Place for an expenditure tax in the Islamic fiscal system

Abstract EN

An attempt is made to develop a case in favour of introduction of an expenditure tax in Muslim countries.

The income tax is a good source of revenue but its administration is beset with innumerable problems.

Presently more and more doubts are raised over the appropriateness of personal income tax.

The consumption based personal expenditure tax is considered as an efficient substitute to the income tax.

The paper argues that given the requirements of Muslim countries a direct tax on personal consumption expenditure would be more suitable among all other direct taxes.

It would eminently fit into their systems so as to strengthen the working of zakat and other direct taxes.

Its introduction would help in financing a high level of economic development.

Since it is highly anti-inflationary, its introduction would help in controlling inflation and achieving much desired price stability.

More importantly, an expenditure tax by favouring saving vis-à-vis consumption would expand zakat base.

In order to realise these advantages an attempt is made in this paper to develop a workable model of an expenditure tax which would incorporate within itself the shariah based prescriptions.

Profit and loss sharing, categorization of saving schemes and creation of national equity fund are some of its prominent features.