, Faith governs all aspects of their lives. The Muslim Holy book (Qur’aan) and Muhammad’s traditions and actual practices (Sunnah) make up the Islamic Law (Sharia) which contains and covers all that is needed for a believer to be blessed and delivered, both in this world as well as Hereafter. As such, a policy maker in a Muslim society must be aware of these subtleties and consider them fully in devising and implementing socio-economic policies. The question is no less important for all other parties interested in dealing with the Muslim communities on all political, economic, and international affairs.
Today, all Muslim countries are among the developing nations. The decision makers in these societies, along with the International Agencies and Foreign Governments, are faced with a crucial and special challenge. Namely, how to take into consideration the underlying Islamic belief-system in formulating, forging, and implementing the appropriate international and developmental policies. Failure to adequately consider these aspects, will render the governing bodies incapable of meeting the challenges and could very well backfire through inducing tardiness in accomplishing the desired tasks, undermining the policies and plans, or even outright sabotage of the entire scheme. Episodes in Afghanistan, Algeria, Bahrain, Egypt, Iran, Iraq, Indonesia, Kuwait, Lebanon, Libya, Malaysia, Pakistan, Saudi Arabia, Sudan, Turkey, Qatar, U.A.E, and Yemen are few of the more recent memorable instances from a very long roster.
Taxes and tax systems are among the most potent policy tools at any policy makers’ disposal. In many situations, tax policies can foster or hinder the plan in its entirety. Under Islamic jurisprudence, specific taxes and tax systems are prescribed. Accordingly, disregarding, degrading, or contradicting these prescriptions could prove catastrophic to the developmental policies and policy-making institutions in Muslim societies. Thus, familiarity with and understanding of the Islamic taxes, their underlying philosophy, their impacts, and the overall tax system are imperative for both decision makers in the Muslim world, as well as all outsiders who deal with these communities. To enhance the possibility of success, prior to devising or implementing any plan or policy, many questions must be answered. For instance, what are the Islamic taxes? What philosophy they subscribe to? What aims and policies do they pursue? What outcome do they seek? What are their impacts? What are their institutional requirements? Can they be integrated into modern tax policy and systems? Are they subject to changes and revisions? And so forth.
The current study is an attempt to address some of these and similar questions. The task will be carried out in two installments. Part one, the present paper, is a descriptive explanation of Islamic taxes. Accordingly, it lays the foundations and presents the origin, the structure, and the basis of Islamic taxes. The second installment on this work will discuss the methodology and philosophy of Islamic taxation and will engage in their critical analysis and assessment.
Islamic thoughts encompass several schools and interpretations. Shiite School and four Sunni Schools
BACKGROUND ECONOMIC ISSUES
To comprehend the Islamic tax system, Islamic views on several relevant economic categories should be noted. Appreciation of these notions will help researchers to grasp the Islamic tax system and its place within the overall Islamic doctrine. Chief among these concepts are ownership, concentration of wealth, justice, and appropriate consumption.
Islamic property rights are not absolute. Allah is the ultimate owner of all there is. He is the only real, actual, and final owner of everything there is. “Whatever is in the heavens and the earth belongs to Allah.” (2:284), or “to Him alone belongs everything in the heaven and the earth and everything in between. To Him alone belongs whatever is below the soil.” (20: 6). Also, “say: unto whom (belongeth) the earth and whosoever is therein, if ye have any knowledge? They will say: unto Allah.” (23: 84-85). And “believe in Allah and His Messenger, and spend of that whereof He hath made you trustees and such of you as believe and spend (aright), theirs will be a great reward.” (57: 7). Also “and bestow upon them, of the wealth of Allah which he hath bestowed upon you.” (24:33). The same theme has been reiterated in several other places in Qur’aan. People are merely entrusted with wealth for their livelihood in this world. They are allowed to hold property and enjoy the benefits so long as they understand that they are holding the property in trust and they must follow the God’s rule.
It follows, then, that the distribution of wealth and the outcome of the economic activities and policies, including taxes, must be “just” and in accordance with the will of the “Ultimate Owner” as manifested in the principles laid down by Him in Qur’aan. Therefore, the Muslim society should oppose fraud, deception, greed, and any other activity or behavior that will lead to concentration of wealth in few hands and hoarding of idle wealth. “They who hoard up gold and silver and spend it not in the way of Allah, unto them give tidings (O Muhammad) of a painful doom. On the day when it will be heated in the fire of Hell, and their foreheads and their flanks and their backs will be branded therewith and it will be said to them: here is that which ye hoarded for yourselves. Now taste of what ye used to hoard. (9: 34-35). Or “woe to every slanderer, defamer, who amasses wealth and counts; thinking that his wealth would make him last forever.” (104: 1-3). And “don’t make your hand shackled to your neck, nor stretch it forth to the utmost of its stretching. Lest you should sit down, rebuked, denuded. Lo! your Lord enlarges the provision for whom He will and strains (it for whom He wills). Lo! He is Ever Knower, Seer of His slaves. (17: 29, 30).
Muslims’ consumption pattern, except for some specific items, is not limited or constrained. “Moderate” and “lawful” spending, however, is repeatedly advocated by Islam. Islam prohibits “extravagance” (Israf) and spending ones money on impermissible items (Tabzir). According to Qur’aan, “squanderers are indeed brothers of the devil” and “Allah does not love people who waste what they have.” (6: 141 and 17: 26 ). The prohibition of “extravagance” and “wasting of one’s wealth” is repeated in at least 13 verses in Qur’aan. Accordingly, Muslim writers, almost invariably, assert that Islam advocates modest life and average standard of living. Most of these concepts, however, are not operationally defined. For instance, it is not clear that what is considered to be “just”? What threshold is to be used to determine “concentrated” wealth? What constitutes “moderation” or “extravagance” in consumption and life style? What exactly a “conditional ownership” and “trusteeship” constitute? And so forth. This vagueness, accordingly, leaves room for a great deal of interpretation, flexibility, and arbitrariness. Therefore, although any proper study of Islamic tax system must include a basic familiarity with these concepts, it should be constantly noted that this familiarity is only useful conceptually and not operationally. The familiarity with these concepts will orient researchers within Islamic doctrine and provide the general framework for analyzing and understanding Islamic taxes and their spirit. Beyond this, they should not be emphasized since not much practical value is gained by doing so.
It is extremely difficult to present a concise, coherent, and uniform understanding of Islamic tax system. In addition to many conceptual vagueness and generalities in Islamic economic doctrine, several other factors contribute to this phenomenon. Factors such as subjective interpretation by different authors, the writers’ ideological tendencies, large and frequently conflicting accounts of events, and outright mistakes in translation of sources are part of these contributing factors. The outline, intent, and spirit of the original Islamic tax laws, however, are rather clear. Islamic tax system contains both “general” as well as “selective” or “classified” taxes. In Islamic taxation, both nature of the property as well as the owner’s conditions come to play. Various categories of wealth and real properties are treated and taxed differently and in some cases even items within the same class of property treated differently. Some of these different treatments may be observed in taxation of real properties and personal properties, tangible and intangible assets, farm and residential lands, and so forth. Despite all these, a generally accepted mechanics and intend of Islamic taxes may be stated as the following. Uninvested (uncirculated) accumulated or hoarded wealth plus certain categories of annul income minus an exemption level (Nisaab), minus a “reasonable amount for one’s annual expenditure that is commensurate with the taxpayer’s status in life” will be subject to tax. In addition to the financing of the state activities, the main objectives of Islamic tax system may be stated as alleviating poverty, improving income distribution, and creation of a just society. The appropriate tax policy to move the society toward these goals will be a policy which provides stimuli for investment and discourages idle hoarding of cash and wealth.
Not surprisingly, throughout the history of Islam various interpretation and differences of opinions have emerged on details and mechanism of taxation. This phenomenon, in itself, is not peculiar to Islam. What is rather unique is that writings on Islamic taxation in general and Zakaat and Khums in particular, are largely reactive in nature. The literature is predominantly detailed case-by-case treatment of specific questions and circumstances that has evolved into the legal precedent. The cases have been resolved through references to Qur’aan and Sunnah, along with the jurists’ consensus. In many parts, nevertheless, these cases are outdated, unusual, or even absurd and removed from the real world. In the process, central issues and concerns are often neglected and coherent and general set of principles are absent or omitted. The writings and opinions, in many cases are vague, controversial, irrelevant, and inadequate. Often, many economic and accounting categories are mixed, misused, and confused. As a result, many inconsistent or contradictory treatments, statements, or prescriptions on taxation have emerged.
To appreciate the size and dimensions of the problem, suffice to mention two points. First, issues and controversies concerning taxable items and what constitute the tax base. For instance taxability of “inheritance” (Choudhury 1980, p. 164); taxability of “wealth” (Shad 1986, p.47); taxability of “industrial produce” (Ahmad 1964, p. 92); taxability of “salary” (Shaik 1980, pp.67-68 and 77; Sadr 1989, p.132); taxability of “capital,” “all forms of wealth, productive or not,” “total wealth,” “capital of various types,” and “accumulated wealth” (Rahman 1986, pages 198, 209, 245, and 246; taxability of “accumulated wealth” (Rahman 1990, p 53); taxability of “hoarded wealth” (Ahmad 1995 p.75); taxability of all forms of “private wealth,” “most forms of wealth,” and “all cash balances” (Siddiqi 1983, pages 17, 34, and 64); taxability of “industrial plants and corporate physical assets” (Awan 1980, p.200); taxability of “net worth including fixed and variable assets” (Kahf 1980, p 3 and p 4); taxability of “all wealth,” “idle balance,” or “all net worth” (Chapra 1992, pages 275 and 305); taxability of “savings and property,” “hoarded wealth,” and “general property” (Mannan 1991, pages 220, 274, and 296); taxability of “only fixed assets” (Al- Qardawi 1997 p.67); and non-taxability of “capital,” and “tools” (Ahmad 1995 p. 86) are only a sample from a long list. Confusion on this issue is so much that sometimes some writers take contradictory positions in the same writing (Ahmad 1995 pages 78, 79, and 86; Al-Qardawi 1997, p.67 and p. 88) and so on. The second point is conceptual and operational confusions and errors in these writings. For instance, confusion between “income” and “savings,” (Sadr 1989, p.133); between “income” and “wealth,” (Rizvi 1992, p.6; Sadr 1989, p.120); between “assets” and “capital,” (Ahmad 1995; Montazeri 1986, pp. 7 and 8); between “wealth” and “net worth,” (Shaik 1980, p.18); between “savings,” “assets,” and “income,” (Choudhury 1980, p.164); between “idle wealth,” and “capital” (Ahmad 1964, pp. 92-95); between “sum,” and “rate,” (Sadr 1989, p. 129); between “income,” “accumulated wealth,” “surplus wealth,” and “profit” (Yusuf 1996, pp. 67-68); and between “capital” and “investment” (Rahman 1986, p. 209). Additionally, other categories such as owners’ equity, net proceeds, short and long term, realized and unrealized gain, stock and flow, etc., are used improperly and sometimes even incorrectly.
To engage deeply in these issues and explore all of them is subject matter of other papers and is well beyond the scope of the present study. As noted before, what is provided here is an outline and introduction to Islamic taxes. The major source that is used is Qur’aan with some supplementary materials from generally accepted sources and what appears to be the general consensus among Muslim jurists and writers. In this process, always the interpretation that seems to be closer to the spirit of the Islamic law and Islamic doctrine as explicitly manifested in Qur’aan and actions of Muhammad have been chosen over other interpretations.
ISLAMIC TAXES
Islamic jurisprudence recognizes individuals as the taxpaying units. As such, households, corporations, and other entities are not taxed. Instead, all income and taxable items pass through these institutions to individual owners and are taxed at that level. The first Islamic tax was Khums, which was imposed after the Battle of Badr in the second year of Hijra (Muhammad’s migration from Mecca to Medina
The Islamic taxes are mainly levied against and calculated based on actual taxable items. That is, these taxes are in-kind taxes. The payment, however, may be either in-kind or in equivalent value. Some of the taxable items are mentioned in Qur’aan or by Muhammad himself, while others have been added in later years. The subsequent Caliphs altered the tax base several times. Some items became subject to tax (such as herbs, honey, horses, amber, minerals, lentils, spice, etc.), while others were exempted from it (such as apricot, pomegranates, apples and similar fruits, oil, mica, etc.). Several items were switched back and forth between taxable and non-taxable categories or their rates were changed. (Zamman 1981, pp. 155-158). In all cases, taxes are collected by the state and are kept in the Public Treasury (Bayt-ul-Maal). The money, then, will be spent on certain categories specified in Sharia (Islamic Law). Part of the collections must be spent in specific ways and on pre-prescribed items. Spending of others, however, are more flexible and less restricted.
Most of the Islamic taxes mentioned in Qur’aan, come under category of Zakaat. The term refers to a generic compulsory tax and literally means to purify or to grow. Zakaat is one of the pillars of the faith and an extremely important aspect of Islamic code of conduct. It has been mentioned in Qur’aan sixty times, twenty-seven of which is right after “salaat” (daily prayer) among duties of the righteous Muslims and as a necessary condition of being a Muslim. “Establish regular prayer and pay Zakaat….” (2:110), or “Lo! Those who believe and do deeds of righteousness and establish regular prayer and pay Zakaat, their reward is with their lord and there shall no fear come upon them, neither shall they grieve.” (2:277). And, “(Muslims are) those who, if we establish them in the land (in authority) establish regular prayer and give Zakaat, enjoin the right and forbid the wrong: with Allah rests the end of affairs.” (22:41 ), or “so establish worship, pay Zakaat, and hold fast to Allah…” (22-78). Also, “and they are ordered naught else than to serve Allah, keeping religion pure for Him, as men by nature upright, and to establish worship and to pay Zakaat. That is true religion.” (98: 5). The same command has been repeated in numerous other verses such as 2:177, 24:56, 33:33, 73:20, 2:43 , 2:83, 5: 12 , 7:156, 9: 11 , 9: 71, 9:103, 19:31 , 19:55 , 21:73, 23: 4, 30: 39, 31: 4, 58: 13). The Qur’aan, however, sometimes uses the term “Sadaqah” (alms), in place of Zakaat. The unanimous agreement among Muslim jurists, though, is that whenever the payment is compulsory, it is Zakaat while Sadaqah refers to voluntary payments or charity.
Zakaat is payable by all Muslim who are free, in possession of the taxable item, and with ability to utilize the properties and make decisions about them. (Khoeie 1982, p. 316; Montazeri 1986, p. 20; Khomeini 1980, p.15). Some Muslim schools (e.g. Shiites and Hanifites) consider minors and insane individuals to be exempt from Zakaat, others (e.g., Malikites and Shafites) believe that in these cases it is the duty of the guardian to pay the Zakaat. (Shad 1986 p. 57 and 75; Shaikh 1977, p. 8; Khoeie 1982, pp 316-317; Mannan 1991, p. 287). For payment of Zakaat to be valid, the Zakaat payer must have the intention of paying Zakaat, pay it for prescribed categories, and unconditionally transfer the ownership to the recipient. While the majority of jurists believe that the Zakaat payer may not receive any direct benefit from the payment of Zakaat, some argue that even an indirect benefit from Zakaat by the Zakaat payer is not permitted. (Zaman 1981, p. 169).
In addition to Zakaat, there are taxes prescribed by Islam. A generally accepted classification of Islamic taxes may be stated as follow:
1) Zakaat of land or Ushr, which is a flat percentage tax on some agricultural products. The Qur’aan states “He it is who produceth gardens trellised and untrellised and the pomegranate like and unlike. Eat ye of the fruit thereof when it fruitelth, and pay the due thereof upon the harvest day, and be not prodigal. Lo! Allah loveth not the prodigals.” Another citation mentioned as the source for this tax is 6:142; 2:267.
Views on taxability of various crops are not uniform. Shiite, Malikite, and Shafiite schools of thoughts consider Ushr to be applicable only to those crops that can be dried and stored for food. Originally, these crops were wheat, barley, dates, and raisin. (Shad 1986, p. 74, Rahman 1986, p. 216). Later, some jurists include similar crops such as corn, rice, beans, and so on in the tax base. (Khoei 1982, p. 316; Montazeri 1986, p. 19). Hanafite school of Sunni Islam
The rates for Ushr are specified in Sunnah as 5% of the agricultural produce on artificially irrigated lands and 10% on produce of the lands benefiting from rain or natural spring only. (Rahman 1986, p. 215; Khomeini 1980, p.18). Some jurists allow an exemption level (Nisaab) for some crops. For instance raisin, date, barely, and wheat have Nisaab of 847 kilograms. (Khoeie 1982, p. 318; Montazeri 1986, p.25; Khomeini 1980, p. 16) or 1000 kilogram (Shaik 1980, p. 21). Other jurists do not consider any personal exemption allowable. Allowance for deduction of pertinent business and production expenses is permitted by some jurists. (Shad 1986, p. 75; Sadr 1989, p.134). Accordingly, in these cases, Ushr is a tax on net output or income. Other jurists permit only deduction of explicit expenses. Accordingly, some deductions such as compensation for own labor, depreciation on own equipment, capital expenditures, and non-compensated inputs are not allowed. (Khomeini 1980, pp.17-20). Most jurists, however, consider gross produce to be subject to Ushr and disallow deduction of any expenses, even the seeds used in cultivation. (Montazeri 1986, p. 26; Khoeie 1982, p. 320, Siddiqi 1981, p.25). For some, Ushr is a one-time tax. Therefore, after the payment of the initial tax, holdings of the products does not trigger additional taxes. (Khomeini 1980, p.18, Montazeri 1986, p. 25).
Ushr is due as soon as the taxable crop is usable or meets certain conditions. Passage of a year is not required for this tax. Ushr, irrespective of the land arrangement, is obligation of the cultivator or whoever owns these crops at the time they become taxable. Based on many jurists, from this point on, even personal consumption from these crops is subject to taxation. Sale
2) Zakaat on livestock, which applies to cattle, camels, and sheep older than one year. By analogy, this tax is extended to similar animals such as goats, water-buffalos, and alike. Horses and riding animals were originally exempt. During the reign of the second Caliph, Umar, the exemption was limited to animals used for personal riding and the rate of 5% was established for horses utilized in trade. Tax of 4.25 grams of gold, or 2.5% of the value have also been mentioned. Holdings of fish or poultry are exempt from taxes. If they are sold, however, Zakaat will be applicable to the proceedings. Wild games are tax-exempt unless they constitute the owners’ trade. In general, when animals are kept for business purposes such as trade, procreation and breeding, or dairy, they will be taxable. When the holdings of animals are for personal uses such as meat consumption, riding, assisting in agricultural activities, or transportation, they are not taxed unless these activities are the owner’s trade. Some suggest that if the animals are kept in the taxpayers’ businesses as “merchandise,” they will be treated as such. Accordingly, these animals will be subject to general Zakaat and not Zakaat of animals. (Siddiqui 1962 p. 50; Kahf 1980, pp. 1-2; Shaik 1980, p. 22; Zaman1981, pp. 45-46; Rahman 1986, p. 218; Shad 1986, p. 79; Ahmed 1995, p.78; Yusuf 1996, p. 68). Some jurists consider animals to be subject to Zakaat only if they meet additional conditions such as being idle during the year, or fed from the public pasture that is not cultivated by anyone, or pastured more than six months. (Khomeini 1980, p. 22; Khoeie 1982, p. 325; Montazeri 1986, p. 20; Rahman 1986, p.218; Shad 1986, pp. 70-71; Sadr 1989, p.142).
Each category of animals has its own predetermined Nisaab. Zakaat is applicable based on the number of holdings beyond Nisaab in each category. The rate structure is expressed in quantity and type of animals. Taxes are calculated and are due in kind, but they may also be paid in equivalent monetary value. If the tax is paid in equivalent value and the animals are kept for another year, so long as they exceed the Nisaab, they will be subject to Zakaat again. This will continue until the quantity of holdings fall below the Nisaab. The effective tax rate, depending on the type of animal and quantity of holding, varies between 0.8% - 2.5%. No allowances for the taxpayers’ personal expenditures or deduction of business expenses are permitted. Details of Nisaabs and the rate structure may be found, inter alia, in Khomeini 1980, pp. 22-24; Shaik 1980, pp. 20-23; Khoeie 1982, pp. 324-329, Montazeri 1986, pp. 21-26; Rahman 1986, pp. 220-222; Sadr 1989, pp.137-142; Mannan, 1991, p.p. 286-287; Ahmad 1995, p. 78).
3) In addition to items taxed under Zakaat of livestock and Zakaat of land (Ushr), three other categories are taxed under what may be referred to as general Zakaat. Although opinions vary on specifics, generally jurists agree that gold, silver, and “other assets” above prescribed Nisaabs are subject to Zakaat. This tax is due whenever the taxable item remains in the taxpayer’s possession for one year. The first two categories are fairly straightforward. Gold and silver above Nisaab are taxed at the rate of 2.5%. The Nisaabs, based on some jurists, are 70.3124 grams with increments of 14.0624 grams (approximately 2.48 oz and 0.5 oz respectively) thereafter for gold and 492.187 grams with increments of 98.4374 grams (approximately 17.36 oz and 3.47 oz respectively) thereafter for silver. Others assert that the Nissabs are 3 oz for gold and 21 oz for silver. (Khomeini 1980, pp.14-18; Shaik, 1980, p. 24; Zaman, 1981, p. 45; Khoeie 1982, p. 324; Montazeri 1986, pp. 23-26; Rahman, 1986, p. 213).
Sunni Muslims treat the cash and paper money like gold and silver with the same Nisaab, while Shiites tax the excess cash under Khums. Ornamental gold and silver items follow the same rule as silver and gold. On other ornaments, precious stones, artifacts, and jewelry, there are different views. Some jurists exempt these items altogether. Some exempt them only if they are in “reasonable” quantity and are in use. Others consider them subject to Zakaat at 2.5%, with a Nisaab equal to that of gold and silver, even if they are in use. (Khomeini 1980, p.21; Shaik 1980, p.24-25; Montazeri 1986, p. 23; Rahman, 1986, p. 227; Shad 1986, pp. 68-70).
The third category under general Zakaat, however, is much more problematic and requires more detailed discussion. It should be note that although Sunni schools consider this category under Zakaat and Shiites treat it under Khums, the arguments and issues are almost identical and the main difference is on the tax rate and where the proceeds may be spent. Therefore, while this category is discussed here under Zakaat, the statements are valid for Khums as well. Applicability of Zakaat the categories that were not prevalent or known to Muslims at the time of Muhammad is also advocated by many jurists. Among these new categories profits of professionals, bank notes, shares, securities, rental real estates, options, bonds, and similar assets may be mentioned.
A unanimous agreement on what constitutes the appropriate tax base under the “other assets” category does not exist. Many candidates such as “wealth,” “income,” “idle wealth,” “hoarded wealth,” “merchandise,” “articles of trade,” “all types of wealth,” “capital of various types,” etc., have been proposed. A well-defined and universally acceptable tax base and list of taxable items, however, is still elusive. Debates on the taxable items and treatment of other concepts such as valuation of Nisaab, amount of Nisaab, Zakaat on capital and inventory, handling of depreciation, effects of inflation, etc. are still ongoing without a universally acceptable resolution. A partial list of topics and authors engaged in this debate may be found in Siddiqi (1981, p.22). Absence of a universal agreement as well as the ambiguity and lack of clear definitions notwithstanding, the followings appear to be an acceptable general consensus towards which most Islamic jurists are gravitating.
First, gross income and, for the most part, total wealth are not subject to Zakaat. Instead, one’s “excess” income plus “hoarded” or accumulated wealth beyond Nisaab (when applicable) that is not invested and held “idle” for one year is taxed. Second, “hoarded” or “idle,” in this context, refer to items that are not in use for business or personal purposes. Third, inventories of raw material, work in process, and finished goods are not considered as invested wealth and accordingly are subject to Zakaat. The justification comes from the fact that taxability of merchandise is hinted at in the sayings of Muhammad. Forth, “excess” refers to the overage of one’s income over one’s “reasonable” annual expenses. Fifth, “reasonable” expenses for each taxpayer is commensurate with the taxpayer’s social standing. Sixth, deduction of necessary business expenses in calculation of income is allowed. Seventh, both durable and non-durable articles possessed for personal consumption or use, as well as articles employed in production or business activities are exempt from Zakaat and only revenues generated from these items are taxable. Eighth, the Zakaat payer must be free from debt. Thus, in determination of Zakaat liabilities, all debts must be subtracted from the tax base. It is not clear, however, that the debt pertains only to personal loans or applies to commercial loans as well. Shafiite Sunni school rejects this idea and believes that debt has no effect on Zakaat. Ninth, Zakaat is liability of the owner at the time the item becomes subject to Zakaat., Tenth, whenever a taxpayer has taxable items in more than one category, Nisaab is applied to each category separately. Eleventh, the taxable amount, that is the profit and overage of revenue over expenses, must be determined annually and profit and losses may not be carried over to another tax year. (Siddiqi 1962, pp. 11-13 and 35; Shaikh 1977, p. 8; Kahf 1980, pp.3-5; Shaik 1980, p.18 and 24; Montazeri 1986, p. 19; Rahman 1986, pp. 211-213 and 229; Shad 1986, p. 56 and 78-79; Mannan 1991, p. 289; Ahmad 1995, p. 78; Yusuf 1996, p. 68; Al-Qardawi 1997, pp. 466-468)
In calculating Zakaat, holdings of each type of taxable item are combined and after deduction for Nisaab, the tax is applied to the amount above Nisaab in each category. Nisaab is applicable to each category of wealth separately. In each category, the amount must be severally above the Nisaab before it becomes subject to Zakaat (Siddiqi 1962, p.35; Khomeini 1980, p. 21; Montazeri 1986, pp. 24). In cases of joint ownership, each partner’s share is individually calculated and each individual is entitled to his/her Nisaab in each category. Shafiite jurists do not agree and consider the total value as the basis for calculation. (Shaik 1980, p. 19). In case of partnerships, some believe each partner’s share must be calculated against Nisaab separately. Others like Malikite and Shafiite jurists think that the whole entity must be treated as one and be taxed accordingly. (Shaik 1980, p. 27). Shiite and Hanifite schools consider the holdings between two Nisaabs or increments non-taxable but Malikite and Shafiite schools tax these increments prorated. (Khomeini 1980, pp.20-21; Khoeie 1982, p. 323; Montazeri, 1986, pp. 23-24; Shad 1986, p.68).
4) Khums, literally meaning one-fifth, in its original form was applied at the rate of 20% to spoils of war. Origin of this tax is in a verse in Qur’aan when it states “and know that whatever ye take as spoils of war, lo! a fifth thereof is for Allah, and for the messenger and for true kinsman and orphans and the needy and the wayfarer….” (8:41 ). Later, the tradition extended this tax to treasure-troves, mines, and all materials extracted from sea or earth.
Currently, the Sunni jurisprudence maintains that Khums is only applicable to the excavated articles from land, sea, mines, buried treasures, and spoils of war at the rate of 20%. (Abu Ubayd 1968 pp. 467-553, Shaik 1980, p.26; Ahmad 1995, p. 76; Qardawi 1997, p.68 and 87). In this sense, Khums is partly a “windfall tax” and partly a tax on selected natural resources. The Shiite school of thought, while agrees with this assessment, extends Khums to larger categories of uninvested wealth and income. Formally, based on Shiite interpretation, Khums is applicable to seven items. Namely, business profits, mines, treasure-troves, booty and spoils of war, jewels obtained from the sea through diving, a land purchased by an unbeliever from a Muslim, and a wealth that is mixed with unlawful earnings. For Khums purposes, earnings from wages, dividends, and other economic activities are treated as “business profit.” This category, in essence, is equivalent of the “other assets” category under general Zakaat discussed above. Whatever fall under “other assets” for Zakaat purposes, Shiite school considers under Khums and instead of 2.5%, taxes it at 20%. This tax is an in-kind tax and is not applicable to minors and insane. However, Khums may be paid either in kind or equivalent value. The equivalent value must be the fair market value of the taxable item. Unlike Zakaat which is applicable until the holding falls below the appropriate Nisaab, Khums is a one time tax. Thus, when Khums on an item is paid, that item will be forever exempt from Khums. (Khomeini 1980, pp. 3-8; Khoeie 1982, pp.300-307; Montazeri 1986, pp. 3-11; Sadr, 1989, p. 144; Rizvi 1992, pp.5-6).
Proceeds of mines are subject to Khums if the Nisaab is met. The level of Nisaab and methods of calculation for various categories differs based on different jurists. (Rahman 1986, p. 228). In all cases, however, the level is relatively low. For instance, some Shiite jurists set the Nisaab for mines equal to the value of 492.187 grams of silver or 70.312 grams of gold. Most jurists maintain that if the gross output exceeds the Nisaab, Khums is due on amount after deduction of all necessary business and mining expenses. If more than one person is involved in the mining, according to some jurists, each person is entitle to his or her Nisaab and is liable for Khums after deduction for his or her share of mining expenses. Based on others, the proceeds are subject to Khums so long as the total exceeds the Nisaab, even each individual share is less than that. Nisaab for treasure-trove and the related discussion is the same as the one for mines. Materials obtained from the sea through diving or other forms are also subject to Khums. For some jurists Khums is applied without any Nisaab and regardless of the number of people involved. For others, Khums is applied to any amount over the Nisaab of equivalent value of 653.4 gram of gold and after deduction of expenses. If more than one person is involved, each person is individually subject to the rules and exemptions. Booties have no Nisaab and after deduction of expenses incurred for obtaining, transportation, maintenance, etc., are subject to Khums. Purchase of land by a non-believer from a Muslim, even when the land used for homes and businesses, is subject to Khums. If an asset becomes inseparably mixed with forbidden or impure wealth, it will be subject to Khums. In all cases except the “business profit,” Khums is due irrespective of the taxpayer’s annual personal expenses. (Khomeini 1980, pp. 8-12; Khoei 1982, pp. 307-313; Montazeri 1986, pp. 11-15).
Like Zakaat of “other assets,” Khums of “business profit” is calculated after deduction of taxpayer’s debt. According to most Shiite jurists, however, the qualified debt seems to be only debts occurred for satisfying personal “essential needs” and excludes “commercial loans.” Loans that a person takes to “increase and expand his wealth and assets” or to “buy something that he does not need,” may not be subtracted from his income. Carryover of loss or profit to a different year and offsetting one year’s loss against another year’s profit is not permitted. (Khomeini 1980, p.7; Khoei 1982, p. 305; Montazeri 1986, p. 10; Rizvi 1992, p.5).
Similar to Zakaat of “other assets,” for the purpose of calculating Khums under the “business profit” category, business inventories and any other business or personal asset that is not used considered idle and thus part of the tax base. The taxpayer’s income includes not only the “business profit,” but earnings from all other sources and economic activities as well. Capital gains and growth in value, whether due to market fluctuation or natural growth are considered part of taxpayer’s income. Although the issues regarding the deductibility of business and personal expenses are not settled, the general agreement seems to be that all pertinent business expenses incurred in generating profit, including depreciation, transportation, commissions, etc., are deductible. Additionally, “reasonable” personal expenses of the taxpayer and his/her dependents may be deducted from income for tax purposes. To be deductible, the personal expenses must be necessary, customary, not excessive, and correspond to one’s social standing. (Khomeini 1980, pp. 3-8; Khoeie 1982, pp.300-307; Montazeri, 1986, pp. 3-11).
Parallel to the situation under Zakaat of “other assets,” the guiding light in determination of the tax base under Khums for “business profit” seems to be “excess over needs.” At the year-end, holdings of any asset that is not used during the year, including cash and foodstuff, is subject to Khums. Even if a person reduces his/her expenses through increased thriftiness and frugality, or saves for the purchase of a necessity such as a house, the savings are still subject to Khums. This rule extends to the overage of any dependent’s income and expenditure, or even increase in the value or growth of items that their Khums has been previously paid. Khums may not be evaded through granting loans or selling on credit. Loans made from current untaxed income are subject to Khums in the same year if they are collectible on demand. Otherwise they are subject to Khums immediately upon collection. Taxes on items that are loaned for one year or more will be liability of the borrower. Credit sales are subject to tax on the year of sale if they are due for collection and are collectible on demand. Otherwise they should be counted as income of the year in which they are collected. Mandatory savings, retirement accounts, and life insurance payments, as well as other payments that will yield a benefit in the future are subject to Khums in the year they are distributed as income. Voluntary contributions of this type appear to be considered income of the year they are earned. Purchase of durable item for personal use is allowable deduction during the purchase year. Donations, religious expenses, and penalties, if not excessive are also deductible. Gifts or purchase of items that are not part of one’s annual expenses will not reduce the taxpayers Khums. (Khomeini 1980, pp. 3-8; Khoeie 1982, pp.300-307; Montazeri, 1986, pp. 3-11; Rizvi 1992, pp. 3- 8).
Thus, it is clear that all arguments, debates, ambiguities, controversies, and difficulties that are present under the “other assets” category for calculation of Zakaat, are also applicable in the case of Khums for “business profit.” This includes the eleven points mentioned above.
5) Zakaat-ul-Fitr, or “Sadaghat-ul-Fitr,” or “Soul Zakaat” is a poll tax due once a year at the end of fasting month of Ramadan. All sane and free adult Muslims, who are not poor by the Islamic standards, must pay this tax. Additionally, each person must pay this tax on behalf of those dependents that are not qualified to pay the tax themselves. Even if the dependents do not live with the taxpayer or they are not Muslim, this tax must still be paid by the person on whom these individuals depend. (Khomeini 1980, pp. 31-33; Khoei 1982, p. 339; Montazeri 1986, pp. 34-35; Sadr 1989, p.142).
The amount of this tax is either in kind, about 3 kilograms (6.6 Lbs.) of the main local staple such as wheat, rice, barley, etc., or its monetary value. There is no specific mention of this tax in Qur’aan, but it has been expressly prescribed by Muhammad. The Qur’aanic reference is said to be “and render to kindred their due rights, as (also) to those in want…” (17:26 ).
6) Kharaaj is a different form of land tax. The tax has some precedent, albeit not clearly defined and established, from Muhammad’s time. The term itself is originated from the Persian word “Kharaag.” The structure and operation of this tax is essentially patterned after the Persian land tax. Formalization and extension of Kharaaj and some other taxes along with appropriate structural changes came during the reign of Umar, the second Caliph. In early Islamic period, the tax collection and management was rather easy and straightforward. With the expansion of Islam and annexation of new provinces, a more complex and regulated system of assessment, collection, and accounting became a necessity. The problem was mainly solved by appointment of the newly converted Iranians as managers, assessors, bookkeepers, and collectors of these taxes. The Persian Muslims explained the Persian system to the Caliph and others, set up the Public Treasury or “Divan,” which was a more elaborate and sophisticated equivalent of the Bit-ul-mal, and adopted the record-keeping and administrative methods used in the Persian Empire . Accordingly, many rates and taxes were actually the same as those imposed by previous Persian rulers and in many instances the assessment, management, and collection were performed by the same tax-collectors as under the Persian kings. (Dennett and Lokkegaard 1973; Dennett 1975, p. 22; Sadr 1989, p.125). The idea of utilizing local rates and local administrators were also applied in Egypt Syria
From the review of the literature, it appears that non-agricultural lands are exempt from Kharaaj. This tax is levied on all agricultural lands and orchards conquered by Muslims through war or surrendered to Muslim as the direct result of war threat. These lands are known as “Kharaaji Land
The coverage, amount, or rate for Kharaaj is not uniform or pre-prescribed. It varies from land to land and place to place in accordance with many criterions. Kharaaj has been collected sometimes as a fixed amount and sometimes as a percentage of the harvest. It has also been collected based on factors such as acreage, the crop or type of agricultural produce, fertility of land, methods of irrigation, the location and proximity of the land to the market and roads, “tax-bearing ability” of the land, and several other factors. Some authors assert that the maximum rate has been set at fifty percent. (Mannan 1991, p. 277). Others claim that in practice Kharaaj has been set at a level that makes the tax equal to the rent on that land. (Ijtihadi 1985, pp.235-236; Sadr 1989, pp.129-132). No Nisaab is mentioned and no expense deduction is allowed for Kharaaj purposes.
7) Jizya or “Poll Tax” is a tax levied on non-Muslims living under Islamic jurisdiction. The reference to this tax in Qur’aan is said to be:
“Fight those who believe not in God and the Last Day and (who) do not forbid what God and His Messenger have forbidden-such men as practice not the religion of truth, being of those who have been given the book- until they pay tribute out of hand and have been humbled.” (9: 29 ).
Women, children not yet at puberty, slaves, poor, unemployed, blind, sick, insane, beggars, priests, and the monks of monasteries are exempt from Jizya. (Abu Ubayd 1968, pp. 38-52; Zamman 1981, p. 169; Qardawi 1997, p. 97). Non-Muslims living in “Treaty Towns” are also free from Jizya payments and instead pay taxes as assessed by their own officials.
Rates or amounts of Jizya are not mentioned in Qur’aan or specified by Muhammad. Traditionally different amounts have been suggested and used. For instance, the amount is reported to be one Dinaar (equivalent of 3 oz of gold) per head annually. It is argued that one Dinaar Jizya is equal to the minimum amount payable by a Muslim, since the minimum taxable income for Muslims was 40 Dinaars on which 2.5% or one Dinaar was collected as tax. (Zamman 1981, p. 169; Sadr 1989, p.145). Other reports put the amount of Jizya at forty-eight Dirham per year for rich, twenty-four Dirham for the middle class, and twelve for lower income taxpayers. (Aghnides 1961). There is no threshold for determining “rich,” “middleclass,” and “low income.” Thus, that determination, along with variation in the rates are bestowed upon the tax authorities.
8) Kaffaaraat, or expiation money, are not technically taxes. They are fines and penalties for some of the wrong doings and transgressions committed by Muslims. Since they constitute part of the Islamic state’s revenue, they are mentioned here. Examples of finable offenses include breaking one’s fast without a proper cause, breaking one’s oath, transgressions during the month of Haj, etc. The Qur’aan states:
“Allah will not take you to task for that which is unintentional in your oath, but He will take you to task for the oaths which ye sworn in earnest. The expiation thereof is the feeding of ten of the needy with the average of that wherewith ye feed your own folk or clothing of them, or emancipation of slaves….” (5:89).
The amount of Kaffaaraat varies in each case and it depends on the specifics of each situation. These penalties may be paid in cash or in-kind.
9) Strictly speaking, Tariffs, Custom Duties, and Tolls are not taxes. Again, they are included here since they are part of Islamic State’s revenue and constitute policy variables. These payments do not have any basis in Qur’aan. Collecting 10% tolls plus a charge per transaction was a pre-Islamic practice of Arab tribes. Arab tribes imposed these taxes on merchants doing business in their territories. Some tribes continued this practice even after Islam and even on Muslim merchants. This practice angered Muhammad, so he forbade it and harshly condemned the practitioners. As a part of tax overhaul, these payments were enacted during the reign of the second Caliph and remained in place during his successors. Accordingly, Muslim traders were subject to a toll and tariff of 2.5% on the value of their merchandise over the Nisaab of equivalent value of 200 Dirhams. The rate for non-Muslim was set at 5% for citizens of non-belligerent nations and 10% for citizens of belligerent states. Generally, non-citizen traders were treated on the reciprocity principle and in the same manner that their respective governments treated Muslim traders. (Aghnides 1961, p. 319; Shaik 1980, p. 20; Zamman 1981, p. 272).
10) Other taxes may also be levied by an Islamic government on the need basis. All variants of Islamic jurisprudence allow levying of additional taxation by the Islamic government. (Chapra 1992, p. 274). Throughout history, additional taxes such as transaction taxes, sales taxes, and several other taxes along with fees like “Minters’ Charge,’ “the Book Charge,” and “the Army Charge” have been reported in Islamic regions. (Zaman 1981, p. 274).
Islam also strongly prescribes charitable contributions, “Sadaghaat,” “Ihsaan,” and “Infaagh.” These acts signify truthfulness, benevolence, and good deed. They please Allah and will be rewarded by Him. The emphasis is so strong that charity almost resembles an obligatory duty of Muslims and a right for the receivers. Qur’aan states “and in their wealth the beggar and the outcast had due share.” (5:19 ) or “and in whose wealth there is a right acknowledged for the beggar and the destitute.” (70: 24, 25) and “by no means shall you attain to righteousness until you spend (in the way of Allah) out of that which you cherish most and whatsoever you spend, Allah is aware of it. (3: 92). Many more references encouraging Muslims to perform charitable acts are found throughout Qur’aan. A partial list includes 2: 3-5; 2: 195; 2: 177; 2: 245; 2: 254; 2: 261; 2: 265; 2: 271-272; 2: 274; 3: 133-134; 4: 36; 8: 60; 9: 111; 9: 120; 11: 3; 11: 52; 16: 90; 16: 97; 17: 23-6; , 28: 77; 30: 38-39; 35: 29; 57: 7; 57: 18; 63: 10; 64:17; 76: 8-11; and 92: 5. Practically, then, this emphasis turns “Sadaghaat,” “Ihsaan,” and “Infaagh” into other mandatory payments which resembles taxation, albeit unspecified in amount and applicable categories.
USES OF TAX REVENUE
Some of the Islamic taxes are designated for particular purposes while usage of others are not specified. Ushr, Zakaat of animals, and general Zakaat are specifically devoted by Qur’aan to be spent on eight items. “Alms are only for the poor and needy, and those who collect them, and those whose hearts are to be reconciled and to free the slaves and the debtors, and for the cause of Allah, and (for) the wayfarers; a duty imposed by Allah. Allah is knower, wise.” (9:60).
The relative share of each category and percentage devoted to each group is not specified in Qur’aan. Neither are the exact definitions of some of these categories and what may be covered by these funds. One category is devoted to payment of the ransom of slaves to buy their freedom. Another category is earmarked for the administrative cost of collection and distribution of taxes. Four categories, notwithstanding the details of the debates surrounding them and based on the spirit of the Qur’aanic verses, along with the general consensus of Muslim jurists, are aimed at alleviation of poverty and need. The need and poverty may be temporary as in the case of a wayfarer in need, or an unemployed person, or a debtor, or it may be permanent as in the case of a disabled individual, or someone who is unable to work. Details and procedures, however, are not provided in Qur’aan and the issues are resolved by Sunnah or through consensus of the jurists. For instance, according to Sunnah and the opinions of most jurists, payment of someone’s debt must be based on need and the debtor must be unable to pay the debt. In fact Shafiite school allows payment of one’s debt from Zakaat only if non payment of the debt cause imprisonment. Additionally, the debt must not have incurred for conspicuous consumption, illegal activities, and such similar uses. Commercial debts, therefore, are not eligible for payment from Zakaat unless the borrower is effectively bankrupt. Debt of a deceased, in excess of his/her assets are payable from Zakaat. The remaining two categories are more vague and general.
Based on the Sunnah, Zakaat spending under “those whose hearts are to be reconciled” have been used to compensate the new converts for their losses due to their conversion to Islam, or to pay those who might convert to Islam with these payments, and payments to non-Muslim allies for favors or maintaining their alliances. The category “cause of Allah” is broad and open to interpretation. Essentially, it can mean anything that the Muslim jurists see reasonable and necessary at any given time. In fact, it has been said that the use “may be anything that helps Muslims and benefits Islam.” (Khomeini 1980, pp. 24-25; Montazeri 1986, pp. 30-31). The inherent, and probably intentional, vagueness in these categories lends them to a rather wide range of interpretation. Accordingly, in the opinion of many jurists, it is permissible to spend Zakaat funds on variety of items including alleviation of poverty, welfare projects, ensuring minimum standard of living for Muslim community, healthcare, education, scientific and cultural matters, maintenance of religious institutions and missionaries, public goods, war and defense efforts, propaganda, social projects, security, supporting the warriors in the cause of Allah, and many other activities.
The procedure for disbursement and distribution of Zakaat is not stated in Qur’aan and it is determined through Sunnah. To the extent that the Sunnah is subject to interpretation, then, these issues are not resolved. Some jurists believe that the Zakaat payer has the choice of personally spending a part of the funds on prescribed items and surrender the remaining to the authorities. Some think it is permissible for Zakaat funds to go through any appropriate institution and indirectly be spent on prescribed categories. Others, on the other hand, insist on direct spending of the funds. (Shaik 1980, pp. 8-17; Siddiqi 1981, p. 24; Zamman 1981, p. 48; Khoei 1982, pp. 329-332, Shad, 1986, p. 44 and 85; Sadr 1989, pp. 148-161).
Distribution and utilization of Khums, based on Sunni Muslims, is identical to those of Zakaat. According to Shiite sect, however, the treatment is different. For Shiites, Khums should be divided into two parts. One half is earmarked for direct descendants of Muhammad and must be disbursed to them. The other half must be surrendered to the religious leaders or the Islamic State for proper disposal. The usage of this portion appears to be similar to those of Zakaat. Under certain circumstances the taxpayer may directly spend a portion of Khums on allowable uses. (Khomeini 1980, p.13; Khoei 1982, p. 313; Montazeri 1986, p. 16; Rizvi 1992, p.9).
The origin of this distribution comes from allocation of booty, which was the first item subject to Khums. According to the original verse, one fifth of the booty belonged to Muhammad, his family, orphans, needy, and wayfarers. The remaining four-fifth went to the conquering army. In another verse, however, Qur’aan indicates that, “they ask thee about the spoils of war. Say: all spoils of war belong to Allah and the Apostle.” (8: 1). This verse, then, could be interpreted as that the spoils of war belong to Islamic state. During the time of Muhammad, and in accordance with this verse, a special share was given to him and his family. It should be noted that Muhammad’s family or the Hashim Tribe was not allowed to receive Zakaat and this share from Khums was actually a compensation for that depravation. After Muhammad’s death, however, the Caliphs dropped this share and divided the Khums among orphans, needy, and wayfarers. Accordingly Muhammad’s tribe no longer received Khums unless they could be classified as one of these categories. Shiite school, on the other hand, considers half of Khums to still belong to Muhammad’s family. Considering the fact that according to the Shiite interpretation Khums payments cover much wider categories than mines, spoils of war, and treasure-troves, and taking into account that Muhammad’ family are numerically much smaller than the general public, the distribution of Khums under Shiite school amounts to concentration a substantial financial strength in the hands of direct descendants of Muhammad. Shafiite school of Sunni Islam
The recipients of Khums or Zakaat must be Muslim (except those categories that are specifically permitted), poor, do not openly commit sins, and do not spent the funds on sinful activities. Shiites jurists stipulate that the recipient, with some exception, must be a Shiite Muslim. The receipts should not be more than the recipient’s annual expenditure. The recipients may not be a dependent of the taxpayer, members of Muhammad’s own family and their direct descendants (this condition is waived if the taxpayer is also a member of Muhammad’s family), and people who own the minimum taxable threshold of wealth and income. The last group may receive from the funds if they are eligible to receive them under different categories such as Zakaat collectors, or wayfarers. (Khomeini 1980, pp. 26-27; Montazeri 1986, p. 33; Rahman 1986, p. 240).
Zakaat-ul-Fitr is spent on the same items as Zakaat and the conditions of the recipients are also the same. (Khoei 1982, p. 342; Khomeini 1980, p.33; Montazeri 1986, p. 37). The uses of Jizya, Kharaaj, Tariffs, Custom Duties, Tolls, Kaffaaraat, and other elective taxes, for the most part, are not specified. Thus, they may go to the general fund and along with other revenues be utilized at the discretion of the Islamic state. The uses, however, must not contradict or violate Islamic principles, codes and laws.
The Qur’aan specifies who should receive the charities: “so give what is due to kindred, the needy, and the wayfarer. That is best for those who seek the countenance of Allah, and it is they who will prosper.” (30:38). Qur’aan also prescribes where the charities should be spent on: “They ask thee what they should spend in charity. Say: whatever ye spend that is good, is for parents and kindred and orphans and those in want and for wayfarers. And whatever ye do that is good- Allah knoweth it well.” (2:215).
CONCLUDING REMARKS
Under the Islamic tax system, the tax base, treatment, institutions, procedures, and several other categories are vague and unspecified. With this ambiguity and lack of specificity, the Islamic law of taxation enjoys some flexibility and adaptability for some modifications. The law somewhat lends itself to fresh reinterpretations in such a way to adapt to the concrete conditions of each era and comply with the specific needs of each period. At the same time, these very characteristics give birth to debates, disputes, and controversies. As noted above, these aspects are not discussed in this paper and only the essence and outline of Islamic taxes are presented. However, it is very important to here note a point on the usage of tax revenues.
Khums is applicable to minerals and the Muslim countries are in possession of substantial quantities of minerals. Additionally, Zakaat and other taxes also amount to sizeable sum. Accordingly, a tremendous amount of resources, along with the resultant socio-political power, is afforded to the institutions and organizations who receive these funds. These facts plus the fact that a good portion of tax revenues may be disbursed at the taxpayer’s discretion, and knowing that some categories of tax revenue expenditure such as “causes of Allah or whatever pleases Allah,” “those whose hearts are to be reconciled,” and “needy” are very much open to interpretation, create an important and noteworthy issue. That is, with a “proper” interpretation, these funds may end up in all sorts of places including financing of terrorist activities and maintaining terrorist organizations.
One of the stated goals of an Islamic society, with almost unanimous agreement, is justice. Theoretically, then, the functions and Intention of the Islamic tax system is rather clear. Thus, in addition to raising funds for the functioning of the Islamic State, the taxes are designed to facilitate the movement of the society towards achievement of Islamic goals, and establishment of a just society. This may be accomplished, among other things, by such a tax system that aims at alleviating poverty, satisfying the people’s needs, and improving income distribution among members of the society. The discussion of philosophy and methodology of various taxes under Islamic jurisprudence along with their analysis, evaluation, assessment, and potential to accomplish their goals is what future research must attempt to address.
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