The Concept of Ibn Khaldun on Taxation

System

Yusri Hazrol Yusoff, PhD

Senior Lecturer,
Faculty of Accountancy
Kampus Puncak Alam,
Universiti Teknologi MARA, Malaysia

Email: yusrihazrol@uitm.edu.my
 Table of Content

1. Definition of Taxation 4. Definition of Taxation 7. Challenge

5. Review of Ibn Khaldun

2. Benefit of Taxation
Concept 8. Discussion/Conclusions

3. Background of 6. Benefit of Ibn Khaldun

Taxation Concept
 Definition of Taxation

Taxation Concept: From People to People

Generally: a mandatory payment or charge collected by

local, state, and national governments from taxpayers to
cover the costs of general government services, goods, and
activities.

Specific: means any tax on income (or any other tax of a

substantially similar character) chargeable or imposed by or under
the laws of a territory in Malaysia (Income Tac Act 1967)
Benefits of tax
 Background of Taxation
The earliest known tax was implemented in Mesopotamia over 4500 years
ago, where people paid taxes throughout the year in the form of livestock
(the preferred currency at the time). The ancient world also had estate taxes
and taxes.

- Taxation has implications for public finance and development.

- More focus on tax threshold for common tax policy tools.

- It is important to understand that this tool has very different implications in

developing versus developed countries because of differing economic
structures, and therefore collection and redistribution capacities.
 Background of Taxation (continued)
- In many developing countries, governments are forced to rely on indirect consumption taxes to
raise revenue.

- consumption taxes have limited or even negative equity impacts.

- However, consumption taxes are progressive and can help to redistribute from richer to poorer
households.

- This is because lower-income households in most developing countries are much more likely to
shop in informal (untaxed) stores than richer households, thereby being ‘de facto’ exempt from
consumption taxes.

- Jason (2021) suggested that consumption taxes might be a better tool for equity than
previously thought.
 Problem in Taxation
Tax Collection in Malaysia

YEARS
2015 2016 2017 2018 2019 2020
TAX COLLECTION (Billion) 170. 962 175. 325 183. 537 181. 064 188. 328 161. 454

OECD Report, 2021

Noncompliance Issues

YEARS
2016 2017 2018 2019
TAX COLLECTION 779,946,904.87 826,491,582.30 1,153,953,467.59 1,329,115,213.90
BILL OF DEMAND (BOD) 8,072 8,636 8829 8,924

RMCD Report, 2021

 Problem in Taxation
• Tax noncompliance in Malaysia is increasing from year to year. RMCD audit report 2018: Noncompliance Import
Duty

• Taxation implemented in developing countries such as Malaysia for over 56 years but noncompliance still remains
a high figure.

• The government is trying to increase income via collection, which one of them is tax noncompliance (RMCD,
2014).

• However, despite all the economic factor such as increasing fine rate, increasing staff and increasing audit field,
the collection is still remain low (RMCD, 2014).

• It is time to look at non-economic factors such as Ibn Khaldun Concept to understand taxpayers’ behavior to
become them more compliant (Kasipillai, 1999).
Review of Ibn Khaldun Concept
(Islahi, 2015)
Ibn Khaldun argued for low tax rate so that incentive to work is not killed and taxes
are paid happily.

Red flag when taxation collects a small revenue from high tax exposure.

- He seems to have grasped the concept of optimum taxation.

- The effect of government expenditure on the economy
Ibn Khaldun’s ideas are ‘comparable with those of supply-side economics that
emphasized incentives and tax cuts as a means of economic growth.
Ibn Khaldun’s ideas on taxation and government expenditure bear empirical
evidence and have great relevance today.
Ibn Khaldun’s emphasis was on how a society's living standards could be affected,
either for better or worse, by state policies. He was especially interested in how a
greedy ruler might impose such a high tax rate that economic activity would be
stifled and tax revenues ultimately reduced.
 Element in Ibn Khaldun Concept
Tax Fairness >
- The effectiveness of public policy design in reconciling taxation objectives with economic and societal
objectives and ensuring tax costs are distributed fairly in society.
- The three criteria for effective taxes are simplicity, efficiency, and equity.

Tax Rate >

- The effective tax rate is the average rate at which a taxpayer is taxed.
- A tax rate is simply the percentage of the value of a product, service, income, or property that a government
will tax.
Tax Revenue >
- Tax revenue is defined as the revenues collected from taxes on income and profits, social security
contributions, taxes levied on goods and services, payroll taxes, taxes on the ownership and transfer of
property, and other taxes.
- To generate public revenues that make it possible to finance investments in human capital, infrastructure,
and the provision of services for citizens and businesses.
Proposed Framework

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28 OCTOBER 2018, PERTH AUSTRALIA
 Benefit of Ibn Khaldun Concpet
Two principles of taxation relate to equal treatment in tax matters: benefits received and the ability to pay.
Benefits received: those who receive or benefit from public service should pay for it.

In a world where national borders are becoming less important, governments must keep tax rates relatively
low or face the loss of investment, jobs, and tax revenues to other countries

It is increasing good perception, and the certainty and severity of good images in tax collections

To promote the positive aspects of tax compliance, and to communicate to the taxpayers at large that complying fully
with the tax laws.

Lower income tax rates increase the spending power of consumers and can increase aggregate demand, leading to
higher economic growth (and possibly inflation).
 Challenge
Definition: The Economic Transformation Programme (ETP), along with the Government
Transformation Programme (GTP) serves as a means to achieve economic development.

Background: Economic transformation involves moving labour from low to higher productive activities. This
includes between sectors to higher value activities (for example, from agriculture to manufacturing) and within
sectors (for example, from subsistence farming to high-value crops).
It is widely accepted that poverty reduction and economic growth cannot be sustained without economic
transformation and productivity change but, despite this obvious point, the development community has
traditionally paid relatively little attention to these long-term determinants of development goals.
 Discussion/Future/Conclusions
Ibn Khaldun's view of taxation offers a useful example of how an economic concept can be reapplied in an
entirely different setting. As insightful as this view undoubtedly was for the times he lived in, one would
think that it might not seem to be applicable to the modern age of democratic governments, because no
elected government would ever raise tax rates beyond the point where tax revenues would fall.

- Ibn Khaldun, a government budget may be surplus, balance, or deficit depending on the level of
development and its composition of expenditure. Accordingly tax rates would be low, medium or
excessive. It is the nature of government spending and its policy of taxation that determine whether it is
passing through the period of formation, prosperity and stability, or depression and decay.

Ibn Khaldun was born in a declining phase of Muslim culture and intellectual atmosphere. He could not find
among the successive generation a capable follower who could improve upon his ideas and develop them
further. Otherwise, he would not have been so casually mentioned in the history of economic thought and
analysis. It took six centuries for his ideas to resurface in economic discipline, though much to be desired.
Any Question?