The Principles of Taxation in Islam
The present day situation is much complex as compared to that prevailing during the golden era of Islamic rule. The responsibilities of the state are much profound and it has to perform a number of social and economic functions. As such, it has to mobilize and allocate considerable resources for the provision of social services like defense, law, and order, judiciary, health, and education etc. All these areas of social interest need vast resources and cannot be financed through voluntary contributions. Likewise, the revenue of zakah and usher are earmarked i.e. specially meant for an alleviation of poverty and reducing inequalities. It is, therefore, inevitable for an Islamic state to resort to taxation and to find regular and certain sources of revenues to finance multifarious expenditure and to perform its function efficiently. Therefore, the Muslim scholars and jurists have justified the imposition of taxes subject to the conditions that:
I. There exists a real necessity for doing so
II. The public money is treated as a sacred trust
III. The revenues are exclusively utilized for welfare of society
The following principles have been derived by Muslim jurists from the teaching of the Holy Quran and sunnah, which provide proper guidelines for the state in farming the taxation policy. It is interesting to note that the principles of taxation (often called the cannons of taxation) as elaboration from the work done by Adam Smith and other philosophers seem to be the off-shooting and adaptation from the work done by Muslim jurists centuries earlier.
I. Least Burden
With the exception of Zakkah and Ushr, being obligatory, the general principle of taxation implies that instead of considering the maximum taxable capacity of the payers, the citizens may be burdened only what they can pick easily (the maximum possible load).
The ability to pay criterion may be observed very strictly when deciding the tax liability of the payer. Other factors like the family size, nature of his job and occupation, social responsibilities of the payer etc. may be given due consideration in tax assessment. The principle of equity in all walks of life has to be followed in general, both in rights and responsibilities.
Taxes should be collected at a time that is convenient to the payer. Tax collection may be deferred for some period provided there is no fear of evasion on part of the payer and no serious loss to the state. For instance, income tax is easier to pay when income has accrued. The same is the case with ushr, which is to be paid at the time of harvest. Unnecessary delays should be avoided, however.
IV. Mutual Consent and Satisfaction
Assessment of Zakah and other taxes should be made with the consent of the payer such that he is satisfied. He may be allowed ample relaxation as far as possible.
No injustice and oppression is to be made in tax collection. The payer cannot be punished or imprisoned for nonpayment if he has genuine excuse. Physical torture of the payer to realize taxes is not allowed. His residential house, clothing, professional instruments, working animals and household utensils cannot be auctioned for the purpose.
VI. Careful Handling
The revenues generated through Zakah and other taxes are regarded as a trust in the hands of the rulers of an Islamic state. These should be utilized very carefully, keeping in view the goal of the maximum benevolence of the society at large. Corruption, misappropriation, and embezzlement of public money cannot be tolerated. This principle also implies ‘economy in the expenditure incurred’ in tax collection.
As discussed above, the modern theory of public finance includes the following ‘additional’ principle, which is technical in nature and equally good for all economies, whether secular or Islamic.
It requires that the taxpayer should be certain about the amount and/or rate of the tax, the time of payment and the authority to whom the tax is to be paid. It should be free from any ambiguity in these regards.
Tax structure should be simple so that the common man understands it easily and self-assessment may be possible.
This principle implies that the tax system should yield revenues sufficient enough to finance public expenditure easily.
The tax system should be flexible and not rigid. In other words, tax revenues should vary directly with the level of economic activity.