16.public finance in islam

8/6/2019 16.Public Finance in Islam

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Public Finance In Islam

o Public finance can be defined as: the study of taxing

and spending decisions of governments. It covers

the study of public goods, cost benefit analysis,

transfers, tax burdens, distributive equity andwelfare.

o It deals with normative and descriptive aspects of

economics; i.e. political economy.

o Islamic public finance lays more emphasis onnormative aspects because it is seen as part of

Islamic Law

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Basic Concepts

o Government is seen as a trust (amanah}shoulderedby political leaders. They must not betray this trustor else it is punishable in the hereafter.

o Rulers (wulat) must rule according to Quraan and

Sunnah. They must be responsible, just andtrustworthy and should envision the public interestin taking decisions

o If they do then it is the duty of all Muslims to obey

them and pay their dues. The relationship betweenrulers and ruled should be based on advice andsincerity

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o As far as public property or fineance is concerned the

government exercises Wilayah or guardianship overfunds that belong to the people not to the

government just like guardianship of orphans

property.

o The government is only entitled to administer it inthe public interest. All benefits should be distributed

to the people with the government as a legal

guardian

o The word: Amwal is usedtoreferonlyto suchwealth

which is administered bythe state andnotanyother

funds

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Financial Concepts

o Two types of funds (amwal)were recognizedby fiqh: Mutaqwwam and Ghayr

Mutaghawwam. The first is what is considered

by Muslims as mal halal. The second is what isvalued by non- Muslims but seen as forbidden

by Muslims such as wine or swine. Only the

former can be used for payment of taxes to

the state; the forbidden is unacceptable

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Main Sources in Islamic State

o In the ancient Islamic state the following sourceswere most important:

o Zakat

o Fay

o Ghanaim

o Anfal

o Khums

o Jeziah

o Kharaj

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Some Further Concepts

o Amanah: all property belongs to

Allah (S.W.T.) it isconsidered to be a trusteeship in the hands of those

who own it> They must observe its requirements:pay what is ordained by Allah and give Sadaqah tothe poor. They must also dispose of it wisely

according to dictates of Sheriyah.

o Bait Almal: the public treasury where all public fundsare deposited and then disposed of on the basis ofIslamic Shariyah and the public interest. It was

established on the basis of the property of theprophet

o (S.A.W.S), during his days there was just a public fundunder his disposal

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Ghaneima and Fay

o G

haneima refers to what has been captured fromnon-Muslims as a result of war or the spoils of war.

One fifth of this should be given over to the public

treasury; the rest is distributed to the army as private

property. This is known as khums and it is generallyrecognized by consensus of scholars

o Fay is what has been captured from enemies

without war; usually this is more substantial

particularly during conquest of foreign territorieswhich was mostly as a result of compromise or Sulh.

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o One fifth is paid to public treasury and should be

spent on: the prophet and his dependents during his

lifetime, the poor and destitute, the orphans and the

wayfarers; each of these is allotted a fifth of this fifth.

The rest should be devoted to public interest

including army salaries and public utilities. Should

not be treated as sadaqah


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Jeziah and Kharaj

o Jeziah is a tax collected from the non-Muslimsubjects of the Islamic state as citizenship tax. In

return they are not obliged to participate in wars and

get full protection from Muslims.

o At the outset it was accepted only from Christians

and Jews as valid religions but was later generalized

to some Asian religions

o Two types: collective jeziah paid by non-Muslim

regions and individual jeziah paid by male followers

of other religions; women children and religious

monks were exempted

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Kharaj

o This is a more typical tax by today's standards. It isa land tax imposed primarily on non-muslims.

o In Arabic it signifies rent; thus land is seen as a

resource given by Allah to Muslims. Non-Muslims

in the Islamic state were allowed to keep their land

in return for paying this tax. Those who embrace

Islam Pay Ushur (zakat)

o

Kharaj applies only to land brought under Muslimauthority through an agreement. Conquered land

was treated as Ghaneimah and distributed to the

Muslims where only zakat is paid on it.

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o Kharaj is land rent paid in addition to Jeziah which is

a poll tax

o Kharaj rates vary in accordance to costs of cultivation

and irrigation systems. Higher rates are imposed on

less costly systems of cultivation


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Zakat

o This is a wealth tax or compulsory alms giving calculated

on the basis of ones wealth holdings. Zakat implies

purification of wealth and its growth. Sometimes refered

to as sadaqah but that is usually a voluntary alms giving.

It is one of the five pillars of Islam

o Zakat is levied only on Muslims and distributed only to

Muslims including those who newly embrace Islam

o It is obligatory on Muslims and should be paid to the

government, those who refuse to pay it are apostates

who can be coerced to pay. It is paid differentially on

different types of wealth

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Zakat System

o To every type of zakat base there is a specific nisab orminimum level exempted from payment. There arespecific rates according to base

o One year must pass for the ownership of wealth

o It is payable on:

- Camels

- Cattle

- Goat and sheep

-

Currency- Debts

- Other miscellaneous property

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o The minimum number of camels is five; payment

starts with goats and then camels once the number

exceeds 20

o The nisab is 30 whe re one sheep is paid; once herd

reaches 40 then one calf is paid ----etco Sheep and goat must reach 40 to start zakat

payments

o Currency, gold and silver must reach 20 dinars before

one starts, a fixed rate of 2.5% must be paid

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o Zakat on commodities for trade is levied on annual

basis. It is evaluated in terms of cash and then zakat

is paid like that of casho Debt is deducted as exemption from the indebted

but the creditor will have to pay zakat once the debt

is collected. He should pay only for one year

o Miscellaneous property: rules for these are deduced

mainly on the basis of analogy since there are no

traditions concerning them but they are property

o

Some property is exempted such as ornaments,furniture, animals for milk or cultivation, home ---etc

o Mined metals and treasures. 2.5% on minerals and

one fifth on treasures

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Masarif

o Unlike previous sources Zakat is a religious duty

(Sadaqah) which can be paid out only for specificitems of expenditure

o Items include:

The desolate poor: those who lack even one days supplies

The poor: those who lack supplies for one year

Zakat civil servants

The wayfarers

Liberation of Muslim slaves To help those who cannot pay back their debt

For religious purposes (fi sabilillah)

To motivate those who newly embrace Islam

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Distributional Justice

o Three points summarize the Islamic position:

- Guarantee of the fulfillments of basic needs

- Equity but not equality in the distribution of personal

incomes- Elimination of extreme inequality in personal income

and wealth

- Distribution issue concerns the economic question

of: for whom shall we produce? I. e. how can thenational production be distributed between factors

of production and individuals

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Criteria for Distribution

o Four possible criteria:

1. Exchange: individual takes from national product in

accordance with his own productivity and wealth

used in production. Still some are disabled and

penniless

2. Need: one takes from income to satisfy need

irrespective of contribution

3. Power: those who have more power get more; mostimportant source of inequality

4. Ethical norms: all other systems of distribution based

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Basic Needs

o Fulfillment of basic needs of all humans is animportant dimension of Islamic vision and animportant objective of public policy

o Based on Quraan and sunnah and precedents

established by the guided khaliphs.

o There is agreement that this is the mostimportant objective of distributional justice

o But what are the basic needs? This should beanswered in light of modern basic needs

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Equity V Equality

o Income differentials between people are allowed inIslam; justice is done to both poor and rich

o People are different in gifts given to them by Allah and

their efforts and ability to create wealth. Such

differences should be recognizedo It is unjust to take peoples property or income without

Islamic justification

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o Absolute equality is inefficient as it will result in

lethargy or inactivity.Governments may have to

coerce people to force them to do their best. The

failure of socialism is a glaring example

o

What is required is a fair distribution of income andalleviation of poverty


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Extreme Inequality not Allowed

o There is no fixed ratio established; equity isleft to the judgment of Muslim rulers

o Extreme inequality breeds hard feelings

among the deprived and eventually hatredo Islam encourage love and positive feelings

among people

o Countries characterized by such disparitiessuffer from political instability rebellion andbloodshed

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16.public finance in islam

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