The topic matter of this chapter falls under the heading of what used to be called ‘public finance’ (Musgrave, 1959) and what would now come under the heading ‘public governance’ (OECD, 1993). At its broadest, public governance is about the use of social norms, rules, institutions and decision-making structures of the state to allocate, coordinate or control activity in a society (Bell, 2002). From the viewpoint of the public sector, it embraces issues such as what is the desirable provision of collective goods and services and the system of revenue raising, and what institutional processes ensure that such efficient provision of public goods and revenues is consistent with conceptions of justice resulting from the sociopolitical and moral framework within which a society operates (Dhonte and Kapur, 1997). It is against this general backdrop that we consider zakat and the integrity of the taxation system in an Islamic context. The importance of taxation for governance of the economy is obvious enough. Quite clearly, public finance and public governance depend on taxation revenues for financial resources when providing collective goods and services. At the same time, how governments tax – the nature and forms of revenue raising – does matter for the quality of life and the nature of society (Moore, 2007). Accordingly, the traditional Islamic schema of taxation is examined both with respect to its standing in light of shari’ah and with respect to the needs of society.
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