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Can an Islamic State impose any tax on its subject other than Zakat and Ushr? PDF Print E-mail

Q: Can an Islamic State impose any tax on its subject other than Zakat and Ushr?

A: There have been two views among the scholars about this question. The first view explicitly recognizes the sanctity of private property and therefore does not allow an Islamic state to use taxes other than Zakat and Ushr. The second and more dominant view is based on the recognition that an Islamic state has to perform many socio-economic functions of Amar Bil-Maaruf wa Nahi-An-al-Munkar and defence. Among these functions, alleviation of poverty, economic growth, social welfare services and social justice are important. Achievement of these goals may necessitate more revenue than can be available from Zakat and Ushr. Therefore, an Islamic state can impose other taxes to be able to perform its multifarious functions.

Contemporary fatawaa

 
If interest is fully abolished, what would be the inducements in an Islamic Economic System to provide incentives for saving and for economising the use of capital? PDF Print E-mail

Q: If interest is fully abolished, what would be the inducements in an Islamic Economic System to provide incentives for saving and for economising the use of capital?

A: It is very well recognised that interest is not the primary or otherwise an important factor for the saving. The overall savings in the economy primarily depend upon the level of income. Some of the basic motivating factors for saving are:

a) meeting future exigencies,

b) providing for old age, and,

c) bequests.

Since these factors will remain even after the elimination of interest, therefore, it is most likely that the overall rate or level of saving will not be affected significantly (after the abolition of Riba from the economy).

Muslim economists have suggested a wide range of saving instruments which will be available to the potential savers in an interest free economy.' These instruments vary in terms of liquidity, risks and returns so as to match preferences of the savers. Apart from existing profit-based instruments like shares of joint stock company, N.I.T. Units, ICP Mutual Funds and Investors Deposit Account and Participation Term Certificate, new saving instruments compatible with Shariah, can be brought into being. Among them, Mudarbah bonds floated by the Government as well as by the private concerns can play important role. Similarly, a variable dividend security issued by the State Bank can serve as an important instrument. The holders of this security will participate in its profits. This will provide a low risk medium of investment for the private investors. Also, it can serve as a substitute for Government Bonds and Treasury Bills for Investment of the surplus funds of the banks and other financial institutions.

Lastly, the Government Bonds bearing no interest can be issued when the holders may enjoy tax concessions.

As regards the role of interest as a discounting factor, it is pointed out that even in the Western countries, the pure rate of interest is considered to be an inadequate measure as a discount factor. It is usually adjusted for a risk-premium.

In an Islamic Economy, the rate of return on real investment can play the role of discount factor. Practically, it can be approximated by the return on NIT Units.

Contemporary fatawaa

 
Can the payment of prize money on Prize Bond or other similar Schemes be regarded as Riba? PDF Print E-mail

Q: Can the payment of prize money on Prize Bond or other similar Schemes be regarded as Riba?

A: The payment on prize money or prize bond resembles gambling (Qimar). The income earned through prize is generated without participating in any real economic activity. Therefore, the payment on prize money is illegitimate from Islamic point of view.

Contemporary fatawaa

 
Would it be lawful under Islamic law to differentiate between business loans on which interest may be charged and consumption loans which should be free of interest? PDF Print E-mail

Q: Would it be lawful under Islamic law to differentiate between business loans on which interest may be charged and consumption loans which should be free of interest?

A: The business activity will be financed through legitimate means, like Mudarbah and Musharkah and also some of the other instruments outlined in the answer to question. The consumption loan will be available as Qarz-e-Hasana through Islamic banking system.

Contemporary fatawaa

 
Does interest accruing on the Provident Fund or Saving Bank Account come under Riba? PDF Print E-mail

Q: Does interest accruing on the Provident Fund or Saving Bank Account come under Riba?

A: The interest accruing on the saving bank account can be considered as Riba if the income earned by the proceeds of this account do not qualify in terms of profit-loss sharing conditions. For instance, if the return from the saving bank account is linked to the return of any single government undertaking. The reason is that the proceeds of the saving account become a part of the general government budget. However, if the return from the saving bank account are specifically earmarked, are used in a specific undertaking and the account-holders share in the profit/loss of such undertaking, then the resulting income become Islamically legitimate.

In the light of Islamic injunctions, the interest earned on the provident fund does not fall within the definition of Riba. The reason is that the employee does not own the amount of the fund, during the period in which the interest has been earned. Therefore, the excess amount earned over the actual amount deposited can not be considered Riba. Here, the Fuqaha make two suggestions: One is that the government departments have added the excess amount without the written approval of the employee. In this case, accumulating excess amount are Riba free. In the second case, the employee himself can ask the government to treat his fund as interest-based, then the excess amount resembles Riba.

Contemporary fatawaa

 
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