Islamic Tax?

Islam has a completely different perspective on the economy and tax as the Islamic basis is different from that of capitalism. Fundamentally taxation in Islam and under the Khilafah puts the emphasis of taxation on wealth rather than income. The Islamic taxation system does not tax income, but taxes wealth. This means that the average person will be left with more disposable income and will be liable for tax on whatever wealth is left at the end of the year. This will have a significant effect on the economy.

Some Calculations:

If we take figures from the British economy and incorporate them into an Islamic model we can demonstrate the effect of this. In 2007 the average UK salary is ￡23,244, and the tax burden on this salary is 34% (income tax and National insurance together), which is just under ￡8000. This alongside indirect taxation (that is taxation on spending rather than income) as well as council tax, road tax, sales tax and so forth mean that the real tax burden falls at closer to the 40-50% mark. This means that the average person in this country is losing between ￡10,000-12,000 to taxation. In Islam, although simplified, the wealth tax falls at 2.5%. This means that within one year, the average person can save at is at least ￡10,000. This means that the average person will have an extra ￡700 to spend each month as he will not be taxed on his income. Taking into account that the total UK workforce is approx 31 million this means that the extra money flowing around the economy would be ￡240 billion if the income was not taxed. Therefore two or three people could easily enter into a business contract to supply some of the demand in the economy for consumer or manufactured goods thereby creating more employment in the economy.

Conclusion:

The net effect of this is that it will increase demand for goods and services right across the economy which will generate an increase in trade and in turn an increase in wealth for businesses.