CHAPTER # 7
FISCAL POLICY OF
ISLAMIC STATE
Prepared
By
Kokab Manzoor
Chapter`s Outlines
Meaning of Fiscal Policy
Fiscal Policy of Islamic State
Zakat as an Instruments of Fiscal Policy
Impact of Zakat on Economy
Bait-Ul-Mal, its definition and sources
Theory of taxation and principle of taxation
Nature of Public Expenditures in Islamic
State
Meaning of Fiscal Policy
All actions and administrative
measures of the government which
are related to revenue and
expenditure are called Fiscal policy.
Instruments of Fiscal Policy
Government expenditure
Direct & Indirect Taxes
Deficit Financing
Subsidies
Transfer Payments
Islamic State & its Fiscal Policy
Objectives of the fiscal policy of the
Islamic state
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Eradication of Unemployment
Equitable Distribution of Wealth
Economic Stability
Faster Economic Progress
Full Employment
Efficient Allocation of Resources
Zakat as an instrument of
Fiscal Policy
The most important element of Islamic
fiscal policy is Zakat.
Zakat must be expended in the same
area from which is collected. If however
the surplus remains after supplying the
wants of the deserving people of the
area, it can be transferred for
expenditure in other area
Role of Zakat as an instrument
of Fiscal Policy
Equitable distribution of wealth
Achieving full employment without inflation
Effects of Zakat on the allocation of resources
Zakat and Economic Stability
Impacts of Zakat on Economy
Impact of Zakat on Consumption
Impact of Zakat on Investment
Impact of Zakat on Saving
Impact of Zakat on Economic
Development
The institution of Bait-UL-Mal
Definition
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Literally “bait ul Mal” means “ the house of
wealth”
In technical terms, “ it is the establishment
of public exchequer is necessary to enforce
the economic system of Islam”
The rules of receipts and disbursement
of bait-ul-Mal have been formulated in
Islamic system of government
Sources of Revenue of BaitulMal
1 Zakat
3 Jazia
5 Sadaqat
7 Khumas
9 Rent (KAR-AL-ARD)
10 Ashoor (Import Duty)
11 Waqf (Trust)
2
4
6
8
Ushar
Kharaj
Faie
Dariab
12
Other Source
Is taxation allowed..??
Yes , BUT
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All taxes other than Zakat are imposed as
an exception NOT rule
Islamic state is authorized to impose taxes
in addition to Zakat as a supplementary or
complementary policy because,
Achievement of Sustenance Welfare is a
duty of Islamic state and Greater
Welfare is desired.
Theory of Taxation
In the traditions the word “Makas” has been
used to denote “Tax”.
The tax collector was called “Al-Makas”
First time, in the reign of Hazrat Umar (R.A)
the duty was imposed on Muslims and
merchants of Non Muslim countries.
If anyone had paid Zakat he could seek
exemption by submitting an affidavit.
Principles of Tax Policy in
Islam
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To be imposed under dire necessity
Should coincide with the period of need
Fulfill the objectives of the Islamic Government
Ability to pay
The Principle of Equity
The Principle of certainty
The Principle of convenience
The Principle of Economy
Nature of Public Expenditure
in Islamic State
There are two kinds of public
expenditure in Islamic Economy
1 Permanent Heads of Expenditure
2 Expenditure necessary under present
circumstance
1
Permanent Heads of
Expenditure
Defense
Law and order
Justice
Provision of basic necessities
Propagation of Islam
Promotion of Good and prevention of evil
Civil administration
For social services
2 Expenditure Necessary
Under Present Circumstance
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Environmental safeguard
Necessary goods
Scientific research
Capital formation and economic progress
Subsidies for important private activities
Cost of achieving economic stability
Expenditures required to organize additional
activities assigned to state by the people.
Principles of Public Expenditure
Achievement of objectives of Fiscal Policy
The Principle of public welfare
The Principle of Justice
The Principle of simplicity
To safeguard the rights of future generation
The Principle of inter regional development
The principle of avoiding delay
The principle of fulfilling the needs of the
people
THX