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Hizb ut Tahrir / Wilayah Pakistan has issued the following Publicized Policy Position (PPP) which clearly demonstrates how Islam’s revenue and expenditure policies can lead to economic strength and prosperity by adopting Hizb ut Tahrir’s Introduction to the Constitution for the Khilafah.
A. PREAMBLE: Economic Strength is not possible either through Democracy or Dictatorship. Both forms of ruling are corrupt as they allow revenues and spending to favor the Kafir colonial powers and their agents who come to rule within Pakistan.
Sufficient revenues in the State Treasury are essential for looking after the affairs of the people and managing the state expenses, such as the armed forces, health and education. However, in Pakistan’s current system, both democracy and dictatorship take turns to secure the economic interests of the Kafir colonialists and a small band of agent-traitors in the military and political leadership. To achieve this, the World Bank and IMF in cahoots with the government selectively employ humiliating policies of taxation and privatization. These policies deprive the population of public ownership of huge sources of revenue and then leave the people to take the burden of the expenses of the state, by imposing an entire host of taxes that choke economic activity and add to the people’s misery usurping what private wealth they have left. Taxation on buying food, clothing, shelter, earning, inheritance, administration, health and education, renders them “luxuries” for the “privileged” few, and not guaranteed needs for all. Moreover, on the expenses side, the expenditure is primarily to secure the needs of the Kafir colonialists and their agents, leaving the affairs of the people neglected. This is the reality of Pakistan’s revenue and expenditure under the colonialist system no matter whosoever comes to rule, and regardless of whether the appearance of the rule is democratic or dictatorship. Pakistani economic sovereignty was abused in the time of Musharraf-Aziz, it continues to be abused during the time of Zardari-Kayani and it will continue under the next club of agent- traitors. And this is because in democracy and dictatorship, men decide laws according to their whims and desires rather than implementing all that has been revealed by Allah (swt).
B. Depriving the Society of Revenue from Public Properties
B1. Capitalism as implemented by dictatorship and democracy in Pakistan deprives the state and the general public huge sources of revenue, through privatization of the public properties, such as oil, gas and electricity. Local and foreign owners of oil, gas and electricity assets generate huge revenues and sizeable profits from these valuable resources. After returning these assets to public ownership, the future Khilafah can trade in energy resources with foreign states that are not hostile to the Muslims and Islam. In this and similar ways the Khilafah will ensure the benefit of this wealth of the Ummah is for the Ummah itself, rather than becoming a source of misery by allowing private companies to funnel its wealth away as profits, whilst the government adds to burdens of the people with huge taxation upon energy. In addition, capitalism’s drive for private ownership also usurps interests that should be owned primarily by the state, such as machinery and heavy munitions manufacture, telecommunications, major construction and transport. In the coming Khilafah, inshaaAllah, such enterprises are primarily to be regarded as state enterprises, with private companies existing within the field, but under state supervision so as to prevent usurping, eclipsing and dominating the state role as occurs in these dark days of capitalism. This is why under capitalism, the wealthiest companies in the world are energy, arms, machinery and telecommunications companies, whilst the governments are left with only one resort, suffocating the people with increased taxation. Moreover, in Pakistan’s case, colonialism through the agent rulers creates incentives to encourage foreign ownership, such as reduced tariff on the import of machinery and other economic inputs and tax holidays on profits, which are sent back to strengthen the economy of the foreign country. And the direct foreign usurping of the Pakistan’s manufacturing base, as evident by the government’s own Foreign Direct Investment (FDI) figures, it surged during the Musharraf-Aziz regime and continues to occur under Kayani-Zardari.
B2. Strangling Most of the People with Taxes, Whilst Only Few Thrive
Under IMF supervision, during the time of Musharraf-Aziz, continuing under Kayani-Zardai, Pakistan’s economy has been strangled by huge taxation on earnings and consumption of goods. So, consider that total revenues in 1987-88 were Rs. 117,021 million, in 2002/3 they were Rs. 706,100 million and in 2011/12 they were 2,536,752 million. Of this total, direct taxes, which are income tax, property tax and corporate tax, were Rs. 12,441 million in 1987-88, then rose to Rs. 153,072 million in 2002/2 and then again in 2011/12 to Rs. 745,000. This represents an initial jump in direct taxes, from 10% to over 20% of total revenues, and then a further rise to 29% under Kayani and Zardari in 2011/12.
Moreover, income tax alone surged from 17% to 32% of the major state revenues, between 1987-8 and 2002-3. This has meant that the labour force, blue and white collar workers, are facing ever greater hardships, with increased taxation eating away at their wages. As long as this corrupt system remains the situation will worsen, no matter who comes to power. In 2011-12 the government extracted Rs. 730,000 million in income taxes alone, which is more than the entire revenue collected in 2002-3. Moreover, in the 2012-13 budget, the government is now chasing a target of a staggering Rs. 914,000 million. Yet, the government is calling for even more taxation, echoing the demands of the Western colonialists, to choke out the little life left in the economy.
Consider also indirect taxes, which are excise, tax on international trade, sales tax, surcharges on gas and petroleum and other taxes such as stamp duties, foreign travel tax, motor vehicle tax were Rs, 81,015 million in 1987/88 and then rose to Rs. 397,875 million in 2002/3. Significantly, under the Musharraf-Aziz regime, within this category, it is sales tax that surged from 9% in 1987/88 to 43% of the state’s major taxes. It is this sales tax that has made buying medicine, food, inputs for agriculture and industry unbearable for people, choking their ability to contribute to the economy and secure basic needs. Such taxation naturally leads to concentration of wealth in the society in the hands of the few, as those at the bottom of the ladder are hit hardest, twice, by what they earn and also what they are able to consume. Over time, this means more collapses within industry and agriculture, leading to a concentration of wealth in the hands of a small fraction of the population. And the situation will only worsen as long as this system remains. In 2011-12, the government extracted Rs. 852,030 million in general sales taxes and in the 2012-13 budget, the target is Rs. 1,076,500 million.
So after all, capitalism has ensured that the combined revenues of sales tax and income tax alone are over 60% of all the state revenues. Which means the major share of the revenues is from usurping the wages of the people and undermining their ability to buy essentials. This corrupt system can only produce such failure as it is designed to neglect the affairs of the people and this is why all those who seek power in this system are also calling for increased taxation. As income tax, this system taxes people upon the fruits of their labour from which they hope to save to secure their basic needs and some of their luxuries, rather than taxing from their surplus wealth beyond their needs and some of their luxuries. As sales tax, it taxes the people in their attempts to buy basic needs and some luxuries, rather than taxing only on those who have wealth in surplus of such basic needs and luxuries. Yet, the agent-traitors insist this system is “for the people.” Whereas in the Khilafah, neither income tax nor sales tax exists, because private property in origin is inviolable. Taxation occurs on surplus wealth beyond that which is needed to secure basic needs and some luxuries, and that too under stringent conditions. What allows this low taxation policy is the fact that the Khilafah has abundant sources of revenues from public and state property, as well as a unique set of laws for revenue generation from agriculture and industry.
B3. Expenditure that is Biased Towards the Colonialists and their Agents
Having deprived the Ummah of its rightful revenues and also choked its earnings and ability to buy and produce, the government then takes interest based loans from the Kafir colonialist countries. These loans are a bunya, designed to keep Pakistan in debt so as to strip it of its assets and gravely reduce its ability to stand on its feet as a challenge to the West. Total debt outstanding in 1990-2000 was $15,451 billion, even though the same period the total amount repaid was $36,111 billion. Over decades Pakistan has paid $3.66 billion every year, yet has seen its external debts double. And the situation continues to worsen with every decade. Consider the staggering debt to just one colonialist institution, at the end of March 2012, debt owed to IMF aggregated up to $8.1 billion, as stated by the Finance Ministry in its publication Pakistan’s Economic Survey. Currently, Pakistan spends a staggering 35% of its budget on debt servicing, which represent $11 billion of the $30 billion budget of 2011-2012. This is money that is taken away from the economy, looking after the affairs and securing the basic needs of the people. And it is a global injustice, as like Pakistan many countries have paid back their loans many times over, but remain in debt due to interest and unjust colonialist conditions.
C. LEGAL INJUCTIONS: Pertaining to Establishing the Economy on a Firm Footing
C1. Revenue and Expenses Overview
Unlike Capitalism, Islam does not rely on taxation on income and consumption as a dominant means to generate revenue. Its revenue generation is based on accrued wealth beyond the basic needs, as well as upon actual production. Even when the Khilafah does tax, it is with stringent conditions that are based upon accumulated wealth, so it does not penalize poor and under privileged who are unable to secure their basic needs. This is possible because partly because of the huge revenue that the state will generate from state owned and publicly owned enterprises such as energy resources, machinery and infrastructure manufacture and partly through Islam’s unique revenue laws, which increase distribution of the wealth, rather than its concentration. Hizb ut Tahrir states in its Introduction to the Constitution Article 148: “The budget of the State has permanent chapters determined by Shari’ah rules. As for the sections of the budget, the amounts allocated for each section, and the issues of each section covered by these amounts are left to the opinion of the Khalifah and his Ijtihad” and in Article 149: “The permanent sources of income for the Bayt al-Mal are the booty, Jizya, land tax, a fifth of buried treasure, and Zakat. This income is collected continuously irrespective of whether there was a need or not” and in Article 151: “Money taken at the borders of the State from custom duties, income derived from public or State property, inheritance for which there is no inheritor and the assets of the apostates are all considered to be part of the revenue of the Bayt al-Mal.”
C2. Industry as a Source of Revenue
Industry will thrive in the Khilafah. It will not be strangled by taxes for all manner of crucial inputs, from energy to machinery. Instead, the state will generate revenue from profits of the trade and accrued trading merchandise. This allows the businesses to focus on production without fetters, whilst circulation is ensured through their giving of revenues from their profits or accrued wealth. Hizb ut Tahrir says in its Introduction to the Constitution, Article 143: “Zakat is collected from Muslims, and is taken from the wealth which the Shariah has specified such as money, the profits of trade, cattle and grains. It is not taken from anything which the Shari’ah did not mention. It is taken from every owner irrespective of whether they were legally responsible/accountable (mukallaf) such as the mature, sane person or whether they were not legally responsible such as the child and the insane. The Zakat is placed in a specific section of the Bayt al-Mal, and is not spent except upon one or more of the eight categories mentioned in the noble Quran.”
C3. Agriculture: Kharaaj as a Source of Revenue does not Strangle Farmers
Under Islamic rule, the Indian Subcontinent, a predominately agricultural society, produced almost a quarter of the world’s GDP. One of the factors was the concept of Kharaj. Under Kharaj, the neck of the land was owned by all the Muslims, but its use and benefit was with the one who cultivated it. So the one who cultivated it benefited from its production directly. This allowed the circulation of wealth and boosted production. In return for a strong source of livelihood, the Muslims generated revenue from the land for the state, in accordance to its capacity. With the introduction of capitalism, under the British rule, the cultivators were taxed heavily, were forced then to take interest based loans, subsequently drowned in debt and ultimately had to sell their lands. This was asides from the land seizures by the colonialists for the sake of themselves and their collaborators. Agriculture continues to suffer from capitalism until today, even though Pakistan’s existing agriculture remains world class in many fields, and has potential to develop far further. The farmers face huge taxation on agricultural inputs from fertilizer, seed, machinery, transport and fuel. Then they are forced to try and increase profits by exports to foreign markets. This in turn drowns Pakistan in suffering by forcing it to make more and more expensive imports of the same grains and crops that it can grow in abundance. In Islam, the revenue generation is not based on taxation of agricultural inputs, but on production from the land, which enables the farmer to maximize the production, without being slowed down by over-expensive inputs. As Hizb ut Tahrir states in its in Introduction to the Constitution, Article 145: “Land tax is payable upon the kharajiyyah land according to its capacity. Zakat is collected from the ‘ushriyyah land according to the actual production.”
C4. Recourse to Taxation is with Stringent Conditions, Not a Default
Islam grants sanctity to the private property of individuals and prevents it usurping, so taxation would occur in the Khilafah, but as a last resort and under stringent conditions; namely, if the revenues that Shariah has stipulated were not enough and only upon those who have secured their basic needs and some of luxuries to the level that is considered normal. So Islam ensures that there is no taxation on the fruits of neither labour nor the efforts to secure the basic needs and luxuries, as occurs in capitalism in the form of income tax and sales tax, which is punishing the less well off. This means that the taxation will ensure circulation of wealth, rather than concentration. Consider that Pakistan’s top 30 richest people are worth circa $15 billion and these are only reported figures. Just a 30% tax will net $4.5 billion. Thus, the money raised through the levy of emergency tax on the wealthy can be used to stimulate Pakistan’s ailing industries. Beyond this the Khilafah can choose to take loans from the people for projects with repayment expected over short term as well, as asking for voluntary donations from an Ummah which is characterized by generosity for the sake of Allah (swt) Hizb ut Tahrir states in its Introduction to the Constitution, in Article 150: “If the permanent revenues of the Bayt al-Mal are not sufficient to cover the expenditure of the State, then it is possible to impose taxes upon the Muslims. It becomes obligatory to impose taxes as follows: a. To fulfil the obligatory expenses upon the Bayt al-Mal for the poor, needy, and wayfarers, and to undertake the obligation of Jihad. b. To fulfil the obligatory expenses upon the Bayt al-Mal for remunerations of the civil servants and soldiers, as well as compensation for the rulers. c. To fulfil the obligatory expenses upon the Bayt al-Mal to undertake the services and needs such as establishing roads, extracting water, building mosques, schools and hospitals. d. To fulfil the obligatory expenses upon the Bayt al-Mal which are necessary in case of a disaster which afflicted the subjects such as famine, floods and earthquakes” and in Article 146: “Muslims pay the taxes that the Shariah has permitted to be levied upon them in order to cover the expenditure of the Bayt al-Mal, on the condition that it is levied on that which is surplus to the individual’s needs according to what is normal, and has to be sufficient to cover the needs of the State and forbade the taking of custom duties, because it is a tax, and so it is a prohibition that encompasses every tax.” And in Article 147: “The State has the right to impose taxes in order to undertake anything that the Shariah obligated upon the Ummah if the funds in the Bayt al-Mal were insufficient since the obligation for funding it would be transferred onto the Ummah. The State has no right to impose a tax for the sake of whatever is not obligatory upon the Ummah to undertake, and so it is not permitted to collect fees for the courts or departments or to fulfil any service.”
C5. Expenditure Guidelines
Thus the Khilafah raises huge revenues from state property, public property, agriculture and industry without choking them, and taxes from those who have surplus to normal living. At the expense aspect, Islam stipulates all that is necessary to truly look after the affairs of the people. And of course, the Khilafah will not pay any more to the criminal colonialist loaning institutions, firm in the knowledge that the principal has been paid many times over, as is the case with many other states. Hizb ut Tahrir declares in the Introduction to the Constitution, Article 152: “The expenditure of the Bayt al-Mal is divided across six sections:
a. The eight categories which deserve the Zakat to be spent upon them, from the chapter of Zakat.
b. The poor, the needy, the wayfarer, Jihad, and those in debt – if there is nothing found in the chapter of Zakat, they are given money from the permanent sources of income of the Bayt al-Mal, and if nothing is found then those in debt are not given anything. Taxes are imposed in order to fulfil the expenses required for the poor, the needy, the wayfarer, and Jihad, and the State takes a loan in case of fear of fasad (corruption).
c. The individuals who provide services to the State such as the civil servants, the soldiers and the rulers are paid from the Bayt al-Mal. If there were insufficient funds in the Bayt al-Mal then taxes are imposed in order to fulfil the expenditure needs, and the State takes a loan in case of fear of fasad (corruption).
d. The essential services and utilities such as roads, mosques, hospitals and schools are funded by the Bayt al-Mal, and if there are insufficient funds in the Bayt al-Mal taxes are imposed to fulfil these expenses.
e. The non-essential services and utilities are funded by the Bayt al-Mal, and if funds found in the Bayt al-Mal are insufficient then they are not funded, but rather delayed.
f. Emergency situations such as earthquakes and floods are funded by the Bayt al-Mal, and if the funds were not found the money required is taken as a loan immediately which is then repaid through raised taxes.”
Note: Please refer to the following articles in Hizb ut Tahrir’s Introduction to the Constitution, for the complete evidences from Quran and Sunnah: 143-152. To see relevant articles of the constitution for the Khilafah state, please visit http://htmediapak.page.tl/policy-matters.htm
D. POLICY: Revenue Generation and Expenditure to Propel a World-leading Global Power
D1. Great revenues generated through public ownership of oil, gas and electricity resources as well as prominent state ownership of the manufacture of machinery and munitions and provision of telecommunications and transport.
D2. Ending taxation on inputs to industry and agriculture that choke production. Revenue generation from profits and accrued merchandise of industry, as well as from the production from the land.
D3. Rejection of the debt to the Western colonialist institutions, whose loans have been repaid many times over due to the oppressive interest. Focussing expenditure on the Shar’i needs of the Muslims and looking after their affairs, including building strong industrial basis, for strength and prosperity.
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