The differences between Islamic taxation and ordinary taxation

1. Islamic tax-paying is considered as a kind of religious service unlike the ordinary tax–paying that lacks that dimension. A religious person evaluates escaping religious tax as a sin while a law-abiding person considers tax evasion as illegal only.

2. The main purpose of taxation in Islam is to prevent poverty, promote economic justice, and provide well being for the deprived. This can be understood if we focus on how the tax collected (especially zakat and khoms) should be spent according to Islam. The forms of taxation recognized in Islam do not allow taxation to be a mechanism for allocation policies or stabilization policies.

3. Tax income from agricultural production is not cash. It is collected in form of goods and distributed in the same form. Therefore, it does not affect the overall demand or bring about collateral economic bad effects such as inflation. It goes without saying that ordinary taxation such as tax on consumption (purchase or unit tax) brings about tax burden and social loss leaving adverse effects on income level, firm costs, and inflation leading to welfare reduction.

4. Classical economies resort to progressive tax increase in order to achieve faster adjustment of income distribution. But this method has proved ineffective because the legal provisions for progressive increase of taxes have usually been neutralized by opportunities for evading tax payment distributed unevenly among tax payers leading to great horizontal inequality. The distributive effect of Islamic taxation system seems greater than the ordinary systems despite the fact that the tax rate is uniform in the Islamic system of taxation. The reason is that the progressive increase rate is mild due to provisions for tax exempts and tax reliefs.

5. In ordinary system of taxation, it is the state that collects and spends taxes. In Islamic system, however, tax payers are allowed to personally spend the tax where it should be spent without the mediation of the government with prior permission of the Muslim ruler or Islamic Authority. Of course, when the Islamic government ordains that taxes be paid to it, then no one can spend it as they see proper.

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