Theocracy and the Dilemma of Taxation: The Case of Iran
Let us begin with a simple definition. All the money that a government collects from the inhabitants of a country in order to finance its expenditure is called tax. It comes in a variety of forms. Direct taxation is usually a tax on income and indirect taxation is usually taxes imposed on expenditure, broadly defined. We also have inheritance tax, Stamp duty, taxes on income from real estates, income tax, corporation taxes. When taxes are paid, it is expected that government will be accountable to the tax payers as to what it did with them.
In a theocracy, like the one that exists in Iran, taxation is problematic. In addition, there is a historical problem too.
- While most of us in Iran do not wish to pay taxes, most of us expect that the same government that we refuse to finance its activities, should provide all kinds of services to us. Whenever we get an opportunity, many of us complain that the quality of these services is not good in Iran either.
- Especially following the discovery of oil in Iran, the government had a major source of income which is independent from the population, and hence, the government effectively does not oblige that it should be accountable to the public as they pay little or no taxes. From experience, it could be stated that even if we insist, there still will be no accountability. On the other hand, the public who faces an unaccountable government develops a tendency towards ignoring government’s laws.
In recent months, for a second time, the government tried to impose a value added tax of 3% but, the shop keepers and other merchants went on strike and there were clashes here and there and eventually, the Economic Minister instructed the taxmen not to impose it for the time being . Once again, the shop keepers in Iran, especially the textile merchants, have boycotted trading and closed shops.
While these issues could be examined in details, but in our view, the main problem is elsewhere. In order to understand the situation, we need to distinguish between different types of taxes and different historical periods in Iran. Up to the February 1979, when the monarchy in Iran was overthrown, we had an interesting political mixture. The mullahs, unlike the post 1979 years, were not directly on power, but, the Constitution of the country that were ratified after the 1906 Revolution, gave them a massive power base and influence in the legal make up of the country. Despite this point, with the exception of Fazl ol Lah Noori - who was later executed by other mullahs- who argued for a twin sovereignty- one for mullahs and another for the Shah- other religious leaders believed that in the absence of Imam Mehdi- The Hidden Imam- the Shahs in Iran have usurped power and hence, would not encourage Muslims to pay taxes to a government whose head, in their eyes, was not “ legitimate”. In our view, this has gradually become part of Iranian financial culture.
Furthermore, in Iran, in addition to common taxes- i.e. money paid to the government in a variety of forms- there is various kinds of religious taxes too. It goes without saying that as the head of government is supposed to be in his position by usurpation, payment of common tax is “haram”- forbidden and religiously unlawful. The argument goes something like this, taxes must be paid willingly, but governments very often use coercion to collect taxes, then all other thing apart, the use of coercion makes it unlawful to pay. In short, up to February 1979, the great majority of mullahs not only would not encourage the payment of common taxes, but have effectively created an alternative system for them, the one which is usually called “Imam’s share”. Most of the mullahs who collected these “Imam’s share”, would have to in turn finance their “ madresseh” [ place of learning], or students, i.e. talabeh. This payment is usually referred to as “tuition”- Shahriyeh- but it actually is some kind of a grant, given to enable religious students to focus on their religious education. Two things would happen here: First, religious schools, Houzeh-ye Elmeeye- would be independent from the central government. Second, Muslims by paying their religious taxes and other dues will fulfil their divine duties and obligations and would have less incentive to pay the common tax. In practice, however, this would imply that a government faced with this package, tends to have financial problems and face budget deficit. What was left of the Imam’s share, after paying talabeh’s living expenses would be spend on publicly useful projects. During the pre-1979 years, the government did not pay sufficient attention to this issue and allowed this mixed taxation system to continue. Two reasons could be offered for this negligence. One, the oil money was available, and hence, the government was to a large extent self sufficient. Two, Policy makers were aware that if they try to seriously change the system and try to impose common taxes and restrict the payment to mullahs, a point would come that they may have to become accountable and that was too high a price to pay under a culture of despotism that prevailed in Iran.
Whatever the background, in February 1979, the monarch was overthrown and a theocracy led by the mullahs took over the organs of the state. Despite the revolution, the common structure of the state was maintained too. Oil money was still there and it is still there, and even two years ago, the price of oil jumped to $150 a barrel. But the conflict and contradiction between common and religious taxes continued and even intensified. In the earlier years, while Khomaini was still around, it was most likely that his dominance was so total that other mullahs who had a position in the state, did not receive any Imam’s share, hence, had no motive to discourage the public from the payment of common taxes. Not to mention though that the state by then was theirs too. So far as we can judge, there was one grand Ayattollah who was the “ Marj-a-e Taghleed” [ literally meaning, the source of imitation]. Following the death of Araki, the last single Marj-a-e Taghleed, the Islamic Republic decided to “nationalise” this position and tried to take it under its control and announced ten Ayatollahs to be Marj-a’s.[ This number may have gone up in more recent years]. It goes without saying that each of these marj-a’s must have some followers who would prefer to pay their religious taxes to their chosen Marj-a. There are two main types of religious taxes, Zokat that varies between 2.5 to 10%. The other major tax is Khoms, which is 20% of the surplus annual revenue. Ignoring other taxes , the question is if a Muslim pays these two components, will it be right and proper that he should also pay a common tax to the government. If a country does not have a proper taxation system in place and if its monitoring system is not effective and efficient- both of these shortcomings apply to Iran- it is clear that the taxes that would be avoided and not paid, are likely to be common taxes. Two reasons for this could be offered, one, religious taxed are paid willingly and as part of individual’s belief system, and second, common taxes should be paid to a state that its legitimacy is in question in the minds of these tax payers. Hence, it is most likely that government may have serious financial shortcoming. This issue is rather serious, as religious taxes despite being paid by the citizens, but are not collected by the government or any organisation associated with the government. According to a pronouncement by Khomeini, Khoms had two parts, “One part should go to believers [Saadaat]” and the other “is Imam’s share that will be collected by a certified Mojtahed and will be spent in the ways that he sees fit” . There seems to be some discrepancies among Islamic Scholars on religious taxation. For instance, Manzar Kahf believes that Zakat “should be collected by the government and should be used to finance social welfare programmes run by the state”. However, Khomeini’s views on Zokat are different from views expressed by Kahf and allow no room to the government to have any access to it. On the other hand, two months before his assassination in 1981, Beheshti in a speech in Tehran discussed the issue of taxation in Islam and made a number of interesting observations. In the same way that a Muslim would pray to and for God and in the same manner that for a month he fasts for God, there is also a “financial worship”, i.e. financial obligations that should be fulfilled for God, Beheshti argued. Zokat, in Beheshti’s view is paid for God which should be spent on His path. Payment of Zokat, according to him is “worshiping God” . After this introduction, he raises a fundamental question: In an Islamic society, should Muslims pay any taxes other than the religious taxes of Khoms and Zokat? He then moves on to suggest that some Islamic scholars believe that they have no other financial responsibilities as if the Muslims pay what they should pay “there will be no gap and no need for any other such payments”. On the other hand, there are other scholars who argue that “in an Islamic Society there may be other needs that these taxes may not be enough, hence, the Muslims should share the financial responsibilities”. He goes on to say that if in an Islamic society there were needs for which more money- more than the amount that could be raised via religious taxes- was needed, then “ it is obligatory for every Muslim to participate as much as they can, or with the surplus that they have”. In short, every Muslim and in fact all Muslims are committed to provide sufficient funds for the management of an Islamic society”. He goes on to suggest that if voluntary contribution was not enough, Velayat-e Faghih [The Guardian of the State] can “levy special taxes” and collect them. To summarise Beheshti’s view, he suggests that the majority of Islamic scholars have a three steps approach to this question: First, four types of Islamic taxes are collected and if the sum was not enough, voluntary contributions would be asked for. If there was still a need for further resources, then, an Islamic government could levy common taxes too. In his view, an Islamic government should have a properly defined programme and it is essential that it should be a programme for long term and all these, according to Beheshti, is based on the Holly Quran. He argues against indirect taxation and believes that it is un-Islamic extortion as the ability to pay is not taken into consideration. His speech ends with a question and answer session, and some of his answers are interesting. In his reply to a question whether Khoms and Zokat should be paid to the government, he replies “ In our current situation, if these taxes are spent in the same way as before, helping to reduce the financial burden of the government, this would be in line with the aims of our revolution”. He adds that his answer is mainly based on the views expressed by Khomeini when he was asked the same question.
To conclude, our discussion in the previous pages has shown that most of the taxes, especially the religious taxes are not paid to the government and are spent by religious leaders who are in a position to collect them. Beheshti makes this interesting point that management of “modern states” will not be possible “without levying new kinds of taxes that may have no traces in the Holly Book or other historical documents” but by declaring indirect taxation as non-Islamic, it is not clear what kind of other taxes he has in mind. In many modern states, indirect taxation is a major source of revenue for government and if these were to be banned in an Islamic government, it is unlikely to avoid serious budget deficits. On the other hand, if there were to be progressive income taxes, taking into consideration the ability to pay, would it be fair or practical that those who already pay up to 10% Zokat and 20% Khoms, pay even more in the shape of common taxes too? If all these taxes are levied, how economic agents would respond to them and what would happen to their incentive to work and produce? On the other hand, if these new taxes are not in place, can an Islamic government finance its social, cultural and economic programmes without facing financial crisis? Thirty years have passed since Beheshti spoke these words, indirect taxation and other types of common taxes are in place, and yet, the government has an annually increasing budget deficits. It is our conviction that this is due to what we would call an " Iranian Disease" to which we shall return later.
In a theocracy, like the one that exists in Iran, taxation is problematic. In addition, there is a historical problem too.
- While most of us in Iran do not wish to pay taxes, most of us expect that the same government that we refuse to finance its activities, should provide all kinds of services to us. Whenever we get an opportunity, many of us complain that the quality of these services is not good in Iran either.
- Especially following the discovery of oil in Iran, the government had a major source of income which is independent from the population, and hence, the government effectively does not oblige that it should be accountable to the public as they pay little or no taxes. From experience, it could be stated that even if we insist, there still will be no accountability. On the other hand, the public who faces an unaccountable government develops a tendency towards ignoring government’s laws.
In recent months, for a second time, the government tried to impose a value added tax of 3% but, the shop keepers and other merchants went on strike and there were clashes here and there and eventually, the Economic Minister instructed the taxmen not to impose it for the time being . Once again, the shop keepers in Iran, especially the textile merchants, have boycotted trading and closed shops.
While these issues could be examined in details, but in our view, the main problem is elsewhere. In order to understand the situation, we need to distinguish between different types of taxes and different historical periods in Iran. Up to the February 1979, when the monarchy in Iran was overthrown, we had an interesting political mixture. The mullahs, unlike the post 1979 years, were not directly on power, but, the Constitution of the country that were ratified after the 1906 Revolution, gave them a massive power base and influence in the legal make up of the country. Despite this point, with the exception of Fazl ol Lah Noori - who was later executed by other mullahs- who argued for a twin sovereignty- one for mullahs and another for the Shah- other religious leaders believed that in the absence of Imam Mehdi- The Hidden Imam- the Shahs in Iran have usurped power and hence, would not encourage Muslims to pay taxes to a government whose head, in their eyes, was not “ legitimate”. In our view, this has gradually become part of Iranian financial culture.
Furthermore, in Iran, in addition to common taxes- i.e. money paid to the government in a variety of forms- there is various kinds of religious taxes too. It goes without saying that as the head of government is supposed to be in his position by usurpation, payment of common tax is “haram”- forbidden and religiously unlawful. The argument goes something like this, taxes must be paid willingly, but governments very often use coercion to collect taxes, then all other thing apart, the use of coercion makes it unlawful to pay. In short, up to February 1979, the great majority of mullahs not only would not encourage the payment of common taxes, but have effectively created an alternative system for them, the one which is usually called “Imam’s share”. Most of the mullahs who collected these “Imam’s share”, would have to in turn finance their “ madresseh” [ place of learning], or students, i.e. talabeh. This payment is usually referred to as “tuition”- Shahriyeh- but it actually is some kind of a grant, given to enable religious students to focus on their religious education. Two things would happen here: First, religious schools, Houzeh-ye Elmeeye- would be independent from the central government. Second, Muslims by paying their religious taxes and other dues will fulfil their divine duties and obligations and would have less incentive to pay the common tax. In practice, however, this would imply that a government faced with this package, tends to have financial problems and face budget deficit. What was left of the Imam’s share, after paying talabeh’s living expenses would be spend on publicly useful projects. During the pre-1979 years, the government did not pay sufficient attention to this issue and allowed this mixed taxation system to continue. Two reasons could be offered for this negligence. One, the oil money was available, and hence, the government was to a large extent self sufficient. Two, Policy makers were aware that if they try to seriously change the system and try to impose common taxes and restrict the payment to mullahs, a point would come that they may have to become accountable and that was too high a price to pay under a culture of despotism that prevailed in Iran.
Whatever the background, in February 1979, the monarch was overthrown and a theocracy led by the mullahs took over the organs of the state. Despite the revolution, the common structure of the state was maintained too. Oil money was still there and it is still there, and even two years ago, the price of oil jumped to $150 a barrel. But the conflict and contradiction between common and religious taxes continued and even intensified. In the earlier years, while Khomaini was still around, it was most likely that his dominance was so total that other mullahs who had a position in the state, did not receive any Imam’s share, hence, had no motive to discourage the public from the payment of common taxes. Not to mention though that the state by then was theirs too. So far as we can judge, there was one grand Ayattollah who was the “ Marj-a-e Taghleed” [ literally meaning, the source of imitation]. Following the death of Araki, the last single Marj-a-e Taghleed, the Islamic Republic decided to “nationalise” this position and tried to take it under its control and announced ten Ayatollahs to be Marj-a’s.[ This number may have gone up in more recent years]. It goes without saying that each of these marj-a’s must have some followers who would prefer to pay their religious taxes to their chosen Marj-a. There are two main types of religious taxes, Zokat that varies between 2.5 to 10%. The other major tax is Khoms, which is 20% of the surplus annual revenue. Ignoring other taxes , the question is if a Muslim pays these two components, will it be right and proper that he should also pay a common tax to the government. If a country does not have a proper taxation system in place and if its monitoring system is not effective and efficient- both of these shortcomings apply to Iran- it is clear that the taxes that would be avoided and not paid, are likely to be common taxes. Two reasons for this could be offered, one, religious taxed are paid willingly and as part of individual’s belief system, and second, common taxes should be paid to a state that its legitimacy is in question in the minds of these tax payers. Hence, it is most likely that government may have serious financial shortcoming. This issue is rather serious, as religious taxes despite being paid by the citizens, but are not collected by the government or any organisation associated with the government. According to a pronouncement by Khomeini, Khoms had two parts, “One part should go to believers [Saadaat]” and the other “is Imam’s share that will be collected by a certified Mojtahed and will be spent in the ways that he sees fit” . There seems to be some discrepancies among Islamic Scholars on religious taxation. For instance, Manzar Kahf believes that Zakat “should be collected by the government and should be used to finance social welfare programmes run by the state”. However, Khomeini’s views on Zokat are different from views expressed by Kahf and allow no room to the government to have any access to it. On the other hand, two months before his assassination in 1981, Beheshti in a speech in Tehran discussed the issue of taxation in Islam and made a number of interesting observations. In the same way that a Muslim would pray to and for God and in the same manner that for a month he fasts for God, there is also a “financial worship”, i.e. financial obligations that should be fulfilled for God, Beheshti argued. Zokat, in Beheshti’s view is paid for God which should be spent on His path. Payment of Zokat, according to him is “worshiping God” . After this introduction, he raises a fundamental question: In an Islamic society, should Muslims pay any taxes other than the religious taxes of Khoms and Zokat? He then moves on to suggest that some Islamic scholars believe that they have no other financial responsibilities as if the Muslims pay what they should pay “there will be no gap and no need for any other such payments”. On the other hand, there are other scholars who argue that “in an Islamic Society there may be other needs that these taxes may not be enough, hence, the Muslims should share the financial responsibilities”. He goes on to say that if in an Islamic society there were needs for which more money- more than the amount that could be raised via religious taxes- was needed, then “ it is obligatory for every Muslim to participate as much as they can, or with the surplus that they have”. In short, every Muslim and in fact all Muslims are committed to provide sufficient funds for the management of an Islamic society”. He goes on to suggest that if voluntary contribution was not enough, Velayat-e Faghih [The Guardian of the State] can “levy special taxes” and collect them. To summarise Beheshti’s view, he suggests that the majority of Islamic scholars have a three steps approach to this question: First, four types of Islamic taxes are collected and if the sum was not enough, voluntary contributions would be asked for. If there was still a need for further resources, then, an Islamic government could levy common taxes too. In his view, an Islamic government should have a properly defined programme and it is essential that it should be a programme for long term and all these, according to Beheshti, is based on the Holly Quran. He argues against indirect taxation and believes that it is un-Islamic extortion as the ability to pay is not taken into consideration. His speech ends with a question and answer session, and some of his answers are interesting. In his reply to a question whether Khoms and Zokat should be paid to the government, he replies “ In our current situation, if these taxes are spent in the same way as before, helping to reduce the financial burden of the government, this would be in line with the aims of our revolution”. He adds that his answer is mainly based on the views expressed by Khomeini when he was asked the same question.
To conclude, our discussion in the previous pages has shown that most of the taxes, especially the religious taxes are not paid to the government and are spent by religious leaders who are in a position to collect them. Beheshti makes this interesting point that management of “modern states” will not be possible “without levying new kinds of taxes that may have no traces in the Holly Book or other historical documents” but by declaring indirect taxation as non-Islamic, it is not clear what kind of other taxes he has in mind. In many modern states, indirect taxation is a major source of revenue for government and if these were to be banned in an Islamic government, it is unlikely to avoid serious budget deficits. On the other hand, if there were to be progressive income taxes, taking into consideration the ability to pay, would it be fair or practical that those who already pay up to 10% Zokat and 20% Khoms, pay even more in the shape of common taxes too? If all these taxes are levied, how economic agents would respond to them and what would happen to their incentive to work and produce? On the other hand, if these new taxes are not in place, can an Islamic government finance its social, cultural and economic programmes without facing financial crisis? Thirty years have passed since Beheshti spoke these words, indirect taxation and other types of common taxes are in place, and yet, the government has an annually increasing budget deficits. It is our conviction that this is due to what we would call an " Iranian Disease" to which we shall return later.
posted by احمدسیف @ 7:33 AM
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