Transcript in MS PowerPoint Format

Islamic Banking and
Government Revenue
Collection
Pakistan in comparison with
United Kingdom
Islamic Banking and Government
Revenue Collection
•What is ‘real’ Islamic Banking?
Key issues that
must be
addressed
•The problems of copying the interest based
system and its products
•How Islamic financing and an Islamic banking
system are the only real hope for developing
Muslim Countries
•Why developing Islamic based state financing is
the key issue
•An Islamic system for Pakistan
Five key issues

Why interest and pseudo
‘financial charges’ don’t
work
•Dictated by policy as much as
economic returns
•Is too closely tied to the
printing of money and not
creation of value
•Creates disinterest amongst
lenders
•Creates a ‘hedging strategy’
for portfolio investment
•Is a poor benchmark for
judging an investment
opportunity
•Places the entire burden of
repayment on the borrower no
matter the outcome
•Creates the conditions that
lead to failure e.g. high interest
rates burden business, projects
and indeed economies
Islamic Banking and Government
Revenue Collection
What is and what is not ‘Islamic’ in modern
banking and finance
•The pressure to create products to compete against interest
based banking has compromised Islamic banking
•Credit cards, consumer product loans, mortgages, car loans
have all been developed within the Islamic system but they
offend the principle of partnership
•The growing financing/loan products also rely on notional
financial charges (rent) that differ little from interest calculations
•Financial charges are payable no matter the outcome and
therefore cannot be considered Islamic as they impart no risk to
the lender
•Lenders in many modern Islamic financing arrangements
remain indifferent to the outcome of the loan and expect full
payment no matter what
A method of finance that does not involve the lender
in becoming a partner in the funded enterprise is not
Islamic
Creating an incentive based economy along Islamic principles

There are only three
truly Islamic financing
arrangements that can
be permitted:
•Mashareqa
•Mudaraba
•Leasing

Islamic Banking and Government
Revenue Collection
A typical Islamic car loan arrangement
Financial Charge
Based on the principle of rent or
utility payable even if the car
does not work, breaks down or is
written off
Issues
Why?
•Repayable by the borrower under all
circumstances
•They create enterprise
ownership on the part of
the lender
•Personal loan made by reference to the
borrower not the car (risk is the borrower)
•They create partnership
with the borrower
•They create mutual
benefit without recourse
for failure
Cost of Car
•Car if returned shall be valued at full
purchase price (no accommodation of the
financial charges paid for utility to date)
•Defaults (non payments) do not harm
the bank in any way
There is no risk to the lender !
Creating an incentive based economy along Islamic principles

There are only three
truly Islamic financing
arrangements that can
be permitted:
•Mashareqa
•Mudaraba
•Leasing

Why?
•They create enterprise
ownership on the part of
the lender
•They create partnership
with the borrower
•They create mutual
benefit without recourse
for failure
Islamic Banking and Government
Revenue Collection
Issues for Islamic Banking Operations v Interest
System
•Documentary credits
•Criteria for mark-up and PLS ratios
•Replacing interest functions
•Stock exchange investment
•Spread and risk margins
•Rates of return and comparing opportunities
•Bills of exchange
Creating an incentive based economy along Islamic principles

There are only three
truly Islamic financing
arrangements that can
be permitted:
•Mashareqa
•Mudaraba
•Leasing

Why?
Islamic Banking and Government
Revenue Collection
Issues for Inter-bank relations in an Islamic
Banking System
•Inter-bank financial markets
•Short-term transfer of funds between Islamic banks
•They create enterprise
ownership on the part of
the lender
•They create partnership
with the borrower
•Inconsistencies between the Islamic Banking Systems in
different countries
•Lack of uniform accounting standards for Islamic
banking
•They create mutual
benefit without recourse
for failure
Creating an incentive based economy along Islamic principles

Islamic Banking and Government
Revenue Collection
There are only three
truly Islamic financing
arrangements that can
be permitted:
•Mashareqa
•Mudaraba

Issues for internal structure and organisation
•
Relationship between scholars and bankers
•
Lack of religious guidance
•
Too many ‘designed’ services and products
•They create enterprise
ownership on the part of
the lender
•
Need for staff training and services and product
knowledge
•
Staff shortage and quality
•They create partnership
with the borrower
•
By-Laws
•Leasing
Why?
•They create mutual
benefit without recourse
for failure
Creating an incentive based economy along Islamic principles
The Islamic world is
rich in human
resource, intellect and
energy. It also owns
75% of the world’s
energy.
Why can’t the Islamic
world find an original
way out of the debt
trap and the spiral of
economic
underperformance.
Removing taxes and
interest should be our
prime target because
they don’t achieve
results.

Islamic Banking and Government
Revenue Collection
The opportunity for Islamic Banking
•There are 1.5 billion faithful in the world
•Most live in the poorer (per capita GDP) countries of
the world
•Most live in countries with massive external debts to
the World Bank and IMF and the developed nations
•Their governments have the problem of collecting
enough money to pay back the interest on the debt
•Other than the oil rich countries with low populations
and high per capita GDP balancing budgets, collecting
taxes and investing in infrastructure has become
difficult or impossible
•How can governments free their countries from the
yoke of debt and interest?
Creating an incentive based economy along Islamic principles
Pakistan's problems
are about ‘system
failure’

•Low government
revenues
•Low investment
(130th in the world @ 15%
GDP)
Islamic Banking and Government
Revenue Collection
Public Debt
49.9% of GDP (2010)
•Burdensome taxes
•External borrowing
with interest
Large external
interest based
debt repayments
High levels of
national debt
(e.g. to
finance
defense!)
The system of
economic realities
in Pakistan
•Low workforce
productivity
•Illiteracy at 50%
External Debt
$58.39 billion (2010)
Tax burdens
causes evasion
and create a
black economy
PC GDP of
$2,400 (PPP)
182th in the world
No surplus 
GOP revenue to
spend on vital
infrastructure
2010 GOP
Revenue: $25.33 billion
Expenditure: $36.24 billion
Source: CIA Fact book 2010
What are the economic issues facing Pakistan and many other Islamic countries?
Pakistan's problems
are about ‘system
failure’
Systems of taxation
are better suited to
advanced economies
with high levels of
literacy and
concensus based
political systems.
Even now taxes and
interest on money
remain issues
dissuading the
common man from
realizing his
aspirations and
creating wealth.
Islamic Banking and Government
Revenue Collection
The road to national reconstruction is:
•Create surplus government revenues

•Remove the burden of interest on money from
public life, finances and the banking system
•Remove direct and indirect taxes as the sole
source of government revenue and replace it with
a system based on investment and growth
•Do this by placing Islamic principles as the
driving force behind economic regeneration
What are the economic issues facing Pakistan and many other Islamic countries?
Taxes
In the 1980’s the visionary
political leader Margaret
Thatcher realized that it
was only by reducing tax
burden, lowering interest
rates, and providing an
incentive based economy
that the United Kingdom
could be turned around.
A Mutually Beneficial
System

The MBCS is a system
of revenue collection
that abandons taxation,
removes interest and
creates an incentive
based economy on
Islamic principles
Islamic Banking and Government
Revenue Collection
CREATING AN INCENTIVE BASED ISLAMIC ECONOMY
What the MBCS does:
•Reduces sales prices of all end products and services together
with reductions in transfer prices (critical in developing countries)
•Uses prepaid national shares to create real reduced prices
and huge government revenues
•Abandons restrictive import and other taxes and duties
that restrict or limit economic and social growth
•Normalises exchange rate of the relationship between the
Pak Rupee and other currencies
•Removes interest from the economy and promotes investment
on Islamic lines
Creating an incentive based economy along Islamic principles
GOP
extensive
price controls
Islamic Banking and Government
Revenue Collection
Comparing the cost of buying goods and services in Pakistan
•Electricity
•Petrol
•Diesel
Rupees
•Kerosene
•Gas
•Telecoms
•Consumer goods
•Air travel duties
Current
controlled
prices
with profits
to the GOP
•Road tolls
•Property tax
•Government service
fees
•Etc…
Current price
situation in
Pakistan
Future nonshareholder
price
30% more
than GOP
controlled
price
Non
shareholder
penalty

SAVINGS
MBCS
Incentive
Share
Scheme
Shares
Shareholder
Price
60% below
controlled
prices
The MBCS shareholder pricing system
Creating an incentive based economy along Islamic principles
How does the
incentive work?
MBCS
Incentive
Share
Scheme
Islamic Banking and Government
Revenue Collection
Comparing the cost of buying goods and services in Pakistan
HOW and WHY?

•Buy unit shares for
cash early each year for
needs (Q1)
The MBCS will:
•Exchange them for
lower MBCS prices
•Increase contributors to government revenue creation
(and reduce direct tax payers to zero)
•Large volume share
buyers get greater cash
discounts
•Make ‘black’ economy non viable
•Industries and
individuals with very
high volumes receive
free import incentives
•Mobilize the hidden cash in the Pak economy
•Create at least 750 billion Rupees in share sale receipts
in Q1 every year
•Make the GOP solvent and allow large scale investment
(reverse the cycle of decline)
Creating an incentive based economy along Islamic principles
Massive sales of
MBCS Shares in Q1
will transform
Government
Finances
Islamic Banking and Government
Revenue Collection
•Improve liquidity
from normal tax
collection drag
•No short term cash
deficit borrowing
•Facilitate budget
surplus
•Remove rolling
budget deficits
•Repay external debts
MBCS Revenues
Revenue
Surplus
Rolling Deficit
Q1
GOP Spend
Borrow or print
Revenue flow from taxes
Q2
Q3
Financial Year
Q4
What are Creating
the economic
an incentive
issues facing
basedPakistan
economyand
along
many
Islamic
otherprinciples
Islamic countries?
!
10 FAQ’s
1.
Am I really saving?
2.
How do I know what I
actually pay?
3.
Where/how do I buy
shares?
4.
How much will I pay for
them?
5.
How do I get the
incentives?
6.
How do the poor manage
under this system?
7.
Will shares be accepted
everywhere?
8.
Can private enterprise
enter the scheme?
9.
Can I buy shares after Q1?
10. Will shares be tradable
between people, groups
and businesses?
Islamic Banking and Government
Revenue Collection
Available country wide
through a wide
network of
distributors
Cash receipts go through
sellers via national
banking system to PMF
GOP revenue
position
improves
Starts with
MBCS share
purchases
The cycle of
national recovery
in Pakistan under
the MBCS
GOP and
PMF fund
investment
GOP annual
budget
surpluses
PMF will attract
private investment
funding proposals
using ‘partnership’
principles
GOP will retire
international debt and
fund infrastructure
development
Creating an incentive based economy along Islamic principles
How does industry
and commerce
benefit?
Islamic Banking and Government
Revenue Collection
•They can enjoy reduced
prices through the MBCS
The reducing unit cost of shares
•They can buy large
quantities of shares and get
better savings
•Importers can buy relief
from duty via the share
scheme
•Therefore ‘input’ and
‘transfer’ costs can be
reduced in the value added
process
•Private sector goods and
services can be traded in the
share system as the shares
have redeemable value to the
recipient
•Competitive advantage will
come to those in the share
system
•Consumers will get better
prices
(incentive arrangement)
Shareholder
s
•Individuals
Rs. Per Coupon
0.500
•Families
0.450
•Groups
0.400
•Village cooperatives
0.350
0.300
0.250
•Farmers
0.200
•Businesses
0.150
•Schools
0.100
•Hospitals
0.050
•Charities
0.000
29,999
99,999
199,999
299,999
449,999
599,999
799,999
Maximum number of MBCS coupons purchased
•Pak
expatriates
•Tourists
THE MORE YOU BUY THE MORE YOU SAVE
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
Dealing with
realities
•Pakistan’s direct tax
paying middle class of
1.5-1.7 million carry a
population of 170 million
•Taxes are not working in
Pakistan
•Taxpayers can’t hope in
the foreseeable future to
elect a government
sympathetic to their
plight and burden
•Most of the direct tax
receipts pay for the
interest burden on the
external national debt

The MBCS’ Islamic credentials 1
It will relieve Pakistan of the burden of external
debt and the obligation to pay interest on it as the
system will:
1. Earn GOP revenues of Rs. 3000 billion in the first
two months of each and every year from shares sales
2. And much more by the end of the year.
3. Earn significantly greater amounts as the black
economy joins the MBCS or is bypassed by it
4. Hold at its disposal an accumulating foreign
exchange reserve growing at a rate of US$10 billion a
year
•Our indebtedness holds
us back from following
Islamic principles in our
national life
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
Dealing with
realities
•Pakistan’s direct tax
paying middle class of
1.5-1.7 million carry a
population of 170 million
•Taxes are not working in
Pakistan
•Taxpayers can’t hope in
the foreseeable future to
elect a government
sympathetic to their
plight and burden
•Most of the direct tax
receipts pay for the
interest burden on the
external national debt

•Our indebtedness holds
us back from following
Islamic principles in our
national life
The MBCS’ Islamic credentials 2
It will allow the GOP to:
1. Retire all GOP debt based on interest
2. Direct surplus cash funds into the reconstruction of
the economy via the Islamic financing and banking
system
3. Fund infrastructure and manufacturing/commercial
developments in the public and private domain
4. Eradicate interest based lending throughout the
entire economy based not on edict but by preference
5. Strengthen the Islamic financing system by investing
in its development
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
Banks and the
MBCS
•Customers can open
MBCS share accounts
for deposit
•Customers can buy
MBCS shares from
the banks
•Banks will deposit
MBCS shares with the
central bank
•Banks can
buy/lend/trade
MBCS shares
•MBCS cash receipts
will flow through the
banks to GOP escrow
account
Supreme
Sharia
Committee
GOP
Central
Bank
PMF
Operating
funds
& agents
deposits
MBCS
share
issuer
MBCS
agency
network
GOP
Escrow
A/c
Bank A
Share
sales
Capital
Cash
from
sales
MBCS
share
deposits
Foreign
reserves
and
bullion
Bank B Bank C Bank D
Pakistan Banking System
Assets
Customer
and bank
MBCS
share
deposits
Products
Rupee
cash
deposits
Bank E
Services

Islamic financing
instruments
using MBCS
funds
Creating an incentive based economy along Islamic principles
Key benefits of the
working relationship
between the Banks
and MBCS
•Employment of
5 million + agents
country wide
•Money remittances at
banks increases as cash
comes out in the open
and into the system
•Banks can sell/trade
in shares
•Support for Islamic
financing/banking and
funding from
PMF/Central Bank
surplus MBCS funds
Islamic Banking and Government
Revenue Collection
The reason Pakistan has failed to register its economic
promise as a country is that the massive black economy
is not recorded and further that black money invests
only in the short term and in non added value activities.
It does this to remain out of reach of the authorities.
Save

THE MOST IMPORTANT EVENT IN
THE MODERN HISTORY OF
PAKISTAN WILL BE THE
REALISATION THAT THROUGH
PRIVATE AND PUBLIC SURPLUS THE
PROCESS OF INVESTMENT CAN
BEGIN ON AN UNPRECEDENTED
SCALE.
Creating an incentive based economy along Islamic principles
MBCS investment
process
1. Applicants to state
business case in
business plan
2. Bank guarantee
3. Proofed by two
teams (business and
banking)
4. Applicant puts up
20% funds
5. Central bank decides
how much and mode
of Islamic financing
Islamic Banking and Government
Revenue Collection
Through a financial
partnership based on Islamic
principles between GOP,
businesses, entrepreneurs,
private utility companies,
communities, co-operatives
and the people the
infrastructure of Pakistan
can be rebuilt by plan and
programme using MBCS
funds.
6. No cash paid direct
to project
7. Withdrawal rights
reserved/agreed
It must focus however on
priorities.
Criteria for GOP national investment
programme
Focus
Ports and
airports
Facilitate greater import export trade with
minimal demurrage
Roads, canals
and rail
Create logistics network in Pakistan to
effectively manage flow of goods to and from
manufacturing/export/import centres
Electricity
Create guaranteed supply of power to industry
and domestic users with minimal transmission
losses
Oil and gas
To maximise the recovery, refining and use of
hydrocarbons through improved energy
infrastructure e.g. pipelines, refineries and
production facilities.
Water and
irrigation
To provide to the entire population of
Pakistan a guaranteed safe water supply for
personal use and in support of agriculture
MBCS free zones
To support the growth of added value trade
and industry
Technology
zones
Schools and
colleges
Hospitals and
clinics
Housing and
Urban
Development
Objective
To support the growth of added value trade
and industry
The key to real development will be the
human productivity factor and the ability of
Pakistan to innovate. A healthy well educated
population will support this and will move the
country towards improved law and order.
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
Is the MBCS Islamic?
1. Shares are priced in favor of the large volume buyer
(i.e. the rich)? No.
2. Best consumer prices will only be enjoyed by the rich?
No.
3. Will open market trading lead to abuse? No.
4. Buyers may hoard shares and inflate prices? No.
5. Will banks charge interest on share accounts? No.
6. If share trading values go up what increase in
underlying value are they tied to? (GDP)
7. The MBCS cannot cure inflation? (Wrong)
8. The MBCS does not encourage saving and investment
only consumerism. (Wrong)
Creating an incentive based economy along Islamic principles
The MBCS test for
support to Islamic
banking and investment
•Invested funds must be earned
properly (Halal)
•Profits should be reasonable
for the risk and business
•No penalty for loans retuned
before maturity
•Defaults to be handled fairly
and with proper notice and
remedy periods
•Only profit and loss and
leasing loans permitted
•Borrower puts up 20%
•No insuring of risk
•Funds from profits to act as
failure insurance
Islamic Banking and Government
Revenue Collection
The strategy for moving Pakistan towards Islamic
banking and financing
•It is impractical to prohibit all interest based transactions
•The most prudent strategy is to demonstrate the benefits
of MBCS Islamic funding over interest arrangements
•The tests in the first column provide a superior and fairer
investment vehicle for rebuilding Pakistan
•Investors will prefer these arrangements to interest and
banks will follow their lead
•GOP will disburse funds from MBCS on the basis of
Islamic funding only
•Bankruptcy law not to apply
•No litigation between parties
Creating an incentive based economy along Islamic principles
How the system
works
Investment opportunities
will be assessed against
their returns and other
contributory factors set
by policy and Islamic
principles

Each and every financial
service within the new
MBCS funded banking
system will be provided
on Mashareqa, Mudaraba
or on Lease basis
The MBCS creates a value
added feedback loop into
the GOP’s primary source
of investment funds
Islamic Banking and Government
Revenue Collection
MBCS Escrow
Account
GOP
Pakistan Finance
and Banking Sector
PMF and Central Bank
Investment assessment and funding vehicle
Mashareqa
Mudaraba
Private Investment Base
Leased
Public Investment Base
The Pakistan economy = quality private investment
+ prudent GOP infrastructure development
and the MBCS Share Scheme
Creating an incentive based economy along Islamic principles
The MBCS test for
support to Islamic
Banking
Islamic Banking and Government
Revenue Collection

•Invested funds must be earned
properly (Halal)
Why the MBCS will move Pakistan to a pure Islamic
financing system
•
Massive Government MBCS revenues and liquidity
will place GOP as a net lender (see slides 14 and 15)
•No penalty for loans retuned
before maturity
•
•Defaults to be handled fairly
and with proper notice and
remedy periods
The terms of the loans will be advantageous and
Islamic (see first column)
•
GOP will be significant shareholder by choice in many
new and existing enterprises through banks and other
finance institutions sourcing loans through GOP.
•
Land reforms will create huge amount of revenue that
GOP will share (invest) with private sector managing
arable and grazing lands.
•
The alternative economies will disappear as hidden
money emerges to compete for investment and buy
MBCS shares.
•Profits should be reasonable
for the risk and business
•Only profit and loss and
leasing loans permitted
•Borrower puts up 20%
•No insuring of risk
•Funds from profits to act as
failure insurance
•Bankruptcy law not to apply
•No litigation between parties
Creating an incentive based economy along Islamic principles
The MBCS test for
support to Islamic
Banking
Islamic Banking and Government
Revenue Collection

•Invested funds must be earned
properly (Halal)
•Profits should be reasonable
for the risk and business
•No penalty for loans retuned
before maturity
•Defaults to be handled fairly
and with proper notice and
remedy periods
•Only profit and loss and
leasing loans permitted
•Borrower puts up 20%
•No insuring of risk
•Funds from profits to act as
failure insurance
•Bankruptcy law not to apply
How GOP can assist the process of entrenching Islamic
banking in Pakistan by addressing the following:
•
Imposing interest based laws on all banks is restrictive
•
A lender of last resort is missing i.e. What will an Islamic state
Govt. do for the Islamic banking system?
•
Interest as a tax deductible expense for businesses and home
owners (unfair competition). Acknowledgement that tax and
interest are enmeshed and unfair.
•
Banking tribunals (mediation in a civilised society)
•
Promote PLS financing for industrial investment (and legal
support for PLS)
•
Clearer demarcation between private and public investment
interest in projects
•
Invest in the Islamic banking sector development to spread the
use of ‘partnership based’ investment arrangements.
•No litigation between parties
Creating an incentive based economy along Islamic principles
The MBCS test for
support to Islamic
Banking

Islamic Banking and Government
Revenue Collection
•Invested funds must be earned
properly (Halal)
The key factor for success is the relationship of the
Islamic bank with the depositor
•Profits should be reasonable
for the risk and business
•Islamic banking doesn’t invest enough in image
building
•No penalty for loans retuned
before maturity
•Defaults to be handled fairly
and with proper notice and
remedy periods
•Only profit and loss and
leasing loans permitted
•Borrower puts up 20%
•No insuring of risk
•Funds from profits to act as
failure insurance
•Bankruptcy law not to apply
•No litigation between parties
•It must shed the image of being esoteric, restricted,
high risk and slow to develop
•Developing low, medium and high risk investment
products through portfolio vehicles is attractive
•A credit card is essential in the competition with other
banking systems
•Acceptable short and medium term cash flow financing
management facilities for businesses and individuals is
also critical
•Banks must become a credible and respected gobetween linking investment with opportunity
Creating an incentive based economy along Islamic principles
Japan
One of the great
manufacturing countries
of the world with high
GDP and high HDI
levels proved that it is
not interest rates that
create wealth but hard
work, patience and wise
investment.
In fact they understood
more than any that high
interest is a hindrance.
When money is seen as a
community asset its only
value is the opportunity
it gives to invest and
share. How it is invested
is a balance between
paper returns and utility
for greater purposes.
Islamic Banking and Government
Revenue Collection
Stage 1 – Move all ‘investment’ via MBCS to investment or leasing
Using the investment principles outlined in previous slides the
process should be very rapid
Stage 2 – Reduce the dependence of the banking system on interest
The banking system needs to invest in developing consumer
products that provide real Islamic alternatives. Growing MBCS
projects can attract banks and private investors as well.
Stage 3 – Remove GOP interest arrangements for state financing
Retirement of international debt is critical. Domestic borrowing
should only be to fund Islamic projects as investors or leasors.
Stage 4 – Move private investment to non interest methods
The growth in the Islamic investment base in projects will
allow diversification of investor base and balance risk
Stage 5 – Invest in the development of Islamic banking products
This applies to the infrastructure and availability of the
banking system as well.
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
Japan 2
Some thoughts on the challenges of Islamic banking
and finance:
However the Japanese
still cling to the idea of
distancing savers from
investments.
•We are trying to establish a sense of responsible
investment country wide
In Japan’s post office
savings accounts there is
nearly 7 times the Indian
Budget held in very, very
low interest accounts.
•We are asking people to be aware of their responsibility
to the wider community in their investment decisions
It must be asked if an
Islamic based society
would allow this
dispossession to
continue. Is it fair for an
opportunity to link saver
to investment to be
missed?
•We are asking people to be prudent and realistic in their
expectations
•We are trying to relieve the burdens on the poor and
those supporting them
•We are trying to achieve a paradigm shift in one of the
most powerful and conservative business institutions ‘the
banks’
•Banks do not own their depositors money they manage it.
It is only the lack of depositors interest in change that
holds back Islamic banking.
Creating an incentive based economy along Islamic principles
An Islamic solution to the economic
issues facing Pakistan
The MBCS is applicable to developed countries
For nearly forty years after 1945 successive British
Governments sought the solution to Britain's ailing economy
•Key issues were:
•Underinvestment (1945-1977)
•Poor competitiveness (1945-1979)
•Poor labour productivity (1945-1982)
•Aging infrastructure (1945-1980)
•Balance of Payments deficits (1945-1975)
•Devaluation of the Pound Sterling (1966)
•High taxation of income and goods (1945-1982)
Creating an incentive based economy along Islamic principles
An Islamic solution to the economic
issues facing Pakistan
Investment
participation
“….the primary economic
virtue of Thatcherism was
in lowering the structural
costs of doing business.
Labour and financial
markets were deregulated,
and privatisation of utilities
- oil and gas, power, water
and so on - resulted in what
economists call lower input
costs.”
Madsen Pirie, President
of the Adam Smith
Institute 2001
Underlying wealth
Value of earnings
Effort pays off
What happened in the UK when taxes were lowered?
Creating an incentive based economy along Islamic principles
An Islamic solution to the economic
issues facing Pakistan
Has the Thatcher economic model solved Britain’s
problems?
The top rate of income tax
in 1979 was 83%—and with a
surcharge on top of that for
investment income. In her
Government’s first budget,
the top rate was cut to 60%
and the basic rate from 33%
to 30% . By the late 1980’s
Income tax for many people
was down to 25% and the
top rate set at 40%.
1.
Still high inequality in earnings
2.
Poverty in inner cities
3.
Law and order are still issues
4.
Stealth taxes are hitting the middle classes
5.
Britain’s industrial/manufacturing output is at an all time low
6.
Personal debt is also very high
‘Using the Poverty and Social Exclusion Survey approach to the
measurement of poverty, it is estimated that 25 per cent of the adult
population of Britain is poor.’ © Joseph Rowntree Foundation 2005

The Chancellor, Gordon Brown, is about to raise Britain’s taxes
to their highest-ever level, collecting nearly £1m a minute,
according to an Ernst & Young analysis.
Calculations by Patrick Minford, of Cardiff Business School, show
that, including VAT, excise duties, National Insurance and income
tax, a basic rate taxpayer pays £48.50 in tax on every £100 earned.
Among higher rate taxpayers the figure is £57.10.
Creating an incentive based economy along Islamic principles

An Islamic solution to the economic
issues facing Pakistan
The ITEM report
warns that while UK
business investment
was originally believed
to have grown at 5.5%
in 2004, this has since
been revised down to
just 3.4%. Export
figures have also been
revised down, from
2.8% in the 12 months
to the end of the first
quarter to only 2%.
The Ernst & Young ITEM
Club
What are the key issues facing Britain in the
Post Thatcherism era?
•High tax is making a comeback
•Energy is not so abundant (North Sea Oil Era is
nearly over)
•Social costs are rising
•The health service is expanding to meet greater
healthcare expectations without investment and
income
•The population is aging rapidly
•There are no incentives to create wealth and
create stability?
Creating an incentive based economy along Islamic principles


The real worry for
society in Britain as
it is in Pakistan is
the effect of
joblessness. High
unemployment is
economically,
politically and
socially
dysfunctional and is
the true nightmare
of all forms of
government. People
don’t normally take
to the streets when
their employed,
housed and fed.
An Islamic solution to the economic
issues facing Pakistan
Source: UK Office for National Statistics
Notes:
People in employment, unemployed and economically inactive make up the total
household population aged 16 and over, measured through the Labour Force Survey
on a consistent basis since 1971.
Working age is defined as 16-64 for men and 16-59 for women.
Creating an incentive based economy along Islamic principles
An Islamic solution to the economic
issues facing Pakistan
How can the MBCS Work for the UK?
It can work as well in a developed economy as in a
developing economy:
Balancing the budgets of
the world’s fifth largest
economy will prove easier
under the MBCS and will
guarantee surpluses based
on real value growth in an
economy that still has
many dysfunctional
aspects. Sooner rather
than later the UK will
have to face up to the
question of how it creates
wealth and whether there
is enough of it to meet
social and economic
aspirations
•It will remove the disincentive of (high) taxes
•Coupons and revenues can be issued and collected
securely through a high tech banking network
•It will attract the unemployed as agents
•Lower input costs will revolutionize British manufacturing
•The burden of providing a health service and a state
pension scheme can be funded from improved GDP growth
•Government investment can be used to ensure future cash
flows beyond the Coupon Scheme
•Removing VAT is a key issue in helping the less well off
Creating an incentive based economy along Islamic principles
Islamic Banking and Government
Revenue Collection
What is our purpose?

•To stop punishing those who put their talents
to good use by demanding taxes, duties and
levies
•To remove the burden of interest from those
who have to borrow to create value
•To place personal, business and state finances
on a sound footing by balancing needs and
opportunities with prudence and responsibility.