According to the Islamic Shariah, an Islamic State cannot impose any taxes upon its Muslim citizens, besides Zakat. As far as the non-Muslims living in an Islamic state are concerned, they become citizens of an Islamic state through an agreement between them and the Islamic state. Taxes upon these non-Muslims shall be governed by the agreement that was mutually agreed upon between them and the Islamic state. The taxes proposed on the non-Muslim citizens in the agreement may or may not be equal to or related with the rates specified for Zakat.
In view of the above explanation, imposition of Income tax, wealth tax and all other direct or indirect taxes, by an Islamic state upon its Muslim citizens, is not in accordance with the directives of the Islamic Shariah. The word ‘tax’ first appeared in the English language only in the 14th century. It derives from the Latin taxare which means ‘to assess’. Before that, English used the related word ‘task’, derived from Old French. For a while, ‘task’ and ‘tax’ were both in common use, the first requiring labour, the second money. ‘Tax’ then developed its meaning to imply something wearisome or challenging. So words like ‘duty’ were used to suggest a more appealing purpose. Political spin has just as long a history as taxation, and neither has been detained unduly by the meaning of words.
The history of Zakat is the same as that of Salat. It is evident from the Holy Qur’an that like Salat its directive always existed in the Shariah of the previous Prophets. When the Almighty asked the Muslims to pay it, it was not something unknown to them. All the followers of the religion of Ibrahim (AS) were fully aware of it. For this very reason Surah Al-Ma’arij (70:25) describes it as â€œA specified right.â€
Thus it was a pre-existing Sunnah which the Holy Prophet (PBUH), with necessary reformations, upheld at the behest of the Almighty. There is a clear difference between Zakat and Taxation. Zakat is the only tax an Islamic government can impose upon its Muslim citizens. It is not merely a charity fund but can be spent on the collective needs of the people as well: The Zakat money can be used to pay the salaries of all government officials including that of the head of state, to build all works of public interest, to cater for defence requirements and to establish an Islamic system of Insurance. In short, the system of Zakat envisaged by the Holy Qur’Ã¢n and Sunnah totally meets the requirements of running a welfare state.
Elimination of interest in the economy and the imposition of the true concept of Zakat will not only generate enough money to meet the running expenses of the state but a considerable amount for development as well. However, a major part of the revenue for development would be obtained by means of all state owned enterprises whose management would be transferred to the private sector through either or both of the two modes: (i) selling a certain quantity of shares to the private sector, (ii) imposing kharaaj (tribute) on the party of the private sector which is entrusted with the job of management.
One of the major objectives of Zakat is poverty alleviation. The issue is can Zakat be spent on Non-Muslims for this purpose. Though a number of Jurists have viewed that Zakat can be spent on non-Muslims, the majurity view is that for poverty alleviation of Non-Muslims non-Zakat resources should be spent. There is no disagreement on the point that poverty alleviation and welfare of non-Muslims is an important concern for an Islamic state. Zakat and tax are not same. Zakat is very small part of yearly income while tax is a huge share of monthly income one earns. Zakat eradicates poverty while tax increases in many folds. Hence, people pay taxes happily but they avoid paying Zakat which is lesser than taxes and better in use than the taxes.