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The Second Inevitable

Two things in life are inevitable: death and taxes.” Benjamin Franklin

The current financial crisis is a global one. Distinctions of East and West, North and South are becoming increasingly irrelevant. As the world hurtles towards what a recent NASA sponsored report flagged as an irreversible collapse whose basis is: “the stretching of resources due to the strain placed on the ecological carrying capacity”; and “the economic stratification of society into Elites [rich] and Masses (or “Commoners”) [poor]”1 addressing that ‘economic stratification’ is becoming increasingly urgent for all our sakes. As we shall see, contemporary taxation contributes substantially to that stratification.

The Spectrum of Taxation

The spectrum of taxation according to Islam is represented by two extremes: first, the numerous texts from the Qur’an and the Prophetic practice obligating the payment of zakat, and its collection and distribution by collectors appointed by those in authority; second, the prohibition of taxation on trade except for customs tariffs on traders from outside the Muslim polity.

Value Added Tax or Maks

An-Nawawi said, “… maks is an act of disobedience and a mortal wrong action.” Maks, the tax referred to, is a percentage, usually 10%, taken from traders in the market place. In other words, a VAT, except that European VAT is now more than double that on average. The only legitimate reason to collect something from market traders is for the upkeep of the market itself.

Zakat

A central raison d’être of governance is to bring about the communally obligatory aspects of the acts of worship, most importantly the prayer and the charitable tax, zakat. The person in authority must take wealth from the prosperous and wealthy and give it to eight deserving categories, most prominent among whom are the poor and the needy. Even though zakat in itself will not deal with all disparities of wealth and income or solve the seemingly intractable problems of poverty, it serves a very significant role in that it very publicly articulates the importance and centrality of these issues. The role of governance is to maintain that focus on the welfare of the general populace by maintaining the high profile of zakat in the society. Like all individual obligations, it is better that zakat is done as publicly as possible, so that, like justice, not only is it done but it is “seen to be done”. We assume the reader’s understanding that the ‘person in authority’ can be anyone from the leader of a small Muslim community to a king or sultan ruling a large polity.

Although zakat is collected by knowledgeable people with integrity who are appointed by those in authority and is not merely a voluntary charity, it is not state revenue. It may not be used for governmental expenses and projects in any way, no matter how worthy. The only possible exception is that those who collect and distribute zakat are eligible to receive some portion of it. The logic of this is obvious. If they received no recompense it could conceivably undermine the collection and distribution itself or expose them to pressures that could result in their corruption.

Zakat may not even be used for noble or important projects such as building mosques, madrasahs and hospitals, or roads, sewerage systems and other infrastructure. Nor can it be used as salaries for the leader and his administration. It must be spent locally and not sent far afield, except when there are no valid recipients locally such as needy or poor people, travellers, indebted people, slaves, ‘hearts to be reconciled’ or people engaged in fighting in the way of Allah. In that case, the zakat may be sent to the nearest needy locality. It may not be sent to recipients on the other side of the earth, even famine victims. That is the obligatory zakat. It is of course highly praiseworthy to send voluntary contributions to people in need and distress. But the principle of attending to those nearest and then the next nearest means that zakat is free from the paradoxical effects of charity, such as its undermining the economies of the very people that it is trying to help.

Jizya

Clearly Muslim governance had a great many other revenue streams that were not so restricted. The first of these other sources of income is the jizya, that poll tax taken from adult non-Muslim males who, whether through force of arms or peaceful treaty, have made an agreement to live under Muslim governance according to the contract known as the dhimma. This tax has become a historical bone of contention because it is felt to be ‘discriminatory’ and ‘humiliating’, and yet it was ordinarily something in the region of four gold dinars paid annually, i.e. approximately €600, and those who paid it were exempt from paying zakat. It was dropped or reduced in cases of penury and indeed needy non-Muslims were given from the public treasure (bayt al-mal) in such cases. There are many today who would queue up to be able to pay such a low annual tax.

Custom Duties – ‘Ushr – A Tenth

An additional legitimate revenue for the polity are those taxes, usually 10%, collected from people residing outside the Islamic polity who enter to trade.

Kharaj

A very substantial tax was the kharaj tax paid on land that had come under Muslim governance whether by treaty or through military victory. It could be paid in kind or in cash. It was roughly equivalent to the amount paid in zakat by Muslims, non-Muslims being exempt from paying zakat. During the caliphate of ‘Umar, the fighting men had wanted to divide up the conquered lands into their personal landed estates, but ‘Umar refused. Some of the most substantial lands in terms of income were the Iraqi lands known as as-Sawad, rich fertile land that sustained massive date groves.

“…when Abu Hurayrah brought 500,000 dirhams of jizya and kharaj from Bahrain2, a previously unheard of sum, ‘Umar accepted the counsel of one of the Companions and instituted diwan-registers of the Muslims and set up stipends for them.” This was the beginning of the opening of the floodgates of income whose midpoint was the transformation of as-Sawad of Iraq into a gigantic waqf for the Muslims. ‘The kharaj of as-Sawad and al-Jabal at the time of ‘Umar, may Allah be merciful to him, amounted to 120 million waf 3 and the waf is one dirham4 and two and a half daniqs’.5 6

“The furthest point at this stage was reached in the history of the khilafa of ‘Uthman when, as as-Suyuti wrote in Tarikh al-Khulafa: ‘In the year 30 AH, Jur was opened and many provinces of the land of Khurasan; Naysabur was opened by treaty, and it has been said, by force. Tus and Sarkhas were both opened by treaty, and similarly Marw and Bayhaq. When these extensive provinces were taken, ‘Uthman’s revenues became abundant, and wealth came to him from every direction.’”7

‘Umar had dealt with this previously unheard of wealth by establishing what was in essence a gigantic waqf-endowment for the well-being of the Muslims from which people were given stipends according to their ranks and precedence in Islam, starting with the wives of the Prophet, may Allah bless him and grant him peace, then the men who had fought at the Battle of Badr and so on.

The revenues from jizya and kharaj have no restrictions placed on their usage such as those that pertain to zakat. They can legitimately be used for more general public welfare and administration. As we saw, the caliph ‘Umar largely devoted them to the general welfare of all the Muslims to lift them from penury and free them from some measure of the pressure of earning a living.

Royal Authority and Dynasty

It is commonly thought that the deterioration of Muslim civilisation began with the establishment of kingship and the siphoning off of funds to maintain lavish royal lifestyles, but Ibn Khaldun argues the necessity of kingship and some degree of regal splendou. Since a fundamental purpose of Islam is the application of the law without which justice is impossible, then royal authority as the guardian of law needs to be respected for the sake of the law itself. Ibn Khaldun cites an instance in the very first community that goes straight to the point.

When Mu‘?wiya, in the splendour of kingship and its manner of dress and equipment, met ‘Umar ibn al-Khattab, may Allah be pleased with him, on his arrival in Syria, ‘Umar repudiated that and said, “Royal Persian behaviour (Kisrawiyyah), Mu‘awiya?” So he said, “Amir al-Mu’minin, I am on the frontier facing the enemy directly and we need to compete with them with the adornments of war and jihad.” So he was silent and did not find fault with him since he had advanced an argument based on the purposes of the truth and the deen. If his purpose had been to repudiate kingship in principle, the argument about this Persian royal behaviour and his assumption of it would not have satisfied him but on the contrary he would have urged him to leave it entirely. ‘Umar only meant by royal Persian behaviour that which the Persians had in their kingdom such as perpetration of falsehood, injustice, tyranny and the behaviour of its young men (shibl) and forgetfulness of Allah. But Mu‘awiya answered him that the purpose in that was not royal Persian behaviour and their falsehood but his purpose in it was only the Face of Allah, and so he [‘Umar] was silent.8

This is an argument that is central to Ibn Khaldun’s thesis. The transition from the visionary society of ‘Umar, in which the entire resources of the community were dedicated to general welfare, to one in which there was some measure of ostentation on the part of the élite was necessary.

Nevertheless, given the human capacity for envy and resentment, it has always been the case that, firstly, few later inhabitants of the palace ever understood the necessary role of royal authority in maintaining law and society and came to regard its revenues as their personal prerogative, and secondly and subsequently, sizeable segments of the population came to aspire to the life that they perceived kings and sultans to be living. In Europe this almost subterranean envy was to contribute substantially to the next phase.

The State

It is necessary to understand a further transition in order to confront our current situation: the rise of the ‘state’. This is a peculiarly European phenomenon that has been universalised even to the extent that some people who have not understood its provenance claim the need for an ‘Islamic state’.

In the breakup of the European order of the Hapsburg Empire and the Roman Catholic Church during the struggles brought about by the Reformation, a resolution of the terrible Thirty Years War was achieved in 1648 by a series of treaties known as the Peace of Westphalia that defined states in terms of peoples’ sovereigns. This new mapping of political order took its next most significant step during the French Revolution 1789-1799. The state was no longer to be based on the sovereign but on the ‘nation’ or ‘the people’, in this case the French nation. But this was an entirely spurious entity with no reality. ‘France’ was inhabited by a wide variety of peoples with a number of cultures and speaking all sorts of different languages. As Shaykh Dr. Abdalqadir as-Sufi demonstrated in his masterpiece the Return of the Bedouin, the inevitable consequence of positing the ‘nation’ was the genocide of those who did not fit the national profile. Far from exterminating the aristocracy, the Revolution turned upon many inconvenient groups in France and obliterated them in a most terrible fashion.

That pattern has been repeated wherever the fever for the nation-state alighted. It was one of the significant factors in the breakup of the Osmanli polity. Every Balkan grouping, Serbs, Croats, Bosnians, Macedonians, Greeks and Albanians, wanted their nation-state with the result being the extermination or expulsion of those populations that did not fit within the paradigm. This is also true of Turkey which went from being a land with a rich mix of Muslims, Christians and Jews and a polity that easily absorbed Kurd and Albanian, to an almost exclusively Turkish entity with a lingering ‘Kurdish problem’.9

In Europe this development was also accompanied by the appearance of the new middle classes who aspired to some portion of the life of luxury they imagined royalty and aristocracy to be enjoying. Thus everyone wanted a bit of the state revenues and, where that was not possible, they proved to be customers for the banks that evermore advanced into the forefront of civic life.

With the transformation that the agricultural revolution brought about globally and the surge of rural populations into the new cities and megalopolises, the state took on an entirely new character, becoming the employer and sustainer of massive populations, so that today in the EU, perhaps a half or more of the populace work for the state, even if in the ignominious role of being unemployed. Thus, there are few who are going to argue about the need for taxation since it contributes directly to their livelihoods.

The Bank

Parallel to the rise of the states grew the banks and national banks that were to become inseparable from them and which were to finance state expenditure and, as a consequence, take a substantial part of tax revenue in repayment and to ‘service the debt’, i.e. pay interest on it. In the UK, “In 2012, the annual cost of servicing the public debt amounted to around £43bn, or roughly 3% of GDP.… Each household in Britain pays an average of around £2,000 per year in taxes to finance the interest.”10

In addition, economist Margrit Kennedy calculated that almost 45% of the prices people pay for those things they need to live are composed of interest.11

We speak of course in the context whose quotidian reality, East and West, among Muslims and non-Muslims, is that the state exempts the super-wealthy from taxation but instead taxes those whom the shari‘a counts among the needy. Many income earners are counted by shari‘ah as needy, for a needy person is anyone who cannot make ends meet even if they own their house and have a business or livelihood or, in a more precise definition, someone who does not have year’s provisions for himself and his dependents. A great many of the world’s working people today would be counted as needy and not required to pay zakat but would, on the contrary, be eligible to receive it.

This sheds light on the otherwise inexplicable hostility shown Islam and Muslims today by the media and the political class; Islam is perceived as being inimical to the vested interests of power and wealth. Yet, this is absurd because Islam is not a socialist resentment of power and wealth but, indeed, honours them both. It is one of the core values of Islam, ‘the purposes of the shari‘amaqasid ash-shari‘a’, that the preservation of wealth is a good thing and Muslims have always embraced the world, commerce and trade with alacrity. Arguably this has been the undoing of many Muslims in the present age because of lack of understanding of the banking and finance that are based on fiat money and on usury.

Income Tax – Dariba

Thus we come to not a tax instituted by Islam but a tax which Islam can throw some light on and which is the outcome of the previous developments. The modern term for income tax – ?ar?ba – is used in a context that makes it very revealing. In classical times it was very common for slaves to have certain skills that were useful in the world and the marketplace. They were ordinarily allowed to go out and practise their skills and earn money, and usually they worked towards purchasing their freedom. A part of the arrangement was that the master could negotiate an impost that his slave had to pay him, a dariba.

Income tax in itself is of very recent origin. In the UK, it was first imposed in 1799 during the Napoleonic Wars as an emergency measure and, once the wars had passed, it was rescinded in 1816. It was re-introduced by Robert Peel in 1842. It had a chequered history of being re-instituted for emergencies, whether military or budgetary, and rescinded but was finally imposed during the First World War and never again abolished. A relic of its provisional nature is the annual ritual of the British Budget, whose raison d’être is to prove that the exigency that necessitated this extra burden on the citizens is still in effect. Of course, there are few serious people who know this arcane fact yet alone call for the abolition of income tax.

Thus we arrive at a point in history in which taxation has reached unprecedented levels and yet so many are dependent on it as recipients that there is no one to object. Exactly who is taxing who and for whom? Of course, the presence of banking within the equation has not yet fully received the attention it deserves. Nevertheless, the peril of such massive taxation is that it proves an impediment to the very cultural and economic life it lives off and thus ordinarily brings down the society itself.

Ibn Khaldun on Excessive Taxation

“… when the dynasty follows the ways (sunan) of the religion, it imposes only such taxes as are stipulated by the religious law, such as charity taxes (sadaqat), the land tax (kharaj), and the poll tax (jizyah). They mean small assessments, because, as everyone knows, the charity tax on property is low. … When tax assessments and imposts upon the subjects are low, the latter have the energy and desire to do things. Cultural enterprises grow and increase, because the low taxes bring satisfaction.”12

He then details how illegal taxes creep in so gradually that people hardly notice and they become an accepted part of the economic and social fabric but in the end bring down the whole edifice of the culture because the desire to do or make anything is inhibited by the burden of taxation:

“Eventually, the taxes will weigh heavily upon the subjects and overburden them. Heavy taxes become an obligation and tradition, because the increases took place gradually, and no one knows specifically who increased them or levied them. …Finally, civilization is destroyed, because the incentive for cultural activity is gone. It is the dynasty that suffers from the situation, because it (is the dynasty that) profits from cultural activity.”13

But none of this is inevitable and Ibn Khaldun cites examples such as Salah ad-Deen al-Ayubi and Yusuf ibn Tashfin who abolished onerous taxation and restored the light taxation of Islam. It is the contention of this small article that redressing the current imbalances and excesses in taxation are in the interest of both rich and poor and the future of our globalised society.

 

1 Cited in the Guardian “Nasa-funded study: industrial civilisation headed for ‘irreversible collapse’?” by Nafeez Ahmed: http://www.theguardian.com/environment/earth-insight/2014/mar/14/nasa-civilisation-irreversible-collapse-study-scientists

2 Not the modern state of the same name, but a large area of North-Eastern Arabia.

3 The weight of ten dirhams is equal to the weight of seven dinars. A waf (full) dirham has the same weight – a mithqal – as a dinar.

4 The dirham weighs 2.975g and its value is $7.00 USD, €5.50 EUR or £4.34 GBP (27/9/2013).

5 The daniq is a sixth of a dirham. So the waf is 1.416 dirhams. The kharaj was thus 169,960,000 dirhams worth £737,626,400 or just under a £1 billion. Bear in mind that today silver is grossly undervalued for a variety of reasons so that this sum only represents a fraction of the real value of the kharaj.

6 Ibn Sa‘d, at-Tabaqat al-Kubra.

7 Abdassamad Clarke, the Muslim Faculty of Advanced Studies, Autumn 2013 module: Muslim History, Early Madina, the lecture on Jihad.

8 My own translation.

9 See “A Balkan Tale” (http://www.balkantale.com/videos.php) on the decline of the Osmanl? commonwealth and the appalling rise of the nation-statism that was to rend its fabric so devastatingly.

10 https://en.wikipedia.org/wiki/United_Kingdom_national_debt#Cost_of_servicing_the_debt

11 Margrit Kennedy speaks on interest free economy: https://www.youtube.com/watch?v=QuBy3BzCXwg

12 Ibn Khaldun, al-Muqaddima, Trans: Rosenthal, vol.2, p.89

13 Ibid, pps.90-91

This article was written for Islam Hoy magazine.

Posted in Articles.


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