Taxation
in Islam: Wealth Tax
Thursday, July 17, 2008
The following article is based on the book Funds in
the Khilafah State which is a translation of Al-Amwal fi
Dowlat Al-Khilafah by Abdul-Qadeem Zalloom.
Allah (swt) has revealed a comprehensive economic system that details
all aspects of economic life including government revenues and 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: Fa’i, Jizya, Kharaj,
Ushur, and income from Public properties.
The financial burdens placed on modern states today are far higher than in
previous times. When the Caliphate is re-established it will need to finance a
huge re-development and industrial programme to reverse centuries of decline,
and bring the Muslim world fully into the 21st century. Because of this, the
Bait ul-Mal’s permanent sources of revenue may be insufficient to cover all the
needs and interests the Caliphate is obliged to spend upon. In such a situation
where the Bait ul-Mal’s revenues are insufficient to meet the Caliphate’s
budgetary requirements, the Islamic obligation transfers from the Bait ul-Mal
to the Muslims as a whole.
This is because Allah (swt) has obliged the Muslims to spend on these needs and
interests, and their failure to spend on them will lead to the harming of
Muslims. Allah (swt) obliged the State and the Ummah to remove any harm from
the Muslims.
It was related on the authority of Abu Sa’id al-Khudri, (ra), that the
Messenger of Allah (saw) said: “It is not allowed to do harm nor to
allow being harmed.” [Ibn Majah, Al-Daraqutni]
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 met
without being exceeded. These taxes should only be taken from people’s surplus
wealth. This wealth is what is left after someone has spent on his basic needs,
and also his luxuries according to the normal standard of living.
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:
1. The expenditure upon Jihad and what is necessary for it.
2. Expenditure on military industries
3. Spending on the poor, needy and wayfarers.
4. Expenses such as the salaries of soldiers, civil servants, judges, teachers
and the like who provide services for the benefit of the Ummah.
5. Expenses due in the form of services and caring of the Ummah.
6. Expenditure upon emergencies like famines, earthquakes, floods and enemy
attacks.
1. The expenditure upon Jihad and what is necessary for it
The Islamic State is obliged to establish powerful and highly trained armed
forces. These armed forces must be prepared with the latest and most
sophisticated weapons such that their quality and quantity deter, subdue and
frighten the enemy. These forces will liberate our lands from occupation,
terminate the influence of the Kuffar in the Muslim world, and aid the state in
conveying Islam to the world.
Expenditure on Jihad and what is necessary for it is one of the rights due upon
the Bait ul-Mal whether there are funds in the Bait ul-Mal or not. If there are
funds available, then they are spent on Jihad and its requirements. If there
are no funds, then the duty of spending on Jihad, as long as Jihad is
obligatory and designated, transfers from the Bait ul-Mal to the Muslims, since
Jihad is obligatory upon Muslims by wealth and person.
Allah (swt) says:
انْفِرُواْ
خِفَافًا
وَثِقَالاً
وَجَاهِدُواْ
بِأَمْوَالِكُمْ
وَأَنفُسِكُمْ
فِي سَبِيلِ
اللّهِ
ذَلِكُمْ
خَيْرٌ
لَّكُمْ إِن
كُنتُمْ
تَعْلَمُونَ
“So go out, no matter whether you are lightly or heavily armed, and
struggle in Allah’sway with your possessions and your persons: this is better
for you, if you only knew.” [TMQ At-Tawba: 9:41]
Anas (ra) narrated that the Messenger of Allah (saw) said: “Fight the
polytheists with your wealth, lives and tongues.” [Abu Dawud]
In addition, there are tens of Ayaat and Ahadith that oblige Jihad by wealth
and person upon the Muslims.
In the situation where there are no funds in the Bait ul-Mal to spend on Jihad
and its requirements, the State must encourage Muslims to contribute
voluntarily to Jihad as the Messenger of Allah (saw) used to do.
Abdur Rahman bin Khabbab as-Salmi said: “The Prophet (saw) gave a
Khutbah (speech) and encouraged [people to donate] regarding the army of
difficulty, so Uthman bin Affan said: ‘Upon me are 100 camels with their
saddle-blankets and saddle bags.’ Then he (saw) descended the steps of the
pulpit (Mimbar) and encouraged again, so Uthman said: ‘Upon me are another 100
with their saddle-blankets and saddle bags.’” [Ahmed]
Hudhayfa bin al-Yaman said: “The Prophet (saw) sent a request to Uthman
seeking assistance from him for the army of difficulty, so Uthman sent to him
10,000 Dinars which were poured before him. The Prophet (saw) began turning
them before him while praying for him and he (saw) said: ‘May Allah forgive
you, O Uthman, for what you have made secret, what you have revealed, what you
have hidden, and all that will be until the Hour comes. Uthman should not mind
of any action he does after this.’”
If the voluntary contributions of the Muslims are insufficient to cover the
designated Jihad, then the State will impose taxes upon Muslims up to the
amount necessary and no more, to cover the expenditure. It is not allowed for
the State to tax more than is required.
2. Expenditure on military industries
The Islamic State is obliged to establish military and other associated
industries to enable the manufacturing of the latest and most sophisticated
weapons and equipment for the armed forces. This is because Jihad requires an
army, and the army requires weapons so that it can fight. Building highly
effective and powerful weapons requires manufacturing. Therefore the military
weapons industry has a close relationship with Jihad.
For the State to be in full control of her affairs, and free from the influence
and control of other states, she must undertake the production and development
of her own weapons especially its vital weapons. This is so that the State has
the most modern and developed weapons, irrespective of how much weapons develop
and advance. Also the State must have under her control all that she requires
of weapons to scare every enemy whether open or hidden, according to the
State’s international position.
The absence of these military factories in the Ummah makes Muslims dependent
upon Kafir states for armament, a matter which may make the Muslims political
will and decision making subject to the will and decisions of the Kuffar. These
Kafir states do not sell weapons except with conditions attached that fulfil
their interests, and this would inflict the most terrible harm upon the Ummah.
Establishing of these factories is therefore obligatory upon Muslims from the
texts of the Ayaat and Ahadith that oblige Jihad upon Muslims by wealth and
person by the indispensable indication (Dalalat al-Iltizam). This is
because Jihad depends upon weapons and weapons require industry. This is also
indicated by the saying of Allah (swt):
وَأَعِدُّواْ
لَهُم مَّا
اسْتَطَعْتُم
مِّن قُوَّةٍ
وَمِن
رِّبَاطِ
الْخَيْلِ
تُرْهِبُونَ
بِهِ عَدْوَّ
اللّهِ
وَعَدُوَّكُمْ
وَآخَرِينَ
مِن
دُونِهِمْ
لاَ تَعْلَمُونَهُمُ
اللّهُ
يَعْلَمُهُمْ
“Prepare whatever forces you [believers] can muster, including warhorses,
to frighten off Allah’s enemies and yours, and warn others unknown to you but
known to Allah.” [TMQ Al-Anfal: 8:60]
The preparation ordered by Allah (swt) is the preparation which achieves the
terrorising of the enemies, whether they are open, hidden or potential enemies.
This terror depends upon acquiring vital and developed weapons of the highest
level, and acquiring of such weapons depends upon establishing factories.
Therefore, this Ayah indicates the obligation upon the Ummah to establish factories
by the indispensable indication (Dalalat al-Iltizam).
Moreover, the absence of these factories inflicts a terrible harm upon the
Ummah, and removing harm from the Ummah is obligatory. The removal of this harm
will not be achieved except by establishing military, manufacturing and other
associated industries.
It is permissible for individuals within the Ummah to establish all or some of
these industries to manufacture the necessary weapons. If however, they do not
establish them, or they only establish some of them, then the State is obliged
to build factories necessary to produce all the weapons and equipment the armed
forces need.
Building these factories is one of the obligatory rights upon Bait ul-Mal,
whether there are funds in it or not. If funds are present, then they are spent
to build these factories. If there are no funds available then the financial
obligation transfers to the Ummah. In this case the state introduces a tax in
order to raise the necessary funds, irrespective of the amount.
3. Spending on the poor, needy and wayfarers.
This is an obligation whether there are funds in the Bait ul-Mal or not. The
expenditure is from the Bait ul-Mal, when there are sufficient funds. If there
are no funds in the Bait ul-Mal then the obligation transfers to the Muslims.
This is because spending upon the poor, needy and wayfarers has been obliged by
Allah (swt) upon the Muslims in the form of Zakat and Sadaqah.
The Messenger of Allah (saw) has narrated from his Lord: “The one who
goes to sleep satisfied while he knows that his neighbour next to him is hungry
does not believe in me.” [Tabarani]
Therefore, if there are funds available in the Bait ul-Mal to spend on the
poor, needy and wayfarers then they are spent on them. If not, the obligation
is transferred to the Muslims and the State raises taxes for this purpose such
that the required amount of funding is raised.
4. Expenses such as the salaries of soldiers, civil servants, judges,
teachers and the like who provide services for the benefit of the Ummah.
Those who provide services for the benefit of the Ummah deserve, in return for
providing these services, a wage from the Bait ul-Mal. Spending on their wages
is an obligation whether or not there are funds in the Bait ul-Mal. If there
are funds available then they are spent upon them. If not, then the obligation
is transferred to the Muslims.
This is because Allah (swt) has ordained the authority (Sultan) for the Ummah.
He (swt) obliged the Ummah to appoint a Caliph whom she pledges allegiance (Bay’ah)
to hear and obey according to the Book of Allah and the Sunnah of His Messenger
(saw).
The Caliph undertakes this authority on the Ummah’s behalf and takes care of
her affairs in accordance with the Book and Sunnah. Taking care of her affairs
can only be accomplished by establishing the institutions of State, such as:
judges, soldiers, teachers and civil servants. Appointing such people requires
the payment of compensation and wages. Since Allah (swt) has obliged the
Muslims to appoint such people, then He (swt) has also obliged them to pay
their compensation and wages by indispensable indication (Dalalat al-Iltizam).
The Messenger of Allah (saw) appointed governors, employees, secretaries and
assigned grants (‘Atiyyat) for them. Similarly the Caliph's after him appointed
governors, officials, judges, secretaries and soldiers, and they assigned
grants for them from the Bait ul-Mal.
Funding for these people is therefore taken either from the Bait ul-Mal or by
imposing the required taxes on the Muslims where the Bait ul-Mal has
insufficient funds for this purpose.
5. Expenses due in the form of services and caring of the Ummah
These expenses are spent on utilities whose existence is considered a necessity
(Dharura) such that in their absence harm would result to the Ummah.
These utilities could include: public roads, schools, universities, hospitals,
mosques, water supplies and similar services.
The right of spending upon these matters is considered obligatory whether or
not there are funds in the Bait ul-Mal. If there are funds in the Bait ul-Mal
then they are used to establish these utilities. If not, then the obligation to
spend upon them is transferred to the Muslims. This is because spending upon
them is obligatory upon Muslims, since failure to establish them will result in
harm to the Ummah.
Harm must be removed both by the State and the Ummah due to the saying of the
Prophet (saw): “It is not allowed to do harm nor to allow being
harmed,” and his (saw) saying: “Whoever harms (others) then Allah will harm
him, and whoever overburdens them Allah will overburden him.” [Hakim]
However, if the absence of services offered by the State does not harm the
Ummah, then it is not obliged to provide them. An example is the opening of a
second road or refurbishing it when there is another suitable road available
that can meet people’s needs, or building a school, university or hospital when
there are others available, or widening streets that don’t necessarily need to
be widened.
Another example is the establishment of projects where failure to do so does
not result in harm to the Ummah, like mining nickel or building a shipyard to
build commercial ships. The State undertakes all these matters only when there
are surplus funds in the Bait ul-Mal. If there are no funds in the Bait ul-Mal,
then the State does not undertake them nor is it permitted to impose taxes for
them. This is because Muslims are not harmed by their absence, therefore
establishing them is not obligatory.
This is in contrast to the expenditure on services and utilities where the
failure to spend on them results in harm to the Ummah. If there are funds in
the Bait ul-Mal, they are spent upon establishing and providing the necessary
utilities, if not, the State imposes taxes to raise the necessary amount
provide these utilities.
6. Expenditure upon emergencies like famines, earthquakes, floods and
enemy attacks
The right of spending on these matters is not linked to the presence of funds
in the Bait ul-Mal. Such spending is obligatory irrespective of whether there
are funds in the Bait ul-Mal or not. If there are funds in the Bait ul-Mal,
then they must be spent immediately whenever these emergencies occur. If there
are no funds, then it becomes obligatory upon the Muslims, and the funds have to
be collected from them immediately and without delay.
If harm is feared due to any delay, then the State borrows the amount necessary
to spend upon these emergencies and then pays back what it borrowed from the
money it collected from the Muslims.
The evidence for obliging this upon Muslims is the Hadith: “The one who
goes to sleep satisfied while he knows that his neighbour next to him is hungry
does not believe in me,” and the Hadith: “Any community,
whosoever they are, if a person among them became hungry, they will be removed
from the protection of Allah the Blessed, the Supreme.” [Ahmed] This
is in relation to famine. As for earthquakes and floods, the evidence for
obliging Muslims to spend upon these natural disasters is the obligation of
saving the unfortunate ones and removing harm from the Muslims.
These are the interests that Muslims are obliged to spend upon when there are
no funds in the Bait ul-Mal, and for which the State has to impose taxes upon
Muslims when the permanent sources of revenues of the Bait ul-Mal and the
revenues from the protected public properties (Hima), are insufficient.
Wealth Tax
Taxes are levied on the wealth of the Muslims which is in excess of their basic
needs and their luxuries according to normal standards of living. Taxes are
only collected from those who have surplus wealth and nothing is taken from
those who have no surplus wealth. This is because the Messenger of Allah (saw)
said: “The best Sadaqah is that given out of richness.”
The richness here means what the person can afford after satisfying his needs.
It was narrated from Jabir that the Messenger of Allah (saw) said: “Start
with yourself when giving Sadaqah. If there remains any excess, then to your
family. If there remains any excess, then to your relatives. If there remains
any excess, then do like this, give those in front of you and those to your
right and those to your left.” [Muslim]
He (saw) deferred the obligation of spending upon anyone else until after
spending upon oneself. Taxes are similar to this are as they are like financial
maintenance and Sadaqah.
Allah (saw) says:
وَيَسْأَلُونَكَ
مَاذَا
يُنفِقُونَ
قُلِ الْعَفْوَ
“They ask you what they should give: say, ‘Give what you can spare.’”
[TMQ Al-Baqarah 2:219]
In other words, spending which causes no hardship and which is extra to one’s
needs. There is no concept of income tax in Islam as we find in western
capitalist countries. Taxes are only levied on excess wealth and not on income.
The State is also not allowed to impose indirect taxes such as sales taxes on
goods and services. Nor can it impose taxes in the form of court fees, fees on
petitions forwarded to the State, sale or registration of land, buildings or
measurements or other types of taxes other than those in the shar’iah. This is
because imposing oppressive or illegal taxation is one of the prohibited injustices
about which the Messenger of Allah (saw) said: “He who imposes maks
(custom duty) would not enter paradise.” [Ad-Darimi, Ahmed and Abu
‘Ubayd]
In western capitalist countries their taxation penalises the poor and
vulnerable in society. Clever accounting and offshore Swiss bank accounts
ensure the rich in western societies can avoid paying the majority of taxes
altogether. In the UK for example, the Queen is one of the richest people in
Britain yet she pays no income tax, whereas a poor single mother or an old age
pensioner must pay income tax. With regressive taxes like the sales taxes on
goods and services these hurt the poor more than the rich since the tax rates
are the same for both.
Unfortunately, the Muslim governments today see adopting the western capitalist
system as the only way to achieve economic progress. We therefore find the same
oppressive taxation introduced into Muslim countries such as the General Sales
Tax (GST) in Pakistan.
This is not to mention the endemic corruption where tax revenues are diverted
from the State Treasury into the personal bank accounts of the rulers and other
government officials.
Taxes in Islam are only collected to raise the amount necessary to cover the
deficit in the obligatory expenditure of the Bait ul-Mal. When imposing
taxation, no consideration is given to the notion of preventing the increase of
wealth, or preventing richness or increasing the revenues of the Bait ul-Mal.
Consideration is only given to fulfilling the required expenditure on the
obligatory needs and interests on the State.
If any taxes are taken over and above the obligatory expenditure then this is
considered a mazlama (injustice). The Court of Unjust Acts (mahkamat
ul-mazalim) has the power to investigate any excessive taxation. If after
the court’s investigation the tax or tax-rate is deemed to indeed be a mazlama
then the court can oblige the State to abolish or lower the tax and return any
excess money to the Muslims.
Therefore, the shar’iah has resolved the problem of financing the expenditure
on the Ummah’s needs and interests in a 21st century Caliphate.
2 comments:
Anonymous said...
Assalamalaikum Brother
May Allah (SWT) reward you for this article.
It raises some questions in my mind, you say that the state will only impose
wealth tax when there is a deficit in the bait al mal.
Collecting taxes is always a difficult task. How would the following issues be
addressed.
1) When wealth tax becomes due, i.e if you do not know you have a deficit, how
can you impose a wealth tax.If you do it afterwards isn't it too late?
2) Also determining who is wealthy, will the state know how much money an
individual has. Would this not be considered spying. In the western system, the
authorities can find out but they do not have record of how much each
individual has.
3) What happens in the event that the government is incompetent in managing the
affairs, it will just come to the wealthy to make up the shortfall. This can
cause problems and dissent in society as people may feel that they are paying
for the states incompetence and inefficiency.
AK said...
Wa alaikum as-salam,
JazakAllah Khair for these excellent questions.
1. The article gives the Islamic concept of Wealth Tax and its limits from a
legal perspective. The practical implementation of the Caliphate's tax policy
and the administrative processes it adopts is another seperate topic.
Many of the administrative mechanisms on how to collect taxes, budget
forecasting etc will most likely be adopted from the systems already operating
in the west. This is similiar to what Umar bin al-Khattab (ra) did when he
adopted the diwan method from the Persians for organising the State Treasury
(Bait ul-Mal).
The short answer to your question is that the Khilafah will be forecasting its
budget over many years and setting aside contingency for natural disasters,
unplanned wars etc. Its not the case that the Bait ul-Mal must be physically
empty before wealth tax can be imposed. If the budget forecast shows a deficit
in the key areas of the state over a number of years then wealth tax will need
to be imposed.
2. There are two aspects to answering this. Firstly, there is the concept of
paying taxes. In Muslim countries today people dont pay tax or try and avoid
it. However, when it comes to zakat and sadaqah they pay it voluntarily even
though many of the governments do not oblige it. This concept of paying tax
will be dealt with in another article inshAllah. Due to the Muslims taqwa
paying tax to the Khilafah is a worship and rewarded action. Muslims are the
most generous nation when it comes to giving money as long as its used for
Islamic reasons. If people have confidence in the Khilafah's management of the
economy and they are motivated from Islam avoiding taxes wont be a problem for
the masses.
The second part of the question concerns the practical process of tax
collection. This will be similiar to the west. We will use tax returns and
employ tax inspectors to audit the wealth of companies and individuals. The
Khilafah cant raid someone's house to find money stored under the bed as this
is spying. But the open wealth in the form of land, crops, property, products,
services, bank savings etc can all be audited and used in the tax calculations.
As in the west there will be bands to determine if someone is eligible for
paying wealth tax at all.
3. This is dealt with in the book Accountability in the Khilafah which is in
the Books section of this blog.
Thursday, July 17, 2008 8:18:00 PM HYPERLINK
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