Public Finance in Islam

Topics: Tax, Public finance, Deficit Pages: 13 (4015 words) Published: April 5, 2012


The objective of the study is to explain the Islamic economic in general and public finance in particular which is aligned with the development of Islamic economy in today’s world. The literature in Islamic public finance is rich both in terms of coverage as well as scope of analytical content. Islamic public finance has been discussed and being practiced by the Muslim scholars ages ago. The elements in Islamic public finance can be gauged by numerous instructions in the Quran. It is heartening to note that this study is to give a clear understanding about contemporary economic works in accordance with the teaching of Islam. A clearer comprehension on Islamic public finance definitely helps having a better view of the whole. Besides, shariah is relevant to economic policies where the economic theory can be affected by the implications of these policies. When it comes to economic policy recommended by the modern economics, we must take into account the Islamic goals. It should not conflict with the rules and objectives of shariah. Therefore, we can analyze economic problems with a fresh insight and explore solutions which are distinctively Islamic.


Public finance comprises a range of policies whose goal is to assemble resources for the public sector and to allocate them according to precedence of the state in the distribution of public sector. A course on public finance is a mixture of positive and normative. The positive analysis is directly related to the conventional approach. The normative elements are arised from the Islamic goals and objectives, responsibility of Islamic state and the Islamic behavioral norms in general.

From the conventional view, public finance is about the role of the government in economic life on the basis of market failures and the necessity to modify the distribution of income resulting from the market process. In other words, public finance also can be described as maximizing the social welfare function by the public authority.

Back to the objective of the study which is focusing on public finance from the Islamic perspective. Islamic system relates to all aspects of life. In economic life, Islam seeks to organize society in such a manner that every individual is enabled to live as Allah wills to man. There are three aims in Islamic economy which are fulfillment of the basic needs of all human beings, economic development and equalities in distribution of income and wealth. Islam does so by orienting behavior through faith and moral values as well as by providing codes of conduct, rules of transaction and institutions securing social cohesion such as the family and the state. Those objectives are directly related to the discussion of Islamic public finance.

Public finance describes the budgetary sector of public policy, dealing with taxes, public expenditure and borrowing. In the Islamic point of view, those factors cannot be avoided from being discussed at it is a possible source of revenue but the way it generates revenue must based on Quran and Sunnah. The state in Islam is not born of the necessity to safeguard individual interests because Islam promotes the concept of equality among the humankinds. Islam resorts profit sharing as the sharing instrument of mobilizing private savings for investment in the public sector. The profit is a significance source of capital formation. Thus, it is relevant to the capital budget which will benefit all parties.

In order to implement Islamic aspects in public finance, all parties have to play their roles for example the state. Muslim community needs a ruler which is set up through mutual consultation. Quran and Sunnah state that the government has some functions that it need to carry out in order to serve all the people. Those functions are derived from Quran and sunnah by ijtihad which covers analogical reasoning as well as reasoning based on public interest.


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