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Taxation

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The Islamic World: Past and Present What is This? Accessible coverage of Islam from the seventh century to the twenty-first century

    Taxation

    Islamic governments traditionally imposed various taxes on Muslims, who considered their payment to be a religious duty. The most important of these taxes was zakat, a tax based on wealth. Intended to benefit the poor and needy, the funds collected for zakat were allocated for social and humanitarian causes. With the arrival of European rule, the Islamic system of taxation was largely abandoned. In recent years, however, some Muslim countries have restored its use.

    A System of Redistribution.

    Zakat, setting aside a portion of one's wealth for the poor, is one of the five Pillars of Islam. All Muslims who can do so must give 2.5 percent of their net worth annually. Forms of wealth that may be subject to zakat include gold, silver, livestock, crops, currency, and other items that can be converted to cash, such as stocks and bonds.

    Verses from the Qur'an revealed to Muhammad during his early years in Mecca underscored the importance of caring for the needy. The hadith formalized zakat as a religious duty for believers. Islamic officials started collecting and distributing zakat during the 600s. Muslim leaders took this responsibility seriously. Abu Bakr, the first caliph, went to war against tribes that refused to pay zakat. Governors and appointed officials assisted the caliph in collecting the tax from distant provinces.

    The payment of zakat is based on the Islamic belief that everything belongs to God, and human beings are merely caretakers of God's property. The word zakat is derived from an Arabic word associated with both growth and purification. Muslims believe that redistributing money from the rich to the poor causes community wealth to grow. Islam also teaches that zakat brings blessing to those paying the tax. Giving away wealth purifies the heart, enabling the individual to resist the love of wealth, which leads to sin.

    Profits and Produce.

    Very early in the history of the Islamic community, Muslims were required to give one-fifth of the plunder from warfare to the Prophet Muhammad. The khums (fifth) tax, as it was known, benefited Muhammad's family and certain groups of needy people in the community. After the Prophet's death, khums was applied to various types of profit. The tax was particularly important to Shi'is, who maintained the right of the Prophet's descendants to continue to receive financial support. After the disappearance of the twelfth imam in the late 800s and the end of the line of visible imams, most Shi'is abandoned the practice of paying khums. During the 1200s, the Usuli school of jurisprudence revived the tax and outlined new regulations for its distribution. One portion supported the needy among the Prophet's descendants and the other portion went to the mujtahids, members of the Shi'i clergy. The practice of khums gave the Shi'i clergy in Iran a source of income that contributed to their independence from state control.

    Historically, Muslim governments collected a tax on the produce of agricultural land. Known as ushr, meaning “tithe” or “tenth,” the tax applied primarily to cereals and fruits. Governments collected one-tenth of farm produce grown using rainwater or natural springs and one-twentieth of the output if the landowner used irrigation or any other artificial means to raise the crops.

    Renewed Interest.

    During the 1800s, European powers established political control over much of the Islamic world. Colonial governments introduced income taxes. Most Muslims evaded these payments, which generally undermined traditional Islamic methods of tax collection. As a result of the institution of secular tax systems, zakat became a voluntary process.

    In recent years, governments in some Muslim states—such as Jordan, Saudi Arabia, Pakistan, Libya, and Sudan—have taken steps to restore Islamic taxation. In Saudi Arabia, for example, zakat is the main form of taxation, and although contributions are voluntary, most Muslims willingly pay.

    The nature and range of economic activity has changed significantly since the time of the Prophet. These developments have generated much debate among Islamic economists and lawyers regarding the types of assets that are subject to zakat. The type of tax structure that was appropriate for agricultural economies with only simple trading businesses clearly differs from one that is suitable for industrialized economies with businesses organized on a corporate basis. Islamic scholars have only recently begun to address these issues. See also Economics; Justice; Pillars of Islam.

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