What is Islamic Fiscal Policy?
The fiscal policy in Islamic economics is defined as: “The usage of the revenue collected by the Islamic government and expenses made to monitor and influence the economy of the Islamic state, is Islamic Fiscal Policy”. The objective of conventional economic struggle is to maximize human welfare. In a secular economy, human welfare means the achievement of worldly good. The main objectives of Islamic public finance and Islamic fiscal policy are different from those of the secular economy. In Islamic terms the aim of achieving welfare is not limited to the present world; it extends to the world hereafter as well. Moreover, the Islamic economic system is organized on the basis of the economic values of Islamic Shariah laws.
Role and Importance of Fiscal Policy in Islamic Economics
In an Islamic Government, Islamic Fiscal Policy holds greater importance because owing to the illegality of interest, prohibition of accumulation of property and wealth and the ban of speculative motive for demand of money, the monetary policy would not probably be very effective. Chief instrument of Islamic Fiscal Policy is Zakat. Next in importance are the taxes.
5 Main Objectives of Islamic Public Finance
The objectives of the Islamic Government will be derived from the character and role of the state established under the Illustrious Caliphs of Islam. Here we state the main objectives of Islamic Public Finance:
- Safeguard religion, defense of the Islamic Government and its citizens, and struggle for the dominance of Allah’s Decree.
- Establishment of a state administrative machinery, maintenance of law and order and setting up of courts.
- To provide suitable employment opportunities for the people; to work for public welfare, to take steps for the general prosperity of the citizens of the state. To maintain economic balance and stability and resolve the problem of the distribution of wealth.
- To administer state property in the collective interest of the society.
- Carrying out the task of bidding good and forbidding evil at the individual and collective level.
11 Main Objectives of Islamic Fiscal Policy
Fiscal policy in Islamic economics basically has the same objectives as that of the secular state. They are as follows:
- Eradication of unemployment.
- Equitable distribution of wealth.
- Economic stability.
- Faster economic progress.
Hence the most important objective is,
- Efficient Allocation of Resources.
Equitable distribution of wealth for which the by instrument is Zakat. It has been aptly remarked that “Zakat” in Islam has built-in redistributive mechanism.
Attainment of the goal of full employment without inflation.
Abedeen Salama mentions the following four objectives of Islamic Fiscal Policy:
- Resources Allocation.
- Economic stability.
- Acceptable growth rate.
- Just distribution of income and wealth.
Umar Chhappra, with reference to the Islamic monetary policy,
Adds two more objectives to the above list. They are:
- Fullfilling Employment Requirements.
- Broad-based Economic Well-being.
F.R. Faridi identifies the following four objectives of fiscal policy in Islamic economics:
- Justice and Equity.
- Fulfillment of the social and economic needs of the society: and achievement of social and economic well-being.
- Economic progress.
- Evolution of the social structure.
Zakat as an Instrument of Fiscal Policy in Islamic Economics
Elimination of interest is the cornerstone of the monetary policy of Islam. The most important element of Islamic fiscal policy is Zakat (and Ushr), which as a form of worship is one of the basic articles of faith in Islam. In this perspective Zakat cannot be regarded as a tax, because its economic effects are different from those of the taxes.
Zakat has been made obligatory by Allah Almighty. The Holy Quran contains several verses, which declare Zakat obligatory upon the Muslims. However, its detailed rulers are given to us in the sayings of Allah’s Apostle Prophet Mohammad (PBUH).
Balancing Economic Growth and Social Welfare in Islamic Public Finance
The Holy Quran does not mention the rate of Zakat and the amount on which Zakat is to be levied. These details are to be found in Ahadith. The jurists hold that the rates of Zakat explained by the Prophet Mohammad (PBUH) are also the direct verdicts of Allah, and they are unalterable.
Institutions like AIMS Institute for Islamic Banking and Finance offer an opportunity to learners seeking to learn Islamic finance. The institution provide a range of programs, including:
- A research-based doctorate degree in Islamic economics is designed for those willing to contribute to Islamic finance academics and policy.
- A MBA masters in Islamic banking and finance is suitable for individuals willing to gain an in-depth understanding and apply Islamic teachings in the financial practices.
- For professionals seeking to enhance their expertise without committing to a full degree program, an Islamic finance postgraduate diploma, or an Islamic finance online certification, can be of immense benefit.
- Additionally, online Islamic banking courses can cater to those who wish to master the unique aspects of Islamic banking within the Islamic financial system.