Formulating Tax System: Is It in line with Islamic Perspective?
By Fergy Fharadiva Andreas, Employee of the Directorate General of Taxes
Taxes still persist a bad reputation in our society. Especially among our Moslem community, Moslem scholars have continuously debated about its merit in the perspective of Islam. Hadith of the Prophet Muhammad about the collection of Al Maks which reads, "إِنَّ صَاحِبَ الْمَكسِ فِيْ النَّارِ, and translated to, "Verily, the Al Maks (tax collector) goes to hell "[HR Ahmad 4/109].
On the law stand-point, the implementation of zakat, which is obligatory payment made annually under Islamic law on certain kinds of property and used for charitable and religious purposes, does not only refer to Koran and Tradition (Sunnah), but also Law No. 38 Year 1999, Ministerial decree of Minister of Religion No. 373 Year 2003, and Indonesian Ulema Council (MUI) Fatwa 03 Year 2003. There’s no religion-based law for taxes but MUI doesn’t issue Haram fatwa either. Instead, we have Law Number 28 Year 2007 which legally allow government to collect taxes.
But because Zakat and Taxes are both intended to take some from the wealthy for the needy, government issued PP No. 60 Year 2010 and PER-15/PJ/2012 so that we are not given double burden. In that, we’re allowed to deduct the amount we paid for zakat from our tax obligation. So, as government received their legitimacy over power and authority from us, their constituent, incorporating our values onto tax system is obvious move.
But, is that enough to give government legitimacy to levy? Is it even Islamic to levy? How are we formulating tax system that is in line with Islamic perspective? So, alongside the importance of taxes for our survival, we need to dive deeper onto our belief so that government can formulate tax policy that is in line with it.
Is it Islamic to levy?
Islam اَلْإِسْلَامُ in an Arabic word means "submission". It teaches us in order to find peace, we need to devote ourselves solely to the "submission to the will of God" as "Islam" is derived from the Arabic word "sal’m" which literally means peace. So, asking is it Islamic to levy almost equals to is levying a form of our submission to the will of God and will it be peaceful if levying is presented?
وَمَا خَلَقْتُ الْجِنَّ وَالْإِنْسَ إِلَّا لِيَعْبُدُونِ "and I did not create jinn and humans but to worship Me (only)" (Surah Adz-Dzaariyaat: 56). So, to fulfill the will of God is simply to worship God. But, Moslem scholar and Ulema Muhammad Quraish Shihab further explained that most people misunderstand the true meaning of worship to only do salat (obligatory prayer), fasting, and pilgrimage while in fact worship is good deed. So, every deed you did, if its intention is for the good, that means worship too.
It then certainly raises question is levying a good deed? Is it creating peace as what we want in the first place? Answering these questions really boils down to interpreting the definition of what the Koran has forbidden and what government means by taxation.
عَنْ أَبِيْ الْخَيْرِ رَضِيَ اللَّهُ عَنْهُ قَالَ عَرَضَ مَسْلَمَةُ بْنُ مَخْلَّدٍ وَكَانَ أَمِيرًا عَلَى مِصْرَ رُوَ ُيْفِع بْنِ ثَابِتٍ رَضِيَ اللَّهُ أَنْ يُوَلِّيَهُ الْعُشُوْرَ فَقَالَ إِنِّيْ سَمِعْتُ رَسُوْلَ اللَّهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ يَقُوْلُ إِنَّ صَاحِبَ الْمَكْسِ فِيْ النَّارِ
"From Abu Khair radhiyallahu 'anhu said:' Maslamah bin Makhlad (governor in the country of Egypt at the time) offered the task of collecting al-usyur to Ruwafi bin Thabit radhiyallahu 'anhu, so he said:' I heard the Messenger of Allah SAW said that the collection of al -maksi (punished) in hell "(HR Ahmad 4/143, Abu Dawud 2930). This is the postulation(Dalil) commonly used against taxation. But turns out, the use of the word Al Maks which reads, "إِنَّ صَاحِبَ”, means different to what government means when they tax us.
According to Law Number 28 Year 2007 first article stated that Taxes are a mandatory contribution to the state by individuals or entities that are legally binding by law, with no direct compensation and used for the country's needs for the greatest prosperity of the people. Meanwhile, Imam al-Nawâwi as quoted in the book Futûhâtu al-Rabbâniyah explained the meaning of Al Maks is المكس الضريبة التي يأخذها الماكس Meaning: "Al-Maksu is a tax administered by illegal collectors."
Obviously, illegal collection of tax is prohibited as well in government perspective since it is not used for the greatest prosperity of our people. This view is in line with the Book of Al-Kharâj by Abû Yûsuf al-Kûfi that the existance of Al-Kharâj (Taxation) is needed for advancing civilization. Allah SWT also commands to spend some part of your wealth when harvesting, in the Qur'an, QS. : 141) ... وءاتوا حقَه يومٌ حصاده, meaning "Exercise their rights on the day to reap the results. (Ibn Hazm in his book Al-Muhalla, Book of Zakat, p. 241)
So of course, it is permissible to tax for a good purpose and it is clear that what is forbidden in Islam is Al Mak, an Illegal tax collection. In this modern day, Tax has become one of the tools government has in order to intervene and address most crucial issues from economic disparity, education, climate change to social issues like suppressing our desire for alcoholism or even child abuse. After all, taxes are the main source we paid to government in exchange for protection of our family and our future. Without it, not only that peace will just be a dream, chaos is eventually inevitable.
How are we formulating tax system that is in line with Islamic perspective?
Managing country centuries ago will definitely be different with today’s strategy addressing its complexity. Back in Prophet Muhammad SAW's years, State revenue (Mawarid Ad-Daulah) were classified into three major groups, namely:  Ghanimah,  Fa'i, and  Sadaqah or Zakat. Fa'i is divided into three types as well  Kharaj;  ‘Usyr and;  Jizyah (see Abu Ubaid in Al Amwal, Abu Yusuf in Al Kharaj, Ibnu Taimiyah in the Book of Majmu'atul Fatawa and Imam Al Mawardi in Al Ahkam Al Shulthaniyah).
As you might guessed, we are no longer in war with other countries. We have learnt better way to prosper without using violence one and another. Therefore, Ghanimah, War Booty obtained from the infidels and Fa'i, the spoils obtained by Muslims from the enemy without waging war, are both non-existent nowadays. We have zakat but it’s not sufficient and has very limited specific purposes.
In the reign of Caliph Harun ar-Rashid, He turn book of Al-Kharaj from Abu Yusuf (113-182 H / 731-798 AD), a very influential cleric during the heyday of the Abbasid Daula, as a guideline for making related policies and tax (kharaj). In general, Al-Kharaj contains various religious provisions that addresses the problem of taxation, income management and public spending. Here in this book, we can learn about the three classified state revenue we’ve discussed earlier, ghanimah, fai (kharaj, ushr, jizyah) and sadaqah. Today, state revenue comprises revenue from Taxes, non-Taxes, and Grants. We have various taxes and its derivative rules created in order to stimulate more growth. Are all of these taxes in line with Islamic perspective?
In the context of Islamic jurisprudence (fikih), tax is permitted as long as it is used for greater good. That is, the state may levy Muslims as long as sharia principles are applied, namely amanah (honesty), 'is (justice), musawah (equality), tasamuh (tolerance), ta'awun (helping each other), takaful ijtima (collective responsibility), and 'adamul masyaqqah (not burdensome).
On the other hand, in economic theory we understand that tax should not distort economic activity or at least as less as possible. Because tax will deduct our disposable income and therefore reduce our ability to increase welfare for ourselves. According to International Monetary Fund (IMF), Criteria of a Good tax comprises six aspects; efficiency, fairness, simplicity, flexibility, transparency, and effectiveness.
At glance, Sharia Principle and IMF criteria of a good tax seems very different. But in fact, both are just the same, that is a tax system where it is run by a legitimate actor; the implementation is fair and just; tolerating flexibility; and not burdening too much through its simplicity. As society grows, we acknowledge the importance of transparency so that the taxes we paid are spent in amanah (honesty).
One of the methods used to evaluate country’s performance on tax is by analyzing their Tax-to-GDP ratio, the percentage of tax revenue to gross domestic product (GDP). Unfortunately, statistic shows that our tax ratio is still staggeringly low in comparison to OECD's average of 34.2% and even below Africa at 18.2% in 2017. Moreover, our tax ratio prevailed not to perform well. Hestu Yoga, DGT Dissemination, Service and Public Relations Director, said Indonesia's tax ratio is at 10.7% in 2019 and has decreased sharply from 11.5% in 2018.
At this point not only that in reality no one really wants to give up their money anyway but also a negative sentiment towards tax collection is still very much persistent in the mind of Indonesians, especially among our Moslem community. It makes tax collection difficult and Perhaps one of the triggers why tax compliance is still very low. It then opens for more actions in regards to building positive sentiment so that people will be more willing to comply and pay taxes.
*) The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the institution in which the author works.