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Research on ‘Islamic’ taxation

Huzaima Bukhari & Dr. Ikramul Haq

It is an undeniable fact that the majority of Muslim world is faced with serious problems of income inequalities and injudicious distribution of wealth amongst the various segments of society. Even in the oil-rich countries, the divide between the poor and the rich is substantially wide. The women get a negligible share in available resources, thus keeping them in a perpetual state of economic backwardness. It is unfortunate that even in the wake of post colonial period, Muslim rulers and thinkers have failed to evolve a commonly-accepted equitable tax system in the light of Quranic injunctions and taking guidance from Sunnah to meet the requirements of the present day world. On the contrary, in the name of Islamic mode of financing more room for exploitation has been created and much harm inflicted on the common man.

The so-called Sharia-compliant instruments with the exception of a few like e.g. takafful, prevalent in the existing banking system are in substance, nothing different from normal financial transactions. Mere change of nomenclature is nothing but an eyewash. The only additional feature is that Ulema get their due share in exploitation by endorsing these instruments under self-created fiqa. Therefore, all the leading Western banks initiated Islamic banking (sic) in the Middle East in the 1960s and soon spread its vicious, exploitative tentacles all over the world, finding it more profitable as compared to other exploitative banking instruments aimed at robbing the poor and benefitting the rich.

Since the last many centuries, Muslim societies, intellectually barren, have failed to evolve their own economic, political and social systems based on guidance available in the Quran and Sunnah. Following rigid, inflexible theocratic, clergy-evolved models, which emerged during monarchies, have been followed blindly without questioning their validity in modern times. Even the rationale behind these theories has never been tested on the touchstone of the principles enshrined in the Quran.

On the other hand, emulating western system in the peculiar Muslim milieu has been creating inconsistencies and incompatibilities due to fundamental differences in approach towards life as a whole. In this scenario, is it possible for the Muslim world as one community to evolve some common models for economic growth, resource-sharing and progressive taxation as a means to end income and wealth inequalities? The answer appears to be a big NO.  It is strange to see that Muslims living in various countries have common jurisprudence sources for evolving harmonized models in all spheres of life, but no serious thinking or effort has ever been made in this direction. In contrast, the European Union (EU), comprising countries with no common source of legislation, have successfully harmonized their tax system to a great extent during the last 15 years.

Why has the so-called Ummah (if there exists one) failed to evolve a union on the pattern of EU? The answer is simple: there exist unimaginable sectarian divisions, regional and ethnic animosities within the Muslim world. On the one hand, Muslims at large keep on telling the world that they profess faith in one God, one Book and one Prophet and on the other they do not even pause for a while in killing their own brothers and sisters in the name of self-assumed interpretations of various injunctions contained in the Quran itself. The modern day Western civilization has attained some degree of social and economic justice—though not completely but to a satisfactory level—by adopting principles of equality, social mobility, opportunities for all, respect for human dignity irrespective of class stratifications, work ethics, democratic culture and rule of law. All these elements are largely missing in majority of the Muslim States.

The issue of improvement of tax administration and introduction of Sharia taxation with particular reference to Zakat and Ushr “to meet the challenges/changes rapidly taking place in the world” cannot be seen in isolation. This goal cannot be achieved without first establishing democratic institutions and culture.

The tragedy with Muslim rulers and their bureaucracies is that they want to do everything without the involvement of the people. In a true democratic dispensation, such programmes of change are unthinkable without the active participation and support of the people for whom they are meant. Since the rulers of Muslim World have little respect for democratic culture and values, they try to impose Western models on their people without following their system to the core. They do not even know whether these models can be introduced in their societies as such, without appropriate modifications to conform to Quranic injunctions and Sunnah or even to suit local conditions and requirements. The obvious result is that they utterly fail to implement foreign models because of lack of people’s consent, motivation and participation and due to corrupt, incompetent and inefficient bureaucracies, which are not accountable to any public institutions. Tax systems and officials running them are no exceptions.

In this scenario, clergy-ridden, despotically-ruled and badly-governed Muslim societies have lost the very basic quality of adhering to the higher values of justice and rule of law. If they want to regain the strength and supremacy they once enjoyed in history, they will have to change themselves by getting rid of monarchs, despotic rulers and religious extremists and establish egalitarian societies (a just Islamic taxation system can play an important role in it). The dilemma of today’s Muslims is that they want to regain past glory without realizing that the world today requires excellence in research and technology, which is not possible in undemocratic environments, for lack of freedom of thought and tolerance towards others people’s viewpoints. In their taxation systems, majority of the Muslim governments have little respect for redistribution of wealth and the sole aim is to collect more and more for unprecedented luxuries of the rulers.

In Pakistan, the rulers are burdening the poor with harsh and oppressive taxes that are utilised by the rulers for their comfort and for useless non-development activities.  The presumptive tax system is the worst example of this phenomenon. Adding insult to injury, tax officials feel no shame in holding conferences “to promote Sharia taxation”! Many of the tax administrators do not even know the basic precepts of Sharia what to talk of devising a tax system based on it. In the Federal Board of Revenue (FBR) not a single research study has ever been done by any officer on the issue of taxation of Islamic financial instruments. FBR’s self-styled, self-claimed tax experts are ordinary tax collectors who do not even possess dependable knowledge of tax codes they are supposed to administer let alone, tell other Muslim countries what is good for them!

Tax policy issues, after thorough public debate, should be translated into proper legislation in the Parliament taking into consideration advice of experts in the field. Everywhere in the world, universities are the main source from where the latest research—for framing laws and policies—on a particular subject emanates. In the Muslim World, our rulers want the tax collectors (who do not possess knowledge or expertise) to prepare tax codes and policies for us. In any civilized (democratic) society, this would certainly be considered an encroachment on the rights of people, but in the Muslim world this is an accepted norm and the sole prerogative of dictators/monarchs and their hand-picked cronies (bureaucrats). This is the root cause of Muslim decadence. 

In the entire Muslim World, including Pakistan, there is not a single institute where research on international taxation or Sharia-based taxation is conducted. The non-existence of Centre of Excellence on Taxation anywhere in the Muslim World is the real cause for concern. If they want to devise equitable tax systems based on injunctions contained in the Quran and Sunnah, the Muslim countries instead of wasting time on useless conferences and debates within the circles of the clergy, should establish a common research centre in any leading university.


The writers, lawyers and authors of numerous books, are Adjunct Faculty as Lahore University of Management Sciences (LUMS)     

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