An Open Access Article

Type: Research Article
Volume: 2022
DOI:
Keywords: UN Model for Taxation, OECD Model Taxation Convention, UN SGDs, Islamic Law, Islamic Economics, Islamic Property Law, Religious Taxation, Islamic Taxation, Zakat, Riba, Gharrar, Quranic Law, Quranic Exegesis, Usury, Usury in Quran, Islamic Sociology.
Relevant IGOs:

Article History at IRPJ

Date Received: 2022-02-16
Date Revised:
Date Accepted: 2022-03-01
Date Published: 2022-03-24
Assigned ID:

Islamic Law: Economics, Property & Taxation

SYED Hassan, P. Engg, LLB (Hons), LLM, PhD,
Klemens KATTERBAUER, PhD DBA LLM MBA, SEMA
Yilmaz Genç

Syed Hassan, Faculty Member Pôle Universitaire EUCLIDE,
hassan@euclidfaculty.net

Corresponding Author:

Pr Devender BHALL, HDR (Editor)

Email: bhalla@mail.euclid.int

ABSTRACT

Kerala, the most literate State in India, has advanced in social, technological, health, economic, and educational fields. Schools and colleges in Kerala have taken the global problem of climate change as an urgent matter of importance. Creating Islamic finance and economics saw resurgence within the last four decades. Islamic finance has emerged as a third option to the majority capitalist and minority socialist economic systems. The concept of taxation in Islam is rooted in its social theory. During the Golden Age of Islam, the social theory under the Quranic law developed that required the rulers to strive for a system of taxation that would neither tax the poor nor did it allow for the personal enrichment of the rulers. Islamic taxation system strives to create social mobility vehicles that can protect the most vulnerable in society. Islamic taxation also does not exclude people of other faiths or ethnic minorities from the benevolence of the state subsidies. The medieval Islamic scholars like Al Khaldun wrote extensively about Islamic economics that included legislative guidelines for taxation. The United Nations (UN) provides the contemporary international taxation framework. In 1928, the League of Nations (precursor to the UN) proposed a Model of Bilateral and Multilateral tax treaties. The Organisation for Economic Co-operation and Development (OECD) played a vital role in implementing the 1928 UN International Taxation Model. The OECD Model Taxation Convention is now implemented by over 141 countries around the world.  Base Erosion and Profit Shifting (BEPS) are tax strategies to mitigate paying taxes by multinational corporations by exploiting loopholes in tax laws. BEPS has created socio-economic disparities around the globe. OECD estimates a tax revenue loss of US$ 100-240 billion annually due to BEPS. OECD/G20 Inclusive Framework on BEPS 2021 has been adopted by 131 countries to prevent this loss ensure taxes are collected for the greater good of the society and bridge the socio-economic gaps. Islamic finance is now almost 20% of the global financial markets. This paper examines the concept of Islamic social theory, property, economics, and taxation under the contemporary socioeconomics and taxation challenges.

1.     Introduction

The economic spheres of human life are an important part of the theological teachings in most of the world religions. Islam takes a broad view of human life in general that includes economics under the principle of ‘Falah’. Falah means “to unfold to reveal the intrinsic properties.” Falah also means to cultivate so that “the hidden potential can be revealed.”[1] Islam views the purpose of human creation as to make efforts or falah for salvation and prosperity. Islam does not separate the temporal life from the spiritual life. Thus, salvation and prosperity are intrinsically enjoined. Mankind is to achieve falah through efforts that are entirely based upon their courage and determination. Through causation, the human ‘will‘ is the determinant factor in achieving ‘falah’.

The Quran is the primary source of Islamic law. The Hadith (sayings) of Prophet Muhammad (May peace be upon him “PBUH”) is considered the secondary source of Islamic law with conditions that include the authenticity of the hadith.[2] Islamic law provides guidelines to the Muslims for explaining the prohibitions (“Muharramat”), permissible (“Halal”) and pure (“Tayyabat”).

Islamic law is also referred to as “Sharia law”. The interpretive differences on the legal doctrines established by the Quran and Hadith according to various sects or Madhabs specify the peculiar distinction of how the ‘prohibitions’, ‘permissible’ and ‘pure’ operate within the Islamic law. There are five major Madhabs of Islam. Four are Sunni Madhabs (Hanafi, Shafaai, Maliki, Hambali) and the fifth is Shia Madhab (Jafari). The broad difference in the Sunni and Shia Madhabs is that at the time of the passing of the Prophet of Islam, the majority of companions chose Abu Bakar as the Caliph. A minority of companions differed and argued that Ali Ibn Abi Talib, who was the cousin and son-in-law of the Prophet, was appointed by the Prophet at Ghadir[3], upon returning from the last Hajj. Thus, it led to the various interpretations within the scope of the Islamic law that continues to this day.[4]

While there are differences in the interpretation of legal doctrines within the five Madhabs. There is consensus amongst all five Madhabs on the economic principles of Islamic Law. Islam forbids absolutely ‘Riba’ or ‘Usury’ and ‘Gharar’ or ‘Speculation‘ in all matters of economics. The five Madhabs also agree on the taxation system in Islam with minor differences about how the tax is to be collected and distributed within the Islamic society. This paper examines the economic principles of Islam, property rights and wealth distribution as the reason for Islamic taxation.

2.     Islamic Economic & Law

We live in a world with capitalism leading the pack as the prevailing economic system. Communism and its milder version of socialism are the minority economic system. Islamic economics has seen a resurgence in the past four decades as the alternative to the other two leading systems. Capitalism relies on the doctrine of a free-market economy where the markets set the tone for how wealth is created and distributed. The supply and demand system is one of the key features of capitalist economics with minimum interference from the government in the free-market economy. Socialism or its more severe version of communism advocates for state-controlled wealth, and individual property rights are restricted to a minimum.

Capitalism also advocates private equity and property rights with no limits on acquiring and accumulating wealth. The state is only allowed to extract taxes on the accumulated wealth. Communism came as a reaction to western capitalism and had by and large failed in the world due to its complete disregard for individual property rights. China is the only communist country where private property rights are recognised along with state-controlled productivity.

Islamic economics offered the middle path. Islam recognises the rights of an individual to own property as an extension of human nature. Islam also allows for the creation of wealth but with limitations. Islam strives for the equitable distribution of wealth and does not advocate the accumulation of wealth in the hands of a few, contrary to the capitalist system.

2.1.  Equality & Realism in Islam

Islam recognises that the mankind is “Umat Ul Wahida” or “Single-Body”. The Quran states that,

كَانَ النَّاسِ أُمَّةً وَاحِدَةً فَبَعَثَ اللَّهُ النَّبِيِّينَ مُبَشِّرِينَ وَمُنذِرِينَ وَأَنزَلَ مَعَهُمُ الْكِتَابَ بِالْحَقِّ لِيَحْكُمَ بَيْنَ النَّاسِ فِيمَا اخْتَلَفُوا فِيهِ ۚ وَمَا اخْتَلَفَ فِيهِ إِلَّا الَّذِينَ أُوتُوهُ مِن بَعْدِ مَا جَاءَتْهُمُ الْبَيِّنَاتُ بَغْيًا بَيْنَهُمْ ۖ فَهَدَى اللَّهُ الَّذِينَ آمَنُوا لِمَا اخْتَلَفُوا فِيهِ مِنَ الْحَقِّ بِإِذْنِهِ ۗ وَاللَّهُ يَهْدِي مَن يَشَاءُ إِلَىٰ صِرَاطٍ مُّسْتَقِيمٍ – 2:213

“Mankind was one-body, then Allah sent the prophets as bearers of good tidings and witness to the truth and sent down with them the Scripture in truth to judge between the people concerning that in which they differed. And none differed over the Scripture except those who were given it – after the clear proofs came to them – out of jealous animosity among themselves. And Allah guided those who believed the truth concerning that over which they had differed, by His permission. And Allah guides whom He wills to a straight path.”[5]

2.2.  Respect for Christianity & Judaism in Quran

Islam also recognises that the Christian and Jewish faiths are part of the guided faiths. Islam considers the mercy and forgiveness of God to not only extend to those who follow Islam, rather all mankind that follows the teaching of God are amongst those who will receive the approval of God. The Quran states this clearly,

إِنَّ الَّذِينَ آمَنُوا وَالَّذِينَ هَادُوا وَالنَّصَارَىٰ وَالصَّابِئِينَ مَنْ آمَنَ بِاللَّهِ وَالْيَوْمِ الْآخِرِ وَعَمِلَ صَالِحًا فَلَهُمْ أَجْرُهُمْ عِندَ رَبِّهِمْ وَلَا خَوْفٌ عَلَيْهِمْ وَلَا هُمْ يَحْزَنُونَ – 2:62

Indeed, those who believe [in Islam] and those who are Jews or Christians or Sabeans [before Prophet Muhammad] – those [among them] who believed in Allah and the judgment day and did righteousness deeds- will have their reward with their Lord, and no fear will be concerning them, nor will they grieve.”[6]

It is important to recognise that Islam lays down its economic doctrines based on its understanding of humanity without any discrimination that is man-made. Islam also lays down the principle that everything belongs to God. The Quran states

لِّلَّهِ مَا فِي السَّمَاوَاتِ وَمَا فِي الْأَرْضِ ۗ وَإِن تُبْدُوا مَا فِي أَنفُسِكُمْ أَوْ تُخْفُوهُ يُحَاسِبْكُم بِهِ اللَّهُ ۖ فَيَغْفِرُ لِمَن يَشَاءُ وَيُعَذِّبُ مَن يَشَاءُ ۗ وَاللَّهُ عَلَىٰ كُلِّ شَيْءٍ قَدِيرٌ – 2:284

To Allah belongs whatever is in the heavens and whatever is in the earth.”

Islam relies on the realism of this world. Islam does not speak of abstracts nor does it seek to minimize the realities of human life. The realism of Islam that recognizes human nature serves as the foundational system to lays down its social doctrine on two fundamental principles. The first principle is that the socio-economic system should contain legal guarantees which bind all those who have chosen to fully commit to the requirements of faith in all walks of life. The second principle is that the legal rules must be flexible to accommodate the temporal and spatial variations in human life as well as provide fixed solutions for fixed elements of human life.[7]

3.     Social Justice & its Principles in Islam

Islam relies on social justice as its core economic principle. Social justice cannot be achieved if society lacks certain characteristics. Islam lays down the three characteristics as the foundation of a just society. [8]

3.1.  First Principle of Social Justice

The private property acts to fulfil an individual’s natural demands as a consequence of his just efforts to obtain benefits from his property. The public property aims to guarantee subsistence for those who cannot provide for themselves such as orphans, widows, old people handicapped etc. Public property should also ensure that the basic needs of the entire population do not fall short in times of emergency.

3.2.  Second Principle of Social Justice

Society must promote faith in an individual’s economic freedom as a general, continuous, comprehensive principle. Freedom comes with some limits. The limits are that an individual may not enjoy the benefits of the property if the object of the property is outlawed for example cultivation of narcotics on private land. The rights to enjoy the individual property are also limited if the property inflicts injustice on other rights that are naturally guaranteed as human rights such as access to waterways passing through individual property etc.

3.3.  Third Principle of Social Justice

Society must promote faith in the principle of mutual responsibility. Islam guarantees, for every individual in the Islamic society a basic level of subsistence concerning access to the provision of human natural needs such as food, shelter etc. to maintain human dignity. The government is obliged to provide the minimum human provisions such as food, shelter, clothing, health care for all. It is prohibited that any member of the society regardless of their faith or any other factors be denied such provisions.[9]

These are the general economic principles of Islam that flow directly from the Quran and are undisputed amongst all the Islamic Madhabs. Islam strives to promote the belief in the system of social equality to balance the distribution of wealth by removing the class system in the Islamic society. Islam prohibits “Tabdhir” or waste and “Israf” or squandering in all walks of life.[10]

The prohibition on usury and speculative practices in economics under Islamic law grounds its rationale in stemming exploitation and spread of inequality in human society. The ills of usury and speculative financial practices are well documented in the contemporary economic literature were the phenomenon of global financial crisis due to stock markets (speculative trading) and extractive /excessive rent-seeking lead to social injustices at massive scales.[11]

Islam highlighted the usury as a social ill by declaring it as a social injustice from the past by stating that

وَأَخْذِهِمُ الرِّبَا وَقَدْ نُهُوا عَنْهُ وَأَكْلِهِمْ أَمْوَالَ النَّاسِ بِالْبَاطِلِ ۚ وَأَعْتَدْنَا لِلْكَافِرِينَ مِنْهُمْ عَذَابًا أَلِيمًا – 4:161

“and their taking of usury while they had been forbidden from it, and their consuming of the people’s wealth unjustly. Surely we have prepared for the disbelievers among them a painful punishment.”[12]

Gambling or speculation is specifically addressed in Islam. All forms of speculation or gambling are forbidden as a consequence of their social ills. The economic sphere of individuals and States in the contemporary age reflects the detrimental impact of speculation or gambling in human society. The continued economic marginalisation of communities that are not able to participate in the wider economic prosperity creates ill feelings between the rich and the poor. Islam, therefore, advocates abstaining from such activities.[13]

إِنَّمَا يُرِيدُ الشَّيْطَانُ أَن يُوقِعَ بَيْنَكُمُ الْعَدَاوَةَ وَالْبَغْضَاءَ فِي الْخَمْرِ وَالْمَيْسِرِ وَيَصُدَّكُمْ عَن ذِكْرِ اللَّهِ وَعَنِ الصَّلَاةِ ۖ فَهَلْ أَنتُم مُّنتَهُونَ – 5:91

“Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and prayer. So, will you not desist?”[14]

4.     Property & Wealth under Islamic Law

Islam has paid a great deal of attention to the intrinsic human nature to worry about his human needs of food, shelter, clothing protection etc. Islam does not regard the removal of human needs as a natural way to live. Islam promotes human communities, marriage and making efforts to live in comfort and harmony with other humans and the natural environment. The economic question of human society is also linked with fundamental human freedoms. Islam considers the natural right of human freedom to be very serious.

4.1.  Economic Freedom as Human Right

Economic subjugation is one of the ills recognised by Islam as the leading cause of social injustices. It is for this reason Islam continuously advocates for caring for the poor and needy as a way to purge the soul of egotistical ambitions. For human freedom, the Quran states,

إِنَّ اللَّهَ يَأْمُرُ بِالْعَدْلِ وَالْإِحْسَانِ وَإِيتَاءِ ذِي الْقُرْبَىٰ وَيَنْهَىٰ عَنِ الْفَحْشَاءِ وَالْمُنكَرِ وَالْبَغْيِ ۚ يَعِظُكُمْ لَعَلَّكُمْ تَذَكَّرُونَ – 16:90

“Indeed, Allah orders justice and good conduct and giving to relatives and forbids immorality and bad conduct and oppression. He admonishes you that perhaps you will be reminded.”[15]

In the above verse, the Quran considers justice as an intrinsic part of social conduct that results in helping others and forbids oppression due to economic reasons.

4.2.  Earth as a Creations Common

Islam also makes it clear that the bounties of the earth are not for the exclusive use of humans or some amongst the human race only. Islam recognises that the bounties of the earth are for all living beings and not for humans to extract and exploit as their exclusive domain under the capitalist extractivist ideologies advocated by Adam Smith and Francis Bacon. The Quran states

وَالْأَرْضَ وَضَعَهَا لِلْأَنَامِ – 55:10 فِيهَا فَاكِهَةٌ وَالنَّخْلُ ذَاتُ الْأَكْمَامِ – 55:11 وَالْحَبُّ ذُو الْعَصْفِ وَالرَّيْحَانُ – 55:12

“And the earth He laid out for [all] the creatures. Therein is fruit and palm trees having sheaths of dates. And grain having husks and scented plants”

Islam has placed the burden of stewardship on humans to safeguard the resources of the planet earth for all beings. Islam does not allow the accumulation of wealth or prosperity for a select few and suffering to others. Islam asks mankind to indulge in behaviour that usurps the rights of the weak in the favour of the strong. The Quran states,

وَلَا تَأْكُلُوا أَمْوَالَكُم بَيْنَكُم بِالْبَاطِلِ وَتُدْلُوا بِهَا إِلَى الْحُكَّامِ لِتَأْكُلُوا فَرِيقًا مِّنْ أَمْوَالِ النَّاسِ بِالْإِثْمِ وَأَنتُمْ تَعْلَمُونَ – 2:188

“And do not consume one another’s wealth unjustly or send it to the rulers so that they might aid you to consume a portion of the wealth of the people in sin, while you know it is unlawful.”

Islam does not approve of one class benefitting from the labour of another class and accumulating wealth. The Quran states

لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاءِ مِنكُمْ ۚ – 59:7 “So that wealth may not become exclusive for the rich among you”.

4.3.  Property Rights in Islam

Islam recognises three types of ownership. (1) Absolute Ownership: Absolute ownership entitles the owner to do whatever He likes with his property without any restriction or restraint. From the Islamic point of view, this kind of ownership belongs to God only. The Quran states in 53:31 (Al Najam) “Whatever is in the heavens and the earth belongs to Allah “. (2) Public Ownership: According to Islamic law, all-natural resources on the land, in the sea and the space are the universal commons. They cannot be placed as the personal property of anyone. Public ownership extends the benefits collectively to mankind and other species according to their natural needs. (3) Private ownership: the basis of personal property in Islam is the respect of the rights of the individual and his aspiration for free enterprise. Islam gives incentive to everyone to work and exert to the best of their ability, and to hope for the fair return of their labour.[16]

4.4.  Concept of Wealth in Islam

Islam is not against wealth. Provide the wealth is used for the personal wellbeing and the wellbeing of the society at large including the kin and the close community. Unlike the western concept of the notion of unlimited wealth, Islam does not state that wealth is unlimited. Islam, however, provides for the best utilization of the available wealth.[17]

Islam approaches wealth from various dimensions. There are over 70 verses in the Quran on the topic of wealth that guide Islamic law. The Quran considers wealth as a source of sustenance to be used wisely. In Sura Al Nisa (Chapter 5), the Quran states“Do not give away to the imprudent your property which Allah has made for you a means of your sustenance.” In other verses such as the verse 180 of Al‑Baqarah (Chapter 2), verse 32 of Al Saad (Chapter 38) and verse 8 Al Adiyaat  (Chapter 100), the wealth is described as a source of “Khair” or what is to be used for the benefit and good for those deserving of human compassion.

Islam does not admonish those with wealth for the reason of having wealth, rather Islam advises against the love of wealth, reliance on wealth and on the accumulation of wealth by infringing on the rights of others. Islam admonishes those who neglect their duty to the needy and poor and use their wealth for opulence and display of power. The Quran has stated this rule multiple times. In Al-Fajr (Chapter 89) verses 17-20 the Quran states “Nay, but you show no kindness to the orphan, nor do you urge the feeding of the needy. On the other hand, you devour the inheritance of the orphans along with your share and love wealth ardently.

5.     Taxation under Islamic Law

Islam does not oppose taxes. Rather, Islam has made individual income tax to be obligatory under the instruments of Zakah and Khums. The collective tax or State-imposed taxes are not specifically defined within the corpus of Islamic law. Islam specifies the obligation of tax on those with wealth within the scope of communal welfare. The Islamic criteria for such communal contributions are broadly captured within the concept of Zakat. Zakat is based on the individual’s income and its residue at the end of each year. While the doctrine of Zakah is based on verses of the Quran, its percentage is not settled law. Khums, on the other hand, has a clear percentage defined in the Quran.[18]

The Quran states about Khums (literally the 1/5th),

وَاعْلَمُوا أَنَّمَا غَنِمْتُم مِّن شَيْءٍ فَأَنَّ لِلَّهِ خُمُسَهُ وَلِلرَّسُولِ وَلِذِي الْقُرْبَىٰ وَالْيَتَامَىٰ وَالْمَسَاكِينِ وَابْنِ السَّبِيلِ – 8:41

“Know that whatever of a thing you acquire, a fifth of it is for Allah, for the Messenger, for the near relative, and the orphans, the needy, and the wayfarer.”

The Islamic jurists differ in the interpretation of the word “Ghanimtum” or “Proceeds” at the beginning of the above verse. Shia jurists have interpreted the word more broadly to mean “Acquired” which is closer to the Arabic root word “Ghina ” or wealth acquired”.[19] According to Islamic jurists, the items which are eligible for Khums (1/5th) are seven. (1) the profit or the surplus of the income at the end of the year after expenses (2) the legitimate wealth which is mixed with some illegitimate wealth (for example unnoticed interest from a bank etc.) (3) natural resources from mineral exploration on land (4) the precious stones/ metals/ mineral obtained from sea (5) treasures discovered from any land (6) the land which is given by Islamic state to non-Muslims for cultivation (7)  the spoils of war.[20]

The voluntary charity or Zakah is a form of tax that Muslims are required to pay on their disposable income for the betterment of mankind. Zakah has been mentioned in the Quran along with Salah or the obligatory prayers.

5.1.  State Revenue from Tax

Islam allows the state to collect taxes for the welfare of the wider community. The tax collection can only be from the sources that are part of the Commons trade/production (such as factories) leased to the public as profit-sharing enterprises or from Commons that are public lands and have been allocated to the private citizens to cultivate and who do not share the profits with the government. In both cases, the government is not part of the profit-sharing from the running of the production or the land bounties.[21] The Islamic government can collect Zakat/Khums as a tax to pay the following:

  • Salaries of the public servants
  • Upkeep of the defence of the state
  • Pay for the orphans, widows, handicapped
  • Pay for any services that are for the entire population

6.     Islamic Finance & Contemporary Tax Challenges

The contemporary system of taxation, regardless of the jurisdiction, carries the element of collecting taxes to fulfil some of the social obligations of the state as enumerated in paragraph 5 ante. The collection of state tax, both personal as well as corporate, has become a complex matter with the increase in the complexity of human socio-economic activities of the modern age. The pervasive and ubiquitous use of web technologies has created a new layer of complexity for the State to document the economic activities related to taxation. Islamic finance is thus not immune from these challenges and requires contemporary Islamic finance law experts to comprehend and propose solutions within the scope of Islamic law. The organisation of the Islamic Conference (OIC) and its financial arm, the Islamic Development Bank (IsDB) work closely with the UN and other intergovernmental bodies such as the OECD to harmonise the working between Islamic finance and conventional finance within the scope of international taxation. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is a Bahrain based non-profit organization that sets the standards for Islamic finance in over 45 countries. AAOIFI also works closely with the UN and the OECD to harmonize the tax reporting standards for Islamic Finance Institutions (IFI’s) that conform to the global taxation standards.

7.     Base Erosion Profit Shifting- Islamic Perspective

International corporate taxation has gained significant prominence given the increased awareness of the low amount of taxes that large multinational enterprises pay. This low tax base does not result from the lack of their business success, but rather via advanced financial and taxation techniques that exploit the loopholes in the taxation laws to avoid taxation. This practice of tax avoidance is usually seen in moving profits to jurisdictions where corporations and individuals enjoy minimum taxation.

While this practice is not new, the latest advancements in digital business modelling allow businesses to choose jurisdictions for profit shifting without having to set the business operations in the same jurisdiction. The advancement of such practices has exacerbated the situation for tax collection challenges by the governments.

7.1.  G20- OECD Project for BEPS

The G20-OECD project on base erosion and profit shifting (BEPS) since its inception in 2016, has gained the support of 141 countries around the world to address this challenge. BEPS envisaged action items that are inter-governmental initiatives to strengthen measures that limit tax avoidance opportunities for multinational corporations. The BEPS initiative ensures that these corporations pay their due taxes and support the social programs for the larger benefit of society. In October 2021, OECD issues the ‘Two-Pillar’ global BEPS model that simplifies and strengthens the action plan for inter-governmental cooperation.

It must also be noted that BEPS inter-governmental initiative also supports and ties in with the UN’s Sustainable Development Goals (SDG) 2030. At France in G7 Summit-2019, the Development Ministers of G7 recommended that OECD and UN align international finance goals with the UN SGDs 2030. The statement read:

“Recalling that global private savings amount to trillions of US dollars per year, we stress the need to catalyse private sector support for the Sustainable Development Goals (SDGs) and to increase transparency on financial flows. In that respect, we commend international initiatives conducted by relevant organizations including the Organisation for Economic Co-operation and Development (OECD) and the United Nations Development Programme (UNDP) aimed at promoting SDG-compatible finance. We take note of their efforts to take stock of existing initiatives in view of defining a robust common framework for SDG-compatible finance with all relevant stakeholders, and of their intention to present their findings from 2020 on in Paris.”[22]

7.2.  BEPS & Islamic Perspective

The social agendas of global inter-governmental taxation goals under UN SDGs and OECD actions plan BEPS are not aligned but also reflect the core contemporary Islamic Finance and Economics objectives of corporate and individual success based on moral ethics and social justice. Challenges arise from competition between countries to attract large corporate investments in the shape of foreign direct investments (FDIs) to promote their national economies. This creates an opportunity for large corporations with the ability to offer FDI, exploit the taxation systems and shop for jurisdictions that suit their low-taxation objectives. Islamic Finance and Economics is based on fair competition and utilizing just means to generate profits. The Quran provides clear legal guidelines for this purpose:

“God loves those who are fair and just.” (49.9)

“Eat not up each other’s property by unfair and dishonest means.” (4.29)

“O you who believe! Be upright for the sake of Allah, in testifying for fairness and do not let the hatred of a people urge you to be unjust, be just (since) this closer to piety. Fear (from displeasing) Allah, verily Allah is aware of what you do.” (5:8)

7.3.  Islamic Development Bank Initiatives

Islamic Development Bank (IsDB), headquartered in Saudi Arabia, was established by the OIC in 1975 and has a membership of 57 countries. In 2018, UN Development Program (UNDP) and IsDB announced a joint strategy to integrate Islamic Finance into the UN SDGs 2030 action plan.[23] The joint initiative between the UNDP and IsDB also calls for harmonization of taxation to promote the growth of Islamic finance in line with the OECD’s BEPS. The majority of members of OIC are signatories to the 131 countries BEPS action plan 2021. There is an urgent need for AAOIFI, OIC and IsDB to formulate a cohesive taxation framework for Islamic finance throughout the Islamic world and in countries that offer Islamic finance windows with conventional finance.

8.     Conclusion

Imam Ali Ibn Abi Talib wrote to his governors in Egypt Malik bin al Harith al Ashtar about the management of the government revenue and collection of taxation. He wrote,

“Great care is to be exercised in revenue administration, to ensure the prosperity of those who pay the revenue to the State, for on their prosperity depends the prosperity of others, particularly the prosperity of the masses. Indeed, the State exists on its revenue. You should regard the proper upkeep of the land in cultivation as of greater importance than the collection of revenue, for revenue cannot be derived except by making the land productive. He who demands revenue without helping the cultivator to improve his land inflicts unmerited hardship on the cultivator and ruins the State. The rule of such a person does not last long.”[24]

Islamic law has continued its evolution process for the last fourteen centuries. Islamic finance offers an alternative to western capitalism, with a system that is based on social justice and moral ethics.

Contemporary Islamic societies face many challenges. OIC provides a cohesive platform for the governments within the Islamic world to work with UN SDGs and OECD to tackle their socio-economic challenges as part of the global village. Islam provides an economic ideology that does not separate the economic realm of human life from the spiritual realm. Rather it connects the two by encouraging Muslims to seek God’s favour through social justice and fairness in all their worldly endeavours.

Excessive base erosion and profit shifting is to the detriment of Islamic finance and economic development. It is also detrimental to OIC’s efforts for the establishment of a common market within the Islamic world, based on Islamic finance.

OIC can play a huge role in coming up with a model taxation framework for Islamic Finance, that can support Islamic finance institutions vis-à-vis the UN Model for Taxation and OECD Taxation Convention etc.

To achieve this, the OIC will have to address some key policy areas. The first key area is to standardize various forms of Islamic financing in terms of their Sharia compliance to avoid diversion between various types. Secondly, a model framework is urgently required for the taxation of digital services and products that use Islamic finance.

The need for a cohesive and comprehensive review of Islamic law for property and taxation can lead to a model framework under the auspices of the OIC. Islamic jurists will continue to face the present legal challenges in the absence of such a framework.

Conflict of Interest

The authors have no conflicts of interest to declare. There are two co-authors, and there is no financial interest to report. We certify that the submission is original work and is not under review at any other publication.

References

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[1] Syed Muhammad Beheshti, “Purpose of Man,” Al-Islam.Org, last modified 2013, accessed March 29, 2020, https://www.al-islam.org/philosophy-islam-sayyid-muhammad-husayni-beheshti-muhammad-jawad-bahonar/man.

[2] Farooq A. Hassan, “The Sources of Islamic Law,” in Proceedings of the ASIL Annual Meeting, vol. 76 (Cambridge University Press, 1984), 65–75.

[3] Asgari Zahra Haji et al., “The Methods of Critics and Analyzing Alameh Amini’s Responses to the Shobahats of Ghadir Khumm in Al-Ghadir,” QURANIC & HADITH STUDIES Volume-13, no. Number 1(24) (2020): 221–225.

[4] John Makdisi, “Islamic Law Bibliography,” Law. Libr. J. 78 (1986): 103.

[5] Al Baqarah 2:213, “Surah Al-Baqarah [Chapter 2 of the Quran],” Surah Al-Baqarah [2], 2019, https://quran.com.

[6] Ibid.

[7] Ahmad Hasan, “Social Justice in Islam,” Islamic Studies 10, no. 3 (1971): 209–219.

[8] Muhammad Baqir Al-Sadr, “Iqtisaduna (Our Economics),” Beirut: Dir al-Ta’aruf (1982).

[9] M. Kabir Hassan and Rasem N. Kayed, “The Global Financial Crisis, Risk Management and Social Justice in Islamic Finance,” Risk Management and Social Justice in Islamic Finance (2009).

[10] Adi Setia, “The Restoration of Wealth: Introducing Ibn Abi Al-Dunya’s Islah Al-Mal,” Islamic Sciences 13, no. 2 (2015): 77.

[11] Zamir Iqbal and Abbas Mirakhor, An Introduction to Islamic Finance: Theory and Practice, vol. 687 (John Wiley & Sons, 2011).

[12] Al Nisa 4:161, “Surah An-Nisa [4:161] Al Quran,” Surah An-Nisa [4:161-171], last modified 2019, accessed March 29, 2020, https://quran.com.

[13] Md Akther Uddin, “Principles of Islamic Finance: Prohibition of Riba, Gharar and Maysir” (2015).

[14] Al Maidah 5:91, “Surah Al-Ma’idah [5:91] Chapter 5 Al Quran,” Surah Al-Ma’idah [5:91-101], last modified 2019, accessed March 29, 2020, https://quran.com.

[15] An Nahl 16:90, “Surah An-Nahl [16:90-100] Chapter 16 Al Quran,” Surah An-Nahl [16:90-100], last modified 2019, accessed March 29, 2020, https://quran.com.

[16] Sohrab Behdad, “Property Rights in Contemporary Islamic Economic Thought: A Critical Perspective,” Review of Social Economy 47, no. 2 (1989): 185–211.

[17] Omar Javaid and Abdul Wahab Suri, “Global Financial Capital vs. Islamic Concept of Wealth: The Question of Ideological Dominance,” Journal of Islamic Business and Management 219, no. 3327 (2015): 1–18.

[18] Akbar Ghafoori and Fatemeh Parvinpour, “The Family’s Economy According to Imam Ali’s Attitude (PBUH),” International Journal of Humanities and Cultural Studies (IJHCS)​ ISSN 2356-5926 (2016): 343–353.

[19] Reza Payandeh and Mohammad Taha Kharratha, “Analyzing the Juridical Reasons of Corporate Social Responsibility in Private Sector with an Emphasis on the Necessity of Paying Khums,” Marketing and Branding Research 3 (2016): 119–129.

[20] Sayyid Muhammad Rizvi, Khums, an Islamic Tax (Lulu Press, Inc, 2014).

[21] Hosein Ali Amini and Masoud Raei, “The Government’s Right to Tax from the Viewpoint of Shia Jurisprudence” (2016).

[22] “Framework-for-SDG-Aligned-Finance-OECD-UNDP.Pdf,” n.d., accessed January 19, 2022, https://www.oecd.org/development/financing-sustainable-development/Framework-for-SDG-Aligned-Finance-OECD-UNDP.pdf.

[23] “Achieving the SDGS: Potential of Islamic Finance through Innovative Investors and Instruments | United Nations Development Programme,” UNDP, accessed January 19, 2022, https://www.undp.org/speeches/achieving-sdgs-potential-islamic-finance-through-innovative-investors-and-instruments.

[24] إدريس جاهل إدريس, “تعاقب دلالات الإعراب في نصوصٍ مختارة من كلام الإمام علي (عليه السلامno. 1 (2019): 229–36.

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