Taxation in Islamic Economy is a well researched topic, it can be used as a guide or framework for your Academic Research.
The role of taxation in a country is indispensable to actualize the wealth of the nation. The government, whether it is a secular country or Islamic state, need taxes to finance their expenditures for every activity, from defense to provide education and to maintain the citizens’ quality of life. In the Muslim world, taxation has been implemented since the Prophet (PBUH) time by using various instruments.
Zakat is the main instrument and complemented by other taxes such as Kharaj, Jizyah, Ushr, and Khums. However, nowadays, there is no country in the world (Islamic or secular) that only imposing those taxes. There are always other instruments of taxation for other means and purposes, such as income tax, value-added taxes, and duties. Muslim scholars often called it secular taxes.
There is still on-going debate among the scholars whether it is needed and permissible to levy other taxes to the Muslims. Some of the traditional scholars rigidly referred to the tax instruments that are practice at the time of the Prophet and Caliphs as the only instruments needed and allowed.
They argued that those tax instruments were sufficient to cover the government expenditures and redistribute wealth among the Muslims in the early Islamic state then it should be adequate to today’s situation also. Other scholars, particularly Islamic economists, viewed that we should look for the underlying principles of those taxes and try to design the modern taxation instruments that are sharia compliant and able to cope with today’s dynamic changes and complex economic activities.
This paper will attempt to explore the instruments and principles of taxation in Islam from the scholars. Then we will look at the modern practice of taxation in Islamic countries to have a complete picture regarding this topic.