By: Imad A. Ahmad
Minaret of Freedom Institute, 4323 Rosedale Avenue
Bethesda, Maryland 20814, (301) 656-4717
3. LIMITS ON TAXATION
Taxation is the most direct means of government intervention into the economy, and usually the first resorted to. The Qur'an names only four sources of public revenues: zakât, sadaqa, jizyah, and khums. The first is an obligation of Muslims only. It is actually a religious obligation rather than an ordinary tax. Sadaqa is purely voluntary and thus is not a tax at all in the usual sense of the term. Jizya is levied on non-Muslims only in lieu of military service and may be set by treaty. The practice of the early Muslims make it clear that it was a fee for protection of the minorities, reimbursable when the protection could not be rendered, and thus it falls in that category of taxes called user fees. Only the khums is taken purely by force, but as it is taken from the enemy in battle, it is not a tax on the citizens, but a share of the spoils of war. In the Prophet's time the khums was given to the Prophet for use at his discretion both for his personal and family needs as well as for disbursements to the poor and needy and public works. One can interpret this as state property out of which the ruler may take a share or as private property of the commander-in-chief out of which he is expected to give sadaqa. In the former case it is a tax on booty rather than on persons. In the latter case, the required public expenditures constitute a tax on the commander-in-chief and not on the general public.
On this account, it appears that taxation authorized by the Qur'an is strictly limited. This is as we should expect, based on the Prophet's hadith that one should not take the property of another Muslim without his consent. The sunnah supports this view. In the time of Muhammad and Abu Bakr, there was no other source of public revenue beyond those authorized by the Qur'an. An alleged exception is found in the claim that the Prophet collected kharâj from the Jews of Khaybar. Siddiqi (1970, p. 17) writes:
When Khaybar was conquered by the Prophet, ... the Jews recognizing the conquerors as the owners of the entire conquered land (after the custom of the day), offered to cultivate the lands as the tenants of the State and paid a part of the produce. The Prophet granted them their request and fixed the Kharaj at half of the produce.
There are two ways to interpret this. Taken at face value the Jews were recognizing the lands as state lands (fay'). In this case the payments constituted rent and not a tax. If, however, the payments were a land-tax, then the rate having been set by treaty constitutes a negotiated jizyah and is still not outside the authorization of the Qur'an.
Thus it is clear that the Prophet never assessed any taxes beyond those specified in the Qur'an except as a user fee. The same is true of Abu Bakr. The general practice of the righteous caliphs supports this analysis. Thus Abû `Abdullâh Mu`âwiya ibn `Ubayd Allâh wrote in a treatise on taxation for the caliph al-Mahdî (Lapidus, 1981):
"all the expenses of digging, including supporting poles, the construction of vaulted passages and bridges, the cleaning up of rivers and the maintenance of post-stations and dams on the great rivers are to be borne by the treasury." Otherwise, however, irrigation canals are evidently considered part of the private domain, and lawyers discuss the questions of water rights and the distribution of irrigation expenses among private persons. They leave the impression that the responsibility of the state was rather limited.
Umar, however, did introduce two new taxes: he imposed tariffs and he expanded the kharâj to cases other than a modified jizyah. Tariffs had been unknown in Arabia. We can imagine Umar's distaste at finding the nations of the world engaged in this form of highway robbery against the merchant who crossed their borders. As the Qur'an authorizes like-kind retaliation against aggression (2:194), he imposed a policy of reciprocity. In an economically savvy effort to minimize the burden of the retaliatory tariffs on Muslims and the dhimmis under their protection, however, he gave a 50% discount to dhimmis and a 75% discount to Muslims.. Further, he counted as a dhimmi for this purpose any non-Muslim whose stay in Muslim lands exceeded one year. It is ironic that Umar's strategic actions to fight against tariffs have been misinterpreted by some modern Muslim economists as an indication that Umar believed that the state can impose any kind of taxes it wants. It has also been disastrous for the freedom and prosperity of the Muslim ummah.
We have already discussed Umar's use of kharâj in the section on the land issue. We may presume that he saw a similarity between the Persian land tax and the usufruct form of jizyah which the Prophet accepted in the case of the Jews. Since the tax that he levied was so much lower than that assessed by the Persians, we may also presume that both he and his new subjects looked upon the terms as agreeable ones, comparable to terms fixed by treaty. Unfortunately, the kharâj here resembles the Persian land tax (which was called kharâg and from which the term kharâj may stem) more than jizyah precisely because it is not fixed by treaty, but may be altered by the state at its discretion. Umar was concerned about this and is reported to have repeatedly warned his governors not to set the rates oppressively high. He interrogated the assessors of Sawâd: "Perhaps you assessed the land at a rate which it cannot stand," and they replied, "No, on the contrary, we have assessed it at a rate which it can stand, although if we had assessed a higher rate the land could still stand it" (Ra`ana 1977, p. 93).
When the Umayyads took power the governors repeatedly raised the kharâj until revenues plummeted under the Hajjaj--legendary for his oppressive tax policies. Subsequently the pious Umar II attempted a return to Umar I's tax policies. "The spirit of economic laws is justice (`adl) and generosity (ihsâ)," he declared (uz-Zaman 1981, p. 75). Revenues rebounded. Unfortunately, his successors strayed from his policies. As the Umayyad dynasty came to a close its ruler confessed: "We committed injustice to our subjects and they became disappointed with our justice. They wished to get rid of us. Our tax-payers were overburdened so they deserted us, destroyed our estates, and emptied our treasuries" (Ibid., pp. 75-76). Yazîd III responded to the outcry against public spending by pledging spending and taxing limitations, but it was too late (Ibid., p. 101).
Throughout Islamic history tax policies seesawed as dynasties rose and fell. Studying them, Ibn Khaldun came to his famous conclusion (recently reincarnated as the "Laffer curve") that dynasties obtain large revenues from low tax rates at their beginnings and small revenues from high tax rates at their ends (Ibn Khaldun 1967, v. II, p. 89).
In the twelfth century, the Seldjukids sought to compensate for the loss of revenue from the land-tax by increasing other taxes or imposing new ones. There were a long series of farcical repeals and reimpositions of taxes (uz-Zaman 1981, p. 217). In at least one cases the demand for repeal came from the minbar. As Iraq became increasingly burdened by the taxes--and by government attempts to monopolize important industries, like silk (Ashtor 1976, p. 214)--Iraq lost its capacity for technological innovation. Thus, the chronicles of Ibn al-Djauzi speak "of mills which were turning and grinding grain on the earth without anyone knowing how they were operated," Ibid., p. 219). The infrastructure crumbled throughout the twelfth century and engineers failed in massive projects. A "contemporary Arab chronicler says explicitly that the government services were incapable of repairing the breaches" in dams in Iraq (Ibid., p. 245).
This stagnation took place as European technology was beginning to blossom. "The great industrial enterprises" could no longer "afford experiments which resulted in technological innovations" once the Seldjukids and Ayyubid "princes curtailed freedom of enterprise, established monopolies and imposed heavy taxes on the workshops. This brought about a slow decline of private industry" (Ibid., p. 247).
The Mongols (Ilkhanids) imposed numerous and arbitrary taxes. Ghazan (1295-1304) attempted some reforms like a fixed tax on land, the abolition of "the quartering of soldiers and officials in private houses and he forbade the use of violence in the collection of taxes" (Ibid., p. 250) and also made feudal fiefs hereditary. Any positive effect of these reforms was washed out by the expansion of the feudal system in other respects. Not only prisoners of war, but even clients and retainers were treated as slaves. "According to the law of Ghazan a peasant who had run away from a feudal estate even thirty years earlier was caught and sent back" (Ibid., p. 258). Under these circumstances, Ghazan's policy of offering state lands to those who would cultivate them with grants of tax reductions as incentives, a policy followed by his successors, met with "only partial success" (Ibid.) and after Ghazan a "new downward trend in agricultural production began" (Ibid.).
Mongols increased state lands including confiscation of waqf property. But later, as early as the 1280s, the government initiated land sales. The increasing private estates "took the lead in Irak's agriculture, as to both output and means of cultivation" (Ibid., p. 261). They responded to the drop in grain demand due to depopulation by switching to other crops, notably cotton and fruit trees. After the death of Abu Said (1316-35) civil war ensued. In subsequent dynasties the merciless misgovernment continued.
The Djalairid dynasty was overthrown in 1410 by Kara Yusuf, chieftain of a federation of Turcomen tribes called the Kara Koyunlu. Their dynasty, by contemporary accounts, brought about the most wretched conditions in the history of Iraq (Ibid., p. 268). Uzun Hasan, prince of the Ak Koyunlu conquered Baghdad in 1469, and then most of Persia. Uzun Hasan codified tax practices with the aim of removing their arbitrary nature and also reduced the land tax (Ibid., p. 272). Taxation was still oppressive however. While peasants of Diyar Bakr province were subject to a 20% tax on crops, they were also subject to forced labor and "many other taxes" besides (Ibid., p. 273).
The Turcomans perfected the feudal land system in Iraq. Fiefholders received a perpetual hereditary grant and "administrative and judicial immunity" (Ibid.). Uzun and his successors granted fiefs to the clergy to win their support. When the Ak Koyunlu realized that they were headed down the road of disintegration they tried to take back many of the fiefs and waqf land but were opposed by both the lords and the theologians.
The domestic and foreign trade of Iraq was seriously set back under the Djalairids and the Turcomans and the economy sank into barter (Ibid., p. 274) . Rather than undo the measures driving down so many areas of domestic and foreign trade, the Turcomens increased taxes on trade. The tamgha, for example, which the scholar Nasir ad-Din Tusi advised should be set at 1/240, was levied in Tabriz at 5% in the early 14th century. Uzun Hasan's advisors dissuaded him from abolishing it. Of course, governors and feudal lords were exempt from the taxes (Ibid., p. 275).
Unsurprisingly, the trade route shifted from the Persian Gulf to the Mediterranean (Ibid., p. 277). In addition to the factors discussed above, changing political conditions at the end of the 15th century (deteriorating conditions in Persia, Genoese victories adversely affecting the Venetians, and Mamluk and Mongol conquests all favoring a resurgence of Red Sea trade) forced Venetians to return to trade through Alexandria and Beirut (Ibid., p. 326).
The history of Muslim tax policies demonstrates the validity of Ibn Khaldun's thesis on the rise and fall of dynasties. At the beginning of their power new dynasties are led by men of bedouin inclinations with no taste for luxury. Their spartan existence makes small demands on the body politic and they devote themselves to the proper purpose of government. The success of their rule leads to a thriving urban civilization. The high prosperity for a while permits government diversion of profits into luxuries. By the time the adverse effects (due to hidden costs) of the expansion of government activity into luxury areas is noticeable, it is too late to change for the generation raised in luxury have lost the meritorious attitudes of their ancestors that made effective minimalist government possible. As the dynasty grows old, the beneficiaries of urban civilization and of government largess
have become used to laziness and ease. They are sunk in well-being and luxury. They have entrusted defense of their property and their lives to the governor and ruler who rules them, and to the militia which has the task of guarding them. They find full assurance of safety in the walls that surround them, and the fortifications that protect them. Thy are carefree and trusting, and have ceased to carry weapons. Successive generations have grown up in this way of life. They have become like women and children, who depend upon the master of the house. (Ibid., p. 257)
The dynasty expands its authorities in various ways to try to maintain its luxuriant expenditure policies. In addition to tampering with the currency, there is, of course, taxation. Initially increasing tax rates serves the purpose, but eventually high tax rates have a deleterious effect on productivity. "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of a dynasty, taxation yields a small revenue from large assessments" (Ibid., p. 89).
Among the reasons that no capitalist will be able to accumulate limitless wealth is the envy of the government (Ibid.):
... a sedentary person who has a great deal of capital and has acquired a great number of estates and farms and become one of the wealthiest inhabitants of a particular city, who is looked upon as such and lives in great luxury ... competes in this respect with amirs and rulers. The latter become jealous of him. The aggressiveness that is natural to human beings makes them cast their eyes on his possessions. They envy him and try every possible trick to catch him in the net of a government decision to confiscate his property. Government decisions are as a rule unjust, because pure justice is found only in the legal caliphate that lasted only a short while. Muhammad said: "The caliphate after me will last thirty years; then, it will revert to being tyrannic royal authority."
If Muslim states wish to see prospering economies they should reduce the variety and size of taxes. Ideally they should impose only those taxes authorized by the Qur'an and at those rates practiced by the righteous caliphs: zakât on Muslims), jizyah from non-Muslims which may include kharâj. In addition voluntary sadaqah may be accepted for worthwhile purposes and user fees (including kharâj and ushr) assessed for payment for services desired by the public and provided by the state for reasons of expedience. This interpretation of kharâj is supported by the use of the term in the Qur'an (23:72, for example). Also the state would remain entitled to the khums from the spoils of war. All protective tariffs should be dropped except for reciprocal tariffs, and even they should be subject to discounts of 75% for Muslims and 50% for dhimmis. The degree to which states exceed these taxes is at once the degree to which they transgress beyond the sharî`ah and the measure by which they detract from the welfare of the society as a whole by diverting wealth needed for investment into less productive, or destructive pursuits.
