Fiqh Al Zakah by Dr. Yusuf al Qardawi

Proportional taxes are those whose rates are constant regardless of the quantity of taxable items. If, for example, the tax rate is ten percent, and this rate applies on all income regardless of its size, then the tax is proportional. Progressive taxes are those whose rates increase with an increase in the amount of the taxable item. Progressive taxes are usually applied on the basis of income stratas. For example, the rate may be ten percent for the first one thousand units of income, twelve percent for the second one thousand, and fifteen percent for the third one thousand.1 Progressive taxes are supported by many people nowadays, who argue that this kind of tax is more just because it distributes the burden of government expenditures according to the ability of the taxpayers. The following arguments are usually forwarded in support of progressive taxes:

1. Wealthy persons benefit from the economic law of increasing returns, so that the more they accumulate, the more they can obtain higher returns and more accumulation.

This ability to accumulate and to earn increases more than proportionally, so the tax applied on such persons must also be more than proportional.

2. Progressive taxes are the most accessible means to eliminate great differences in income and wealth in a society. Whenever we are confronted with a situation of badly distributed wealth, progressive taxes rectify the situation and shrink the economic gap between rich and poor.

It is clear that zakah is proportional, i.e., it does not take the principle of increasing the rate with increases in the quantity of the zakatable item. The applicable rate on an item is constant. This applies to all zakatable assets: agricultural products, livestock, trade assets, or cash. Some contemporary researchers think zakah on livestock has a regressive rate, i.e., the rate declines as the amount of livestock increases. They consider such regression as an attempt to encourage cattle raising in the harsh desert environment of the Arabian peninsula.

This interpretation is incorrect, in fact, the rate of zakah on cattle is generally 2.5

percent, with slight differences that relate only to segmental increases in the number of animals subject to zakah. The rate of 2.5 percent (generally speaking) is very obvious in the case of cows and camels, while in the case of sheep there is a misunderstanding that arises from the inclusion of lambs and baby sheep. In estimating the nisab of forty sheep, baby sheep are not counted, and the rate is one sheep for forty sheep (2.5

percent). As the number of sheep increases above forty, baby animals are included in the total count of zakatable heads, but these babies are not acceptable in zakah payment.

The rate is thus reduced to one sheep for each additional hundred sheep to make up for this inclusion of baby sheep.2 There is an opinion reported from Ibrahim and Abu Hanifah that zakah on steeds has a rate of 2.5 percent, based on evaluation of their prices. This supports the general understanding that the rate on livestock is 2.5 percent.

Firstly, zakah as an eternal religious obligation, does not change because of changing circumstances. It is a worship required from every Muslim in all ages and environments, while progressive taxes are imposed to achieve rectify the transitory problem of skewed distribution of wealth and income. They are malleable tools whose rates may be altered in order to achieve their target.

Islam does not prevent the imposition of additional taxes when need arises. These taxes may have progressive rates if this is needed to achieve justice and to close the gap in distribution between rich and poor, provided such taxes are inacted by legitimate authority that represents the people and rules righteously in the light of the holy Book sent by God.

Secondly, zakah itself redistributes income and wealth from the rich to the poor.

Consequently, it fulfills the same objective of progressive taxes by specifically raising the level of living of poor classes and levying the whole burden on the rich while taxes, even progressive ones, are usually rendered, in the form of public services, to all members of the society, including the rich themselves.

Thirdly, Islam resolves the problem of concentration of wealth and income through several means. zakah is but one of them. These means include the inheritance system, confiscation of wealth and income that arises from unlawful sources, prohibition of interest, usury, and monopoly. Thus the objectives of progressive taxes are fulfilled through all these means together.

Fourthly, the principle of progressiveness in taxation itself criticized by many thinkers, economists, and experts of public finance, who point to the Following weaknesses:

1. The determination of income stratas for progressiveness is very arbitrary. It has no agreed upon or rationally accepted formulation. This leads sometimes to arbitrariness in the determination of the tax itself. Equality in sacrifice, which is the dominant foundation for progressiveness, has no steady and stable rules for its application. What rate applies such equality at each additional strata of income? Is it an increment of one percent or two percent? How wide should each range of income be? And should taxpayers be divided into classes according to their incomes? All these pose real obstacles in the practical application of any progressive tax.3

2. Continuous progressiveness is mathematically impossible, since an increase of one percent at each additional one thousand units of income makes the rate percent an income of two million units. This means the tax is at this level more than the taxed item, which is physically impossible to carry out.4

3. Progressiveness in taxes may crush the rich and liquidate all accumulated capital, especially in socialist countries that are dominated by class struggle.5

4. Progressive taxes usually take away the amount assigned for saving and investment and do not reduce the consumption of taxpayers. They usually discourage the wealthy from investment and reduce their motivation to produce more income, and thus have negative effects on production.6