Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.
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Transcript of Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.
Islamic Banking and Government Revenue
Collection
Pakistan in comparison with United Kingdom
Islamic Banking and Government Revenue
Collection
•What is ‘real’ Islamic Banking?
•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
Key issues that must be addressed
Creating an incentive based economy along Islamic principles
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
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
A method of finance that does not involve the lender in becoming a partner in the funded enterprise is not Islamic
There are only three truly Islamic financing arrangements that can be permitted:
•Mashareqa
•Mudaraba
•Leasing
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
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
Cost of Car
Financial Charge
Based on the principle of rent or utility payable
even if the car does not work, breaks down or is
written offIssues•Repayable by the borrower under all circumstances
•Personal loan made by reference to the borrower not the car (risk is the borrower)
•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
A typical Islamic car loan arrangement
There is no risk to the lender !
There are only three truly Islamic financing arrangements that can be permitted:
•Mashareqa
•Mudaraba
•Leasing
Creating an incentive based economy along Islamic principles
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
Islamic Banking and Government Revenue
Collection
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
There are only three truly Islamic financing arrangements that can be permitted:
•Mashareqa
•Mudaraba
•Leasing
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
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
Issues for Inter-bank relations in an Islamic Banking System
•Inter-bank financial markets
•Short-term transfer of funds between Islamic banks
•Inconsistencies between the Islamic Banking Systems in different countries
•Lack of uniform accounting standards for Islamic banking
There are only three truly Islamic financing arrangements that can be permitted:
•Mashareqa
•Mudaraba
•Leasing
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
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
Issues for internal structure and organisation
• Relationship between scholars and bankers
• Lack of religious guidance
• Too many ‘designed’ services and products
• Need for staff training and services and product knowledge
• Staff shortage and quality
• By-Laws
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
CollectionThe 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?
The Islamic The Islamic world is rich in world is rich in human human resource, resource, intellect and intellect and energy. It also energy. It also owns 75% of the owns 75% of the world’s energy. world’s energy.
Why can’t the Why can’t the Islamic world Islamic world find an original find an original way out of the way out of the debt trap and debt trap and the spiral of the spiral of economic economic underperformanunderperformance.ce.
Removing taxes Removing taxes and interest and interest should be our should be our prime target prime target because they because they don’t achieve don’t achieve results.results.
What are the economic issues facing Pakistan and many other Islamic countries?
•Low government revenues
•Low investment (130th in the world @ 15% GDP)
•Low workforce productivity
•Illiteracy at 50%
•Burdensome taxes
•External borrowing with interest
Pakistan's problems are about ‘system failure’
The system of The system of economic economic
realities in realities in PakistanPakistan
Large external interest
based debt re-
payments
No surplus GOP
revenue to spend on
vital infrastructu
re
Tax burdens causes evasion
and create a black
economy
High levels of national
debt (e.g. to finance defense!)
2010 GOPRevenue: $25.33 billion
Expenditure: $36.24 billion
Public Debt 49.9% of GDP (2010)
External Debt $58.39 billion (2010)
PC GDP of $2,400
(PPP) 182th in the worldSource: CIA Fact book 2010
Islamic Banking and Government Revenue
Collection
What are the economic issues facing Pakistan and many other Islamic countries?
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
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
Creating an incentive based economy along Islamic principles
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.The MBCS is a system of revenue collection that abandons taxation, removes interest and creates an incentive based economy on Islamic principles
A Mutually Beneficial System
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 ISLAMIC ECONOMY
Taxes
Islamic Banking and Government Revenue
Collection
Shares
Shareholder Price
60% below controlled
prices
Current controlled prices
with profits to the GOP
Current price
situation in
Pakistan
The MBCS shareholder pricing system
Comparing the cost of buying goods and services in Pakistan
SAVINGS
•Electricity
•Petrol
•Diesel
•Kerosene
•Gas
•Telecoms
•Consumer goods
•Air travel duties
•Road tolls
•Property tax
•Government service fees
•Etc…
GOP extensive price controls
Non shareholder
penaltyFuture non-
shareholder price
30% more than GOP
controlled price
MBCS Incentive
Share Scheme
Rupees
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
Comparing the cost of buying goods and services in Pakistan
Creating an incentive based economy along Islamic principles
MBCS Incentive
Share Scheme
How does the incentive work?
•Buy unit shares for cash early each year for needs (Q1)
•Exchange them for lower MBCS prices
•Large volume share buyers get greater cash discounts
•Industries and individuals with very high volumes receive free import incentives
HOW and WHY?
The MBCS will:•Mobilize the hidden cash in the Pak economy
•Increase contributors to government revenue creation (and reduce direct tax payers to zero)
•Make ‘black’ economy non viable
•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)
Islamic Banking and Government Revenue
Collection
What are the economic issues facing Pakistan and many other Islamic countries?Creating an incentive based economy along Islamic principles
Q1
Q2 Q3 Q4
Financial Year
MBCS Revenues
GOP Spend
Revenue flow from taxes
Massive sales of MBCS Shares in Q1 will transform Government Finances
•Improve liquidity from normal tax collection drag
•No short term cash deficit borrowing
•Facilitate budget surplus
•Remove rolling budget deficits
•Repay external debts
Revenue
Surplus Rolling
Deficit
Borrow or print
!
Islamic Banking and Government Revenue
Collection
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?
GOP revenue position improves
Starts with MBCS share
purchases
GOP and PMF fund investmen
t
GOP annual budget
surpluses
The cycle of national
recovery in Pakistan under the
MBCS
Available country wide
through a wide network of distributors
Cash receipts go through sellers via national banking system to PMF
GOP will retire international debt and fund infrastructure development
PMF will attract private
investment funding
proposals using ‘partnership’
principlesCreating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
0.450
0.500
Rs. Per Coupon
29,999 99,999 199,999 299,999 449,999 599,999 799,999
Maximum number of MBCS coupons purchased
The reducing unit cost of shares
(incentive arrangement)
THE MORE YOU BUY THE MORE YOU SAVE
Creating an incentive based economy along Islamic principles
How does industry and commerce benefit?•They can enjoy reduced prices through the MBCS
•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
Shareholders
•Individuals
•Families
•Groups
•Village co-operatives
•Farmers
•Businesses
•Schools
•Hospitals
•Charities
•Pak expatriates
•Tourists
Islamic Banking and Government Revenue
Collection
The MBCS’ Islamic credentials 1
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
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
It will relieve Pakistan of the burden of external debt and the obligation to pay interest on it as the system will:
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
The MBCS’ Islamic credentials 2
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
1. Retire all GOP debt based on interest2. 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
It will allow the GOP to:
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
Pakistan Banking System
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
GOP
PMF Central Bank
MBCSshareissuer
Operating funds
& agents deposits
MBCS agency network
Share sales
Cash from sales
GOP Escrow
A/c
Supreme Sharia
Committee
MBCSshare
deposits
Foreign reserves
and bullion
Rupeecash
deposits
Bank A Bank CBank B Bank D Bank E
Capital Assets ProductsServices
Customer and bank MBCSshare
deposits
Islamic financing instrumentsusing MBCS
funds
Islamic Banking and Government Revenue
Collection
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
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.
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.
Invest
Save
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
FocusPorts and airports
Roads, canals and rail
Electricity
Oil and gas
Water and irrigation
MBCS free zones
Technology zones
Schools and colleges
Hospitals and clinics
Housing and Urban
Development
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.
Create guaranteed supply of power to industry and domestic users with minimal transmission
losses
To maximise the recovery, refining and use of hydrocarbons through improved energy
infrastructure e.g. pipelines, refineries and production facilities.
To provide to the entire population of Pakistan a guaranteed safe water supply for personal use and in support of agriculture
To support the growth of added value trade and industry
Criteria for GOP national investment programme
Facilitate greater import export trade with minimal demurrage
Create logistics network in Pakistan to effectively manage flow of goods to and from
manufacturing/ export/ import centres
Objective
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.
It must focus however on priorities.
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
6. No cash paid direct to project
7. Withdrawal rights reserved/agreed
MBCS investment process
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
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)
Islamic Banking and Government Revenue
Collection
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
•Bankruptcy law not to apply
•No litigation between parties
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
Creating an incentive based economy along Islamic principles
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
Each and every financial service within the new MBCS funded banking system will be provided on Mashareqa, Mudaraba or on Lease basis
GOP
Pakistan Finance and Banking Sector
Private Investment BasePublic Investment Base
PMF and Central Bank
Investment assessment and funding vehicle
Mashareqa
Mudaraba
Leased
MBCS Escrow Account
The Pakistan economy = quality private investment + prudent GOP infrastructure development
and the MBCS Share Scheme
The MBCS creates a value added feedback loop into the GOP’s primary source of investment funds
Investment opportunities will be assessed against their returns and other contributory factors set by policy and Islamic principles
How the system works
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
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)
• 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.
The MBCS test for support to Islamic Banking•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
•No litigation between parties
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
The MBCS test for support to Islamic Banking•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
•No litigation between parties
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.
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
The MBCS test for support to Islamic Banking•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
•No litigation between parties
The key factor for success is the relationship of the Islamic bank with the depositor
•Islamic banking doesn’t invest enough in image building
•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 go-between linking investment with opportunity
Islamic Banking and Government Revenue
Collection
Creating an incentive based economy along Islamic principles
Stage 1 – Move all ‘investment’ via MBCS to investment or leasing
Stage 2 – Reduce the dependence of the banking system on interest
Stage 3 – Remove GOP interest arrangements for state financing
Stage 4 – Move private investment to non interest methods
Stage 5 – Invest in the development of Islamic banking products
Using the investment principles outlined in previous slides the process should be very rapid
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.
Retirement of international debt is critical. Domestic borrowing should only be to fund Islamic projects as investors or leasors.
The growth in the Islamic investment base in projects will allow diversification of investor base and balance risk
This applies to the infrastructure and availability of the banking system as well.
JapanOne 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
Creating an incentive based economy along Islamic principles
Japan 2However the Japanese still cling to the idea of distancing savers from investments.
In Japan’s post office savings accounts there is nearly 7 times the Indian Budget held in very, very low interest accounts.
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?
Some thoughts on the challenges of Islamic banking and finance:
•We are trying to establish a sense of responsible investment country wide
•We are asking people to be prudent and realistic in their expectations
•We are asking people to be aware of their responsibility to the wider community in their investment decisions
•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.
Islamic Banking and Government Revenue
Collection
An Islamic solution to the economic issues facing
Pakistan
Creating an incentive based economy along Islamic principles
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)
An Islamic solution to the economic issues facing
Pakistan
Creating an incentive based economy along Islamic principles
“….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 2001What happened in the UK when taxes
were lowered?
Underlying wealth
Investment participation
Value of earnings
Effort pays off
An Islamic solution to the economic issues facing
Pakistan
Creating an incentive based economy along Islamic principles
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%.
Has the Thatcher economic model solved Britain’s problems?
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.
An Islamic solution to the economic issues facing
Pakistan
Creating an incentive based economy along Islamic principles
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?
An Islamic solution to the economic issues facing
Pakistan
Creating an incentive based economy along Islamic principles
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.
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
Creating an incentive based economy along Islamic principles
How can the MBCS Work for the UK?
It can work as well in a developed economy as in a developing economy:
•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
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
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.
Islamic Banking and Government Revenue
Collection