Islamic Fiscal Policy:

Islamic public finance aims to achieve social justice and economic stability while adhering to the principles of Islamic economics. The fiscal policy in Islamic economics may be 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”. In the secular economy, human welfare means the achievement of worldly good. The objectives of fiscal policy in the Islamic economy would be 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 next world also. Moreover, the Islamic Economy is organized based on the economic values of Islam.

How Islamic Fiscal Policy Outweighs Monetary Policy? The Role of Zakat and Taxes:

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 the demand of money, the monetary policy would not probably be very effective. The chief instrument of Fiscal Policy is Islam Zakat. Next in importance are the taxes.

Main Objectives of Islamic Public Finance

The main objectives of Islamic public finance revolve around three pivotal axes: equity, growth, and stability. The objectives of the Islamic Government will be derived from the character and role of the state established under the Illustrious Caliphs of Islam. These objectives are as follows:

  • Safeguard religion, defense of the Islamic Government and its citizens, 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, and 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.
fiscal policy in islamic economics

Objectives of Fiscal Policy in the Islamic Economy:

Fiscal policy in Islamic economics 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 objectives :

  • 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 this:

  • Resources Allocation.
  • Economic stability.
  • Acceptable growth rate.
  • Just distribution of income and wealth.

Umar Chhappra, concerning the Islamic monetary policy, there are two more objectives to the above list. They are:

  • Full Employment.
  • 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 is a Kind of Fiscal Worship:

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, for 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 Muslims. However, its detailed rulers are given to us in the traditions of Allah’s Apostle (SAW). 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 traditions. The jurists hold that the rates of Zakat given in the traditions are unalterable.

Balancing Economic Growth and Social Welfare in Islamic Public Finance

In conclusion, the intricacies of fiscal policy in Islamic economics underscore the need for comprehensive studies and advanced education in this field. Institutions like AIMS Institute for Islamic Finance Studies offer a fertile ground for learners seeking to delve deeper into the realm of Islamic finance. They provide a range of programs, including:

Through these various educational avenues, one can arm themselves with the knowledge and skills required to successfully navigate and contribute to the Islamic economy.