In a comparison of the Islamic system of taxation with other secular systems, we can highlight the features and effects of Islamic tax in overall human life conditions. In the Islamic taxation system, tax payment is initially voluntary. Historically speaking, Muslims made their obligatory payments such as zakat willfully, freely, and voluntarily. Through education and promotion of moral values by Imams and holy religious leaders, they are brought up in a way that an internal drive motivates them to comply with divine law. Even at the times when Islamic state was not in place hence no external force was exercised on them, still they paid the tax due religiously.
Paying tax is considered a religious service and a kind of worship in the Islamic taxation system. Most economic issues are interwoven with matters pertinent to religious service and worship. If one pays zakat or khoms without the intention to obey God, they are not clear from obligation.
Taxation in Islamic system pursues the same goals other secular systems pursue such as financing the projects and schemes governments intend to implement in rural and urban development, cultural and public education, and paying public servants’ salaries etc. But Islamic taxation pursues an additional end too. Islam intends to provide an opportunity for every individual to realize sublime values in their life and to attain ethical perfection when they discharge their social duties such as tax payment. Therefore, the regulations concerning tax are so arranged that people exercise the feeling of detachment to worldly treasures. By paying zakat and khoms, they enhance these moral traits in their inner world.
In secular systems, tax is first collected by government and deposited in the treasury then spent by the governmental bodies in proper expenditures legally determined. Citizens have no direct involvement in spending. Naturally, they do not personally involve in the process of redistribution of wealth and do not directly experience the positive results of their financial contribution to the betterment of life of the lower class society. In Islamic taxation system, however, provision is made for direct and personal indolence of citizens in redistribution of wealth. Some parts of tax may be spent by individuals personally without having been first collected by the government and piled up in the treasury. Consequently, tax payers personally see where their money is spent. This helps construct a positive psychological bound between social classes. The rich get acquainted with hardship the poor undergo and the poor come to personally know their fellow benefactors. This has proved effective in controlling both the economic gap and the ensuing social clash between the upper class and the lower class.
Islamic taxation covers a broader area of social needs compared to secular systems. Material, spiritual, emotional, and psychological needs of society and individuals have been addressed in the Islamic taxation system. Non-compulsory taxes are introduced by Islam to cope with these various needs. The factual effect of these taxes surpasses those of obligatory ones. In secular systems, no such provisions are made because moral issues are not considered in tax legislations.
While secular systems spend much on collecting tax because of grand and complicated bureaucratic organizations involved, the Islamic system of taxation enjoys the advantage of simplicity and economy. Trust is a great factor here. Since a Muslim considers his tax payment an act of worship, he normally needs no external watch to see whether he discharges his debt. This decreases the cost of tax collection considerably.
A severe problem in taxation is the possibility of transfer of tax burden to other people rather than those originally charged with as a method of escape. This transfer harms social justice because it amounts to the consumers being the ultimate tax payer. This way of escaping tax is easier and more common in indirect taxes. In the Islamic taxation system, therefore, two mechanisms are deployed to block this escape; first, all taxes are direct so as to minimize the possibility of the transfer of tax burden; second, paying tax is not only a public obligation but also a religious duty. It goes without saying that a believer understands that it is impossible to cheat and deceive God.
Redistribution of wealth and the adjustment of the share of different social groups and classes from the total national income in a fairer way are two important ends in the Islamic taxation system. These goals are better achieved by people directly with the minimum intervention of the state. The Islamic system of taxation guarantees this process by allowing voluntary active involvement of citizens in tax spending and by covering the maximum possible scope of adjustment through the variety of taxes obligatory and otherwise while minimizing the costs of the entire process by excluding the state’s interference. In the secular systems of taxation, however, redistribution of wealth and adjustment of share are not included in the objectives of taxation and if they are in some very rare cases, they can be carried out by the government rather than people. So, tax in Islam partly aims at treating the problem of poverty and preventing huge class gaps.
Through its positive effects on economic stabilization and growth, Islamic taxation system helps in better distribution of wealth. We can sum up these positive effects in the following respects:
– Just distribution of total national income
Islam pursues two aims in economics simultaneously; growth and justice. Legislation of tax laws must guarantee a fair distribution of wealth in society at the same time as it helps economic growth. Neither of these two aims is subordinate.
– Betterment of production factors
The immutable taxes which Islam imposes lead to the increase of production factors.
– Facilitating saving
The effect of taxes Islam imposes on saving is less negative than the adverse effect of taxes on saving in secular systems.
– Encouraging investment
In the Islamic taxation system, there are elements that encourage investment. We may mention some more important ones here: certain tax reliefs and exempts in the system, mechanisms for the reduction of loss probability via comprehensive sharing, and the rate of economic profit being low.
– Labor supply
The positive effect of taxes on the optimum efficiency of the labor force plus the increase of working hours contribute to the increase of labor supply.
– Consumption equilibrium
Due to the role the transfer of payments play in consumption, the demand for goods and services increase. As the result, the increase in total demand and supply in the entire economy as a whole reaches equilibrium at a higher level.