1. CHAPTER # 7 FISCAL POLICY OF ISLAMIC STATE
Prepared By
Kokab Manzoor

2. Chapter`s Outlines Meaning of Fiscal Policy
Fiscal Policy of Islamic State
Zakat as an Instruments of Fiscal Policy
Impact of Zakat on Economy
Bait-Ul-Mal, its definition and sources
Theory of taxation and principle of taxation
Nature of Public Expenditures in Islamic State

3. Meaning of Fiscal Policy
All actions and administrative measures of the government which are related to revenue and expenditure are called Fiscal policy.

4. Instruments of Fiscal Policy
Government expenditure
Direct & Indirect Taxes
Deficit Financing
Subsidies
Transfer Payments

5. Islamic State & its Fiscal Policy
Objectives of the fiscal policy of the Islamic state
Eradication of Unemployment
Equitable Distribution of Wealth
Economic Stability
Faster Economic Progress
Full Employment
Efficient Allocation of Resources

6. Zakat as an instrument of Fiscal Policy
The most important element of Islamic fiscal policy is Zakat.
Zakat must be expended in the same area from which is collected. If however the surplus remains after supplying the wants of the deserving people of the area, it can be transferred for expenditure in other area

7. Role of Zakat as an instrument of Fiscal Policy
Equitable distribution of wealth
Achieving full employment without inflation
Effects of Zakat on the allocation of resources
Zakat and Economic Stability

8. Impacts of Zakat on Economy
Impact of Zakat on Consumption
Impact of Zakat on Investment
Impact of Zakat on Saving
Impact of Zakat on Economic Development

9. The institution of Bait-UL-Mal
Definition
Literally “bait ul Mal” means “ the house of wealth”
In technical terms, “ it is the establishment of public exchequer is necessary to enforce the economic system of Islam”
The rules of receipts and disbursement of bait-ul-Mal have been formulated in Islamic system of government

10. Sources of Revenue of BaitulMal
1 Zakat 2 Ushar
3 Jazia Kharaj
5 Sadaqat 6 Faie
7 Khumas 8 Dariab
9 Rent (KAR-AL-ARD)
10 Ashoor (Import Duty)
11 Waqf (Trust) 12 Other Source

11. Is taxation allowed..?? Yes , BUT
All taxes other than Zakat are imposed as an exception NOT rule
Islamic state is authorized to impose taxes in addition to Zakat as a supplementary or complementary policy because,
Achievement of Sustenance Welfare is a duty of Islamic state and Greater Welfare is desired.

12. Theory of Taxation
In the traditions the word “Makas” has been used to denote “Tax”.
The tax collector was called “Al-Makas”
First time, in the reign of Hazrat Umar (R.A) the duty was imposed on Muslims and merchants of Non Muslim countries.
If anyone had paid Zakat he could seek exemption by submitting an affidavit.

13. Principles of Tax Policy in Islam
To be imposed under dire necessity
Should coincide with the period of need
Fulfill the objectives of the Islamic Government
Ability to pay
The Principle of Equity
The Principle of certainty
The Principle of convenience
The Principle of Economy

14. Nature of Public Expenditure in Islamic State
There are two kinds of public expenditure in Islamic Economy
Permanent Heads of Expenditure
Expenditure necessary under present circumstance

15. 1 Permanent Heads of Expenditure
Defense
Law and order
Justice
Provision of basic necessities
Propagation of Islam
Promotion of Good and prevention of evil
Civil administration
For social services

16. 2 Expenditure Necessary Under Present Circumstance
Environmental safeguard
Necessary goods
Scientific research
Capital formation and economic progress
Subsidies for important private activities
Cost of achieving economic stability
Expenditures required to organize additional activities assigned to state by the people.

17. Principles of Public Expenditure
Achievement of objectives of Fiscal Policy
The Principle of public welfare
The Principle of Justice
The Principle of simplicity
To safeguard the rights of future generation
The Principle of inter regional development
The principle of avoiding delay
The principle of fulfilling the needs of the people

18. thx