Journal of Tax Research

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One of the policy makers’ objectives is to guarantee justice and fair distribution of incomes among citizens through taxation. In this study, income tax as an income base was compared to khums on the profit of income as the major income tax in Ja’fari jurisprudence to investigate the characteristics and advantages of this Islamic tax system in the current economic system of Iran. This paper sheds light on the positive aspects of this divine command with respect to the distribution of income and tax incidence. It is hoped that the findings of this study contribute to the improvement of the current tax system. In this empirical study, the potential amount of khums was calculated using Pareto bilateral distribution for every Iranian household with respect to the jurisprudence of khums for 1999-2012. Then, the distribution of tax incidence was estimated. The distribution of tax incidence for both tax systems on deciles shows the lower tax incidence of khums for households, higher-income households in particular. Therefore, the impairment in performance and allocation of resources are lower for khums, compared to those of income tax. Moreover, the comparison of progression degree of khums and income tax shows that despite its uniform rate, khums on the profit of income is a progressive tax with a moderate progression rate since it excludes the living costs. However, its progression degree is lower, compared to that of income tax.

Keywords: Khums on the Profit of Income, Income Tax, Income Redistribution, Tax Impact, Tax Incidence, Progression Degree of Khums

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