The pillars of the Islamic economic system are:

• Free enterprise

• A strong dose of socialism

• The breaking of the monopoly of accumulated capital by the Zakat (capital tax)

• The prohibition of interest

• The Islamic law of inheritance

Islam is not a mere religion in the conventional sense, i.e. a collection of articles of faith subjected to a set of rituals. It is a way of life, governed by a strict observance of the absolute uniqueness of God and His omnipotence in controlling every atom of everything that He has created. This pervasive master philosophy is put in practice, for the wellbeing of all citizens, by an established code of conduct which lays down moral principles, sound values, and good governance when living in a community. This practice of good governance in turn, is backed and safeguarded by a judicial system, namely with regard to property and family laws, and a fully-fledged economic system.


The failure of communism

At the outset, let me say that Islam is neither akin to capitalism nor to communism. It relegates communism to a low ranking ideology devoid of rationality which does not promote effort to work hard and earn more. Communism negates the right of the individual to own property or any means of production and to have an independent thinking of his own, the bulk of the thinking being the prerogative of a ruling few. It advocates equal rights and equal salary for everyone and thus stifles all effort for the ambitious individual to work harder and to think on a higher plane to come out of the common lot and earn more. No wonder that this ideology, which has governed half of the world for 40 years, has been dismissed by its former advocates as being useless.

The failure of capitalism

Capitalism, and the supremacy of money, today rule the world, but they have the pernicious effect of creating more and more appetite, evolving into greed, for money, to be able to further one’s ambitions, whether it is for accumulating wealth in the form of property and means of production or for subjecting the have-nots to one’s invasive ambition of making people work for lesser remuneration in order to produce more and more for the entrepreneur. The failure of capitalism is blatant. There has never been such an unequal distribution of wealth in the world as is the case today. There has never been such dominance of the affluent. The different religions, supposed to stir the conscience of people, although they claim massive following, have no response to the problems caused by selfishness and utter disregard for the poor. The massive emigration of people from poor countries to the affluent west, at the risk of perishing at sea, is but the tip of the iceberg. It reveals only the desperate initiatives of those few who are daring enough to embark in flimsy boats, but it does not say anything about those who have neither the money, nor the courage to attempt such a perilous journey, and who remain in their ghettos of poverty in Africa and elsewhere, utterly helpless.


It is based on free enterprise.  The confusion between free enterprise and capitalism is easily made if we go by superficial reasoning. Free enterprise is the absolute freedom for any individual or collective body to engage in a production or a trade of its own choice, within the confines of the law, which forbids the production of harmful goods. Hence, Islam recognizes the right to own means of production and property, and for that matter, any licit asset which money can buy. This is the basis on which effort, higher thinking and risk taking attitude are encouraged with a view to producing more and earn more. Producing more means increasing one’s own revenue, creating GDP growth, employment, savings and investment.

Obviously, free enterprise creates money power in the hands of producers, and this is where Islam differs fundamentally from capitalism. Capitalism has no say in equitable distribution of wealth. Its fiscal policy, at least what is practiced widely, is flawed and unadapted to the needs of society, and this is at the root of the contemporary world’s problems. The only economic measure it proposes so that society at large benefits from the wealth created by business entrepreneurs is corporate tax on profits. Quite paradoxically, it has also created systems for tax avoidance by the powerful, by allowing production to be carried out in certain countries and tax to be paid in other countries at ridiculous rates. Mauritius is well placed to appreciate this injustice done to people who are at root of production, but who reap very little benefit from their efforts, for them and their country.

The Zakat (Tax on capital)

Zakat is the levy of a tax on capital, for both individuals and companies, above a minimum threshold. Strictly speaking, it is not just a tax, but before everything else, an act of worship and it appears 27 times side by side with Salaat (prescribed prayers) in the Holy Quran. The zakat-exempted threshold, for the individual, is his residence and his basic necessities. The zakat, levied on property (over an exempted minimum), cash and bank balance which has remained idle for one year, jewels which are not used regularly, precious metals and stock in trade is of the order of 2.5 % per annum on their value.

Zakat means “purification” and is intended to purify the wealth that we accumulate, by giving back to the poor their share in God-given things which belong to the whole of humanity, but which are used massively and overwhelmingly by entrepreneurs to produce wealth for a selected few, excluding the many. They comprise the whole array of natural God-given benefits like the earth, the sun, water and minerals. Beyond being a tax, the Quran says that it constitutes the right of the poor in what we earn and it should not be usurped, otherwise the equitable distribution of wealth is altered to the detriment of the poor.

By decree, it can only be used to alleviate poverty, and nothing else. In an Islamic state, the zakat is deemed to be paid to the state, for use in the welfare of the poor, namely in unemployment benefits, invalidity pensions, old age pensions, housing, free medical care, subsidies for basic necessities consumed by the poor and eventually free education (among others). Its quantum has historically been fixed at 2.5% per annum, but this is not set in concrete by any Quranic law, which means that in case of necessity, it can be increased. Even in very affluent communities, where poverty is low, zakat cannot be abolished, as it is an act of worship, and a pillar of Islam. Any surplus to requirements in one year must be kept in an equalization account for future needs, as and when they arise.

In all countries, the state needs money to finance its current budget, its capital budget, and the needs of welfare, for the poor. The levy of zakat settles once and for all the level of expenditure on welfare, which means that other taxes can be fully allocated to the functioning of the state and to financing government investments. One hurdle is thereby eliminated for budget ministers.

Since zakat is intended solely for use with the poor, it goes without saying that it does not preclude the levy of income and corporate tax or VAT, which are necessary taxes to finance normal government spending, outside welfare. These are taxes levied on profit and consumption respectively.

Everybody will now realize that no individual or company actually benefits from assets kept idle (and this includes bank balance). Any idle asset, on top of not yielding any revenue when placed in bank accounts, will gradually be watered down by the annual payment of zakat. This forces investment, by keeping assets utilized at all times, and therefore promotes growth, as well as employment. Zakat is the first economic tool, in the Islamic system, to distribute wealth more equitably. There is nothing in Islamic law or jurisprudence which says that zakat should be distributed to Muslims only.