One article on this great personality will be
considered as a disservice and I shall try my best, within my capacity,
to read and research more and write about the great works of the historian Ibn
Khaldun who was born in 1332 in Tunis. He was educated in the religious studies of Qur'an,
Hadith, jurisprudence, and law, as well as sciences such as physics,
mathematics, philosophy and logic. His strong base in a wide variety of
disciplines helped him to analyze the worldly affairs, specially governments, in greater depth.
Ronald Reagan, 40th president of the United States,
commented on Ibn Khaldun by saying:
“May I offer you the
advice of the 14th century Arab historian Ibn Khaldun, who said: “At the
beginning of the empire, the tax rates were low and the revenues were high. At
the end of the empire, the tax rates were high and the revenues were low.”
And, no, I did not personally know Ibn Khaldun, although we may
have had some friends in common!”[1]
His economic ideas which he analyzed during the 14th
century became part of the governments’ fiscal policies around the globe. Very correctly,
a co-relation has been established between the tenor of the governments and the
tax rates. As per the guidelines of Islam, the Zakat (philanthropy/charity tax)
is 2.5% of accumulated wealth. Other taxes like land tax, inheritance tax and tax
on spending have not been popular in the Muslim World. It is quite comprehensible from the above that if the tax rates are low, the public is encouraged to pay
tax and the governments end up collecting greater tax revenues. Furthermore, Ibn
Khaldun stated:
“The reason for this is that when the dynasty follows the ways
(sunan) of the religion, it imposes only such taxes as are stipulated
by the religious law, such as charity taxes, the land tax, and the poll tax.
They mean small assessments, because, as everyone knows, the charity tax on
property is low.”[2]
And then he added:
“At the beginning of the dynasty, the revenues are distributed
among the tribe and the people who share in the ruler’s group
feeling, in accordance with their usefulness and group feeling and because they
are needed to establish the dynasty, as we have stated before. Under these
circumstances, their leader refrains in their favor from (claiming) the revenues
which they would like to have.”
Ibn
Khaldun studied government’s behavior in great depth and it seems the same behavioral trends exist till date. Governments prefer using public finances
for the welfare of the tribes and societies and to establish a strong liking or
aptitude towards their rule. In contrast, when governments sway from the path
and corruption becomes the culture, the tax revenues are siphoned off to
non-productive areas bearing nil or negative results.
Accountability, Self-checks and balances
Umar
Bin Al Khattab, the second caliph of Islam, was known to have two lamps that he
would use to light his house. One lamp was funded by the tax payer’s money and he
would use that only during his work, in his official capacity, as the leader of
the vast empire. The second lamp was personally funded by the caliph and he
would use that when engaged in personal affairs, and not of the government. It
was Umar bin Al Khattab’s accountability which contributed to the strong
foundations of a successfully run and contolled empire.
Ibn Khaldun opposed high levels of taxation
“The result [of high taxation] is that the interest of the
subjects in cultural enterprises disappears, since when they compare
expenditures and taxes with their income and gain and see the little profit
they make, they lose all hope. Therefore, many of them refrain from all
cultural activity. The result is that the total tax revenue goes
down, as (the number of) the individual assessments go down.”
Governments
tend to increase taxes excessively to finance public debt and extravagant
ventures within the boundary and overseas. This negatively impacts the
willingness of the public to contribute or participate in the economics of the
country. Excessive taxes have discouraged investments and consumerism and this
has had further effects on poverty, employment and crime rates. The words
of Ibn Khaldun can be very rightly analyzed in the form of the Laffer curve as
below.
 |
| The Laffer Curve, named after the American economist Arthur Laffer, credited his work to the great Ibn Khaldun |
Ibn
Khaldun’s ideas have actually been known to us in the form of the Laffer curve
(advocates supply-side economics). The Laffer Curve helps the economists to
ascertain the optimum tax rates which maximizes the tax revenue, without the
need of increasing the tax rates in proportion. The basis of setting an optimum
tax rate is to encourage businesses to re-invest their profits in expanding
their businesses which creates opportunities. As purchasing power increases, businesses
earn more, and more jobs are created a greater number of individuals and
corporations tend to fall in the tax bracket.
I prefer to refer to the graph above as Khaldun's curve and his immense contribution to the economics of the world is extraordinarily remarkable.
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