Tax Reforms to Facilitate Islamic Finance

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Revenue Law Journal

Volume 20 | Issue 1 Article 5

6-1-2011

e Constitution and Islam: Are Tax ReformsPossible To Facilitate Islamic Finance?

Bre Freudenberg

Mahmood Nathie

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Recommended CitationFreudenberg, Bre and Nathie, Mahmood (2010) "e Constitution and Islam: Are Tax Reforms Possible To Facilitate IslamicFinance?," Revenue Law Journal: Vol. 20: Iss. 1, Article 5.

Available at: hp://epublications.bond.edu.au/rlj/vol20/iss1/5
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e Constitution and Islam: Are Tax Reforms Possible To FacilitateIslamic Finance?

Abstract

Islamic banking and nance is emerging in global nancial markets and governments seek to facilitate it. isarticle focuses on whether it is constitutionally possible for Australia to implement reforms to facilitate faith-based nancial transactions.

ere have been calls for Australia to become a nancial hub particularly in South East Asia. One aspect ofthis is the recognition of Islamic nance as an alternative in the marketplace. is would include ensuring thattax laws are synchronised with Islamic tenets on nancial transactions and do not hinder such alternatives.

Being dierent to conventional nance, Islamic nance has aracted interest and scepticism, partially becauseof the lack of understanding and the paucity of academic research on the subject. While the idea of facilitatingfaith-based nance may seem economically rational, a fundamental question needs to be addressed: is itappropriate for Australias tax laws to be amended to facilitate what may be construed to be the furtherance ofany religion? is article considers the theoretical considerations of tax and religion and assesses theimplications of Islamic nance in light of Australian constitutional law.

Keywords

Islamic banking, Islamic nance, religion and tax

is journal article is available in Revenue Law Journal: hp://epublications.bond.edu.au/rlj/vol20/iss1/5
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THECONSTITUTIONANDISLAM:ARETAXREFORMS

POSSIBLETOFACILITATEISLAMICFINANCE?

BRETTFREUDENBERGANDMAHMOODNATHIE**

Islamic banking and finance is emerging in global financial markets and

governments seek to facilitate it. This article focuses on whether it is

constitutionallypossibleforAustraliatoimplementreformstofacilitatefaith

basedfinancialtransactions.

TherehavebeencallsforAustraliatobecomeafinancialhubparticularlyin

SouthEastAsia.OneaspectofthisistherecognitionofIslamicfinanceasanalternativeinthemarketplace.Thiswouldincludeensuringthattaxlawsare

synchronisedwithIslamictenetsonfinancialtransactionsanddonothinder

suchalternatives.

Beingdifferenttoconventionalfinance,Islamicfinancehasattracted interest

andscepticism,partiallybecauseofthelackofunderstandingandthepaucity

ofacademicresearchonthesubject.Whiletheideaoffacilitatingfaithbased

financemayseemeconomicallyrational,afundamentalquestionneedstobe

addressed:isitappropriateforAustraliastaxlawstobeamendedtofacilitate

whatmay

be

construed

to

be

the

furtherance

of

any

religion?

This

article

considers the theoretical considerationsof taxand religionandassesses the

implicationsofIslamicfinanceinlightofAustralianconstitutionallaw.

INTRODUCTION

Recent developments in financialmarkets underline how religious concernsmay

influencetaxreformandthetransformationofethicalandbankingpracticesinglobal

finance.Suchchangescallforacloserlookattaxreformsinwaysthatmayproduce

tangible benefits to Australia in transnational banking cooperation, capital and

GriffithUniversityBrisbane,Queensland.Theauthorswouldliketoacknowledgethe

supportfromCPAAustraliatheyhavereceivedasgrantrecipientsthroughthe2009CPA

GlobalResearchPerspectivesProgram.Theauthorsaregratefulfortheinsightfulremarksand

recommendationsbythereferee.** Griffith University Brisbane, Queensland. The authors would like to acknowledge the

supportfromCPAAustraliatheyhavereceivedasgrantrecipientsthroughthe2009CPA

GlobalResearch

Perspectives

Program.

The

authors

are

grateful

for

the

insightful

remarks

andrecommendationsbythereferee.

1

Freudenberg and Nathie: Tax Reforms To Facilitate Islamic Finance

Published by ePublications@bond, 2010


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(2010)20REVENUELJ

investment flows and tax revenues. Given its stringent and prudential banking

regulations and its preeminent position in financial markets, Australia has the

potential tobecome the financialhubofSouthEastAsia.However, thisaspiration

maybe

conditional

on

the

extent

to

which

it

recognises

faith

based

financing

alternatives.

WhiletheAustralianGovernmentisempoweredtomakelawsfortaxationunderthe

AustralianConstitution,1thatdocumentalsosaystherewillbenoestablishmentofa

religionby the state.More recently,much attentionhasbeendrawn to the ethical

relationship between religion and taxation2 and between religion and the state.3

Muchofthesedebatescentrearoundtenuousissuesconcerningtherightofthestate

to tax, the taxpreferential treatmentof religious institutions,and the issueofwhat

legallyconstitutesareligion.

Whathasnotbeenarguedintermsoftaxationreformsiswhetheritisappropriateor

legaltoaccommodatefinancialtransactionsstructuredinacertainmannertoensure

religiouscompliance.Inbroadereconomicterms,istheapplicationofAustraliantax

lawsinhibitingorraisingthecostsoftransactionsforcertainreligiousgroups?That

is,isitworthwhileforAustraliatobemoreproactivetoensureitslegalframework,

particularlytaxlaws,donotundulyhindertransactionsstructuredindifferentways

due to religiousbeliefs?Beingawareof these issues,Australiacouldensure that it

has a more globalised tax framework and attract increased levels of diverse

investments,not

only

from

its

own

citizens

but

also

foreigners

with

diverse

religious

backgrounds.

ThisarticlewillfirstlyconsidercallsforAustraliatoreform itstax lawstofacilitate

Islamicfinance.Thisisfollowedbyabriefdiscussionofthemeaningandprinciples

ofIslamicfinance.Thenthehistoricalrelationshipbetweenreligionand lawwillbe

considered,focusingontheAustralianperspective.Thiswillincludehighlightingthe

taxpreferentialtreatmentavailabletoreligionsandconsiderwhatreligionis.Then

the relationshipbetween the threemajor Abrahamic faiths and tax is discussed.

1 CommonwealthofAustraliaConstitutionAct(Cth),s51(ii).2 MAmin,TheTaxationofIslamicFinanceinMajorWesternCountries(2007)1stQuarter

ArabBankingReview129138;RWMcGee(ed),TheEthicsofTaxEvasion(1998TheDumont

InstituteforPublicPolicyResearch);RWMcGee,ThePhilosophyofTaxationandPublic

Finance(2004KluwerAcademicPublishers);RWMcGeeandGCohn,JewishPerspectiveson

theEthicsofTaxEvasion(2006http://ssrn.com/abstract=929027);AMurtazaandSM

Ghazanfar,TaxasaFormofWorship:ExploringtheNatureofZakat,inRWMcGee(ed)

TheEthicsofTaxEvasion(1998TheDumontInstituteforPublicPolicyResearch);ED

Schansberg,TheEthicsofTaxEvasionwithinBiblicalChristianity:ArethereLimitsto

Renderingunto

Caesar?

(1998)

1(1)

Journal

of

Accounting,

Ethics

&

Public

Policy

77.

3 IEllisJones,BeyondtheScientologyCase(2007UniversityofTechnologySydney).

2

Revenue Law Journal, Vol. 20 [2010], Iss. 1, Art. 5

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TAXREFORMSTOFACILITATEISLAMICFINANCE

Thereafter,constitutionalissuesconcerningthisdebatewillbeanalysed, initiallyby

considering s 116 which provides, among other things, that there will be no

establishment of a religion by the state, and then s 51(ii) which provides the

Commonwealthwith

the

power

to

tax.

Attention

will

then

be

focused

on

the

direct

relationshipbetweenthesetwoprovisionstoconsidertheirapplicationtoreformsfor

facilitating Islamic finance. Finally, itwillbe argued that tax reforms to facilitate

Islamicfinancearepossible.

CALLSTOENCOURAGEISLAMICFINANCE

Recently,therehavebeenanumberofgovernmentannouncementshighlightingthe

potentialforAustraliatotapintotheIslamicfinancemarketakintomodelsproposed

by theUKFinancialServicesAuthority.4 It isworthnoting that theUKauthorities

have actively advanced this ambition ahead of other western governments by

recentlyamendingtaxlegislation.5Suchactionsmaybeviewedasatacitacceptance

offinancialmarketdevelopmentsandinnovationsthatAustraliacouldalsoemulate.

Islamicfinance isestimatedtobeworthmorethanAU$1trillion(US$822billion)6

with growth estimated by the International Monetary Fund (IMF)7 at 1015%

annuallyandexpanding.8Globally, shariahcompliantassetsareprojected to reach

US$1 trillion in2010andUS$1.6 trillionby2012.9Currently,most Islamic financial

services are facilitated through a combination ofpure Islamicbanks, conventional

westernbanks

with

Islamic

windows

and

hybrid

institutions

offering

both

4 NSherry(AssistantTreasurer),TheFutureofIslamicFinanceinAustralia(Paper

presentedatIslamicFinanceConference,Melbourne8and9June2010).CBowen(Minister

forFinancialServices,Superannuation&CorporateLaw,MinisterforHumanServices)

IslamicFinanceinAustraliaAMinistersPerspective(PaperpresentedatIslamicFinance

Conference,Melbourne8and9June2010);CBowen(MinisterforCompetitionPolicyand

ConsumerAffairsandAssistantTreasurer)(PaperpresentedatLaTrobeUniversity,National

AustraliaBankandMuslimCommunityCorporationofAustraliaSymposiumonIslamicBanking

andFinance;AustralianFinancialCentreForum,AustraliaasaFinancialCentre:BuildingonourStrengths,(2009CommonwealthofAustralia);SCrean(MinisterforTrade),Landmark

Islamicfinancepublication(2010CommonwealthofAustralia);UKFinancialServices

Authority,IslamicFinanceintheUK:RegulationandChallenges(2007)availableat:

.5 HMTreasury,GovernmentmovestosupportUKIslamicfinanceindustry,(21January2010),

availableat:.6 TheBanker,Top500IslamicFinancialInstitutions,(November2009).7 IMF,MonetaryandCapitalMarketsDepartment(19September2007),availableat

.8 Standard&Poors,IslamicFinanceOutlook(2009)5.9 OWyman,TheNextChapterinIslamicFinance:HigherRewardsButHigherRisks(2009).

3




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(2010)20REVENUELJ

conventionaland shariahcompliantbankingand investments.10A largeproportion

ofIslamicfinanceactivityiscomprisedofissuancesthroughtheIslamicbond(sukuk)

market,withglobalsukuk issuances totallingUS$30.94billion in2007andUS$23.6

billionin

2008.11

Under

utilised

oil

revenue,

sovereign

wealth

institutions

and

private

investmentportfoliosofhighnetworthfamiliesand individualsdrivemuchofthis

capitalmarketactivity.12

The current reachof Islamic finance inglobal capital and equitymarkets suggests

there ispotentialforAustralia,throughmultilateraltradeandfinancialservices,to

facilitate Islamic finance expanding opportunitieswithin andbeyond itsborders.13

Potentialeconomicbenefitsinclude,butarenotlimitedto,Islamicbankoperationsin

Australia; capital raising in foreign markets; managing, lead underwriting andmaintainingbooksof shariah compliant securities fornew stockand sukuk issues;

exporting specialist financial services, as well as conventional banks providing

shariahcompliant investment and financing products across theAsia Pacific and

Gulfregions.Also,investmentinAustralianassetsandbusinessbyoverseasshariah

investors may be facilitated particularly from petrodollar liquidity.14 This

petrodollarliquidityreferstooilrichnations domesticeconomiesbeingtoosmallto

absorb all capital inflows from oil revenues thereby providing them greater

liquidity.15Otheropportunitiesrelatetoservicesprovidedto,andinvestmentsmade

by,shariahcompliantmanaged funds.Demographically, thepotential forAustralia

isaccentuatedby the fact that there areover abillionMuslims living in theAsia

Pacificregion.16ThisiscomplementedbythehighrecognitionofAustraliasfinancial

10 AustralianFinancialCentreForum,aboven4,70;MalaysianIslamicFinance,Malaysian

IslamicFinanceReport(2006)4852.11 RMillikan,ChoppyWatersforIslamicDebtMarkets(2009)IslamicFinanceNews14,14.

SeealsotheInternationalFinancialServicesResearch,IslamicFinance(2009IFSLResearch),

1.12

NJAdam

and

A

Thomas,

Islamic

Bonds:

Your

Guide

to

Issuing,

Structuring

and

Investing

in

Sukuk(2005EuromoneyBooks).13 ThroughdedicatedIslamicindexessuchastheDowJonesIslamicMarketIndex(DJIM),the

FTSEIslamicGlobalIndexandTheFTSEBursaMalaysiaEMASShariahIndex.Foramore

detaileddiscussionseeMNSiddiqi,MuslimEconomicThinking:ASurveyof

ContemporaryLiteratureinKAhmad(ed),StudiesinIslamicEconomics(1980TheIslamic

Foundation)46.14 Crean,aboven4.15 AustralianTradeCommission,IslamicFinance(2010AustralianTradeCommission)5.16 62%ofworldsMuslims(972.5million)liveinAsiaPacific:PewResearchCentre,Mapping

theGlobal

Muslim

Population

A

Report

on

the

Size

and

Distribution

of

the

Worlds

Muslim

Population(2009);Crean,aboven4.

4




7/38


sectorwithAustraliasfinancialsystemandcapitalmarketrankingsecondamong

55leadingnationsin2009.17

Currently, themajor centres for Islamic finance include theUnitedArabEmirates,

BahrainandMalaysia.18However, there is significantactivityoccurring in theUK,

otherpartsofEurope,AfricaandIndonesia.

Table 1 lists the top ten countries in terms of value of shariahcompliant assets,

demonstrating that Malaysia is third largest, with the UK eighth. In Malaysia

prominent Islamic financial institutions include Bank Rakyat, Maybank Islamic

Berhad, BIMB Holdings, CIMB Islamic Bank Berhad and Public Bank Islamic

Berhad.19 IndeedMalaysia and Bahrain havebeen credited as themost active in

developingdualsystemswhereIslamicandnonIslamicfinancialinstitutionsoperate

alongsideeach

other.

20

Table1:TopTenCountries:shariahcompliantassets

Rank Country Shariahcompliantassets

US$bn

1 Iran 293.2

2 SaudiArabia 127.9

3 Malaysia 86.5

4 UnitedArabEmirates 84.0

5 Kuwait 67.6

6 Bahrain 46.2

7 Qatar 27.5

8 UK 19.4

9 Turkey 17.8

10 Bangladesh 7.5

(Source: The Banker, Top 500 Islamic Financial Institutions, (November 2009) 4)

WithinAustraliathereisalsoagrowingMuslimcommunity,with365,000Muslims,

representing 1.7% of Australias population.21 Contextualised, there are

17 WorldEconomicForum,TheFinancialDevelopmentReport(2009).18 Haron&WanAzmi,IslamicFinanceandBankingSystem:Philosophies,Principles&Practices

(2009)3734.19 AustralianTradeCommission,aboven15,17.20 Ibid9.21 Ibid5,referringtoAustralianBureauofStatistics2006Census.

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(2010)20REVENUELJ

approximately1.57billionMuslimsworldwiderepresentingapproximately23%of

theworldspopulation.22 It isestimated that Islamic finance representsonly1%of

globalfinance.23It isbecauseofthisdichotomythatcommentatorsconsiderthere is

thepotential

for

growth.24

These

arguments

are

based

on

the

emergence

of

astrong

middle class, rising oil revenue and strong economicgrowth of theGulf,demand

from Muslim and nonMuslim investors and low penetration levels.25 This is

complementedbytheethicalcharacterandfinancialstabilityofIslamicproducts.

Among western countries, the UK has been very active from an early stage in

facilitating Islamic finance. In December 2008 the UK Treasury released a

comprehensive study, aimed at raising awareness about Islamic finance..26At the

same time,HMTreasuryand theUKFinancialServicesAuthority (FSA)releaseda

proposed legislative framework for the regulatory treatment of Islamic sukuks

(bonds).27 Consistentwith its intention to promote London as the global hub for

Islamicfinancialservices,theUKauthoritieshaveforeshadowedotherchangestobe

madeinamannerthatwouldensurefairness,asopposedtopreferentialtreatment,

to Islamic finance over conventional finance.28Accordingly, a number of tax and

legislativechangesaimedatpreventingmultiplepaymentofstampdutyonIslamic

mortgages.Furthermore,amendmentswereintroducedtoensure alternativefinance

investmentbonds (whichwouldincludesomeIslamicfinanceproducts)wereputon

thesametaxfootingasconventionalproducts.29

Whilethere

has

been

some

activity

in

Australia,

this

is

still

largely

in

the

formative

stages. Following the recommendationsby theAustralian FinancialCentre Forum

(theJohnsonReport),30theAustralianGovernmenton26April2010announcedthat

22 PewResearchCentre,aboven16.23 AustralianFinancialCentreForum,aboven4,14.24 AustralianTradeCommission,aboven15.25 SJaffer(ed),IslamicRetailBankingandFinance(2006EuromoneyBooks)34.26 HMTreasury,ThedevelopmentofIslamicfinanceintheUK:theGovernmentsperspective(2008).27

HMTreasury,

Consultation

on

the

legislative

framework

for

the

regulation

of

alternative

finance

investmentbonds(sukuk)(2008).28 MAmin,TheTaxationofIslamicFinanceinMajorWesternCountries(2007)1stQuarter

ArabBankingReview129.29 Ibid.30 AustralianFinancialCentreForum,aboven4;TheForumrecommendsthattheTreasurer

refertotheBoardofTaxationthequestionofwhetheranyamendmentstoexisting

CommonwealthtaxationprovisionsarenecessaryinordertoensurethatIslamicfinance

productshaveparityoftreatmentwithconventionalproducts,havingregardtotheir

economicsubstance.Subsequently,therehasbeentheAustradepublicationIslamicFinance

in2010

which

sets

out

its

wide

ranging

observations

in

relation

to

Islamic

finance

and

how

itispositionedwithAustralia:AustralianTradeCommission,aboven15.

6




9/38


theBoardofTaxationwouldundertakea comprehensive reviewofAustralias tax

lawwith thepurpose that the lawsdonot inhibit theexpansionof Islamic finance,

banking and insuranceproducts.31More recently theBoard ofTaxation released a

DiscussionPaper

inviting

submissions

on

its

terms

of

reference

in

pursuance

of

that

brief.32

Notably, theVictoriangovernment introducedprovisions to limit the impositionof

doublestampdutyonIslamic financingarrangements forhomepurchases, thereby

allowing equal tax treatment with conventional financing arrangements.33 These

Victorianstampdutychangeswere in response to Islamic financialproductsbeing

offeredby theMuslimCommunityCooperative (Australia)Limited (MCCA)and

submissions made by it.34 MCCA has been providing various Islamic financial

productssince1989inAustralia,andcurrentlyhassome$425millionfinancewritten

ormanagedbyit.35

However, there has been a conspicuous lack of enthusiasm by Australias

conventional banking sector to tack on to this emerging market. Some tangible

supportdid emerge inJune 2009,when theNAB announced its intention to offer

Islamicloans.36Mostrecently,inFebruary2010WestpacBankingCorpannouncedit

wouldofferacommoditytradingfacilityaimedatoverseasinvestorsthatoperatesin

accordancewith Islamic Law.37However, thismove does not address the Islamic

retailbanking,fundmanagementandcapitalmarkets.

Prior todiscussing the relationshipbetween religion and law, abrief overview of

Islamicfinance,itsmeaningandprincipleswillbecanvassed.

31 NSherry(AssistantTreasurer),TermsofreferenceforBoardofTaxationReviewintoIslamic

financeannounced(2010Treasury).32 BoardofTaxation,ReviewoftheTaxationTreatmentofIslamicFinance:DiscussionPaper(2010

BoardofTaxation).33 DutiesAct2000(Vic),ss57A,57Band57C.Thepotentialfordoublestampdutyarises

because,pursuanttotheIslamicfinancingproduct,theBankinitiallypurchasesthehome,

andthensubsequentlyleasesittotheeventualowner.Itisonlyatalaterdatethatthe

homeisthentransferredtotheowner.34 MCCALtd,Milestones,availableatwww.mcca.com.au/Pages/Aboutus.html?tab=2

[Accessed8July2010].35 MCCALtd,MCCAIncomeFund,availableatwww.mcca.com.au/Pages/Wealth

Management[accessed8July2010].36 NGardnerandWRussell,TheCourierMail,June14,2009.37 EJohnston,WestpacdipsintoIslamicFinanceSydneyMorningHerald,12February2010.

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MEANINGANDPRINCIPLESOFISLAMICFINANCE

Islamic finance is an economic system premised on ethical rules and norms that,

when properly practised, are intended to satisfy amoral purpose. Consequently,

contracts, obligations and transactions that subscribe to these rules aremeant to

ensure that: they are free of interest; they do not include prohibited acts and

investments; there is risk sharingbetween parties; and the financingmodels are

basedonrealassets.Wheretheseconditionsprevail,contractsaresaidtobeshariah

compliant.

The rationaleof Islamic finance is compliancewith the shariah (Islamic law).38The

corpus of the shariah emanates from two canons, namely the Quran and the

prophetic traditions(hadith).Thesesourcesarecomplementedby independent legal

decisionmaking (ijtihad) in the form of analogical deductions, legal precedents,presumption of continuity and juristic consensus.39 As such, the shariah sets

parameterswithinwhichIslamicfinancemayenduresuchas:recognisingtheuseof

money and capital as a means of exchange and not a tradable commodity;

prescribingactsthatarelawfulorprohibited;40definingtherelationshipbetweenrisk

and profit;41 and setting out the social responsibilities of parties in financial

dealings.42Thuscompliancewithshariahmayresult,forinstance,intransactionsthat

maybe intended toachieve complianceoutcomes thatarenevertheless similar to

loanagreementslegallystructuredasleaseorsaleandpurchaseagreements.43While

the shariah sets theboundaries, the legal applications are tobe found infiqh orIslamic jurisprudence. Fiqh is a juristic edifice that is essentially comprised of

common law, customary practices andjuristic precedents derived from analogical

deductions.44

38N

Yaqubi,

Shariah

Requirements

for

Conventional

Banks

(2005)

22

Journal

of

Islamic

Banking&Finance1.39 AbdurRahmanDoi,Shariah:TheIslamicLaw(1sted,1984TaHaPublishersLtd);MH

Kamali,PrinciplesofIslamicJurisprudence(2nded,2004IlmiahPublishers).40 YalQaradaw,TheLawfulandtheProhibitedinIslam(1sted,1984TheHolyQuran

PublishingHouse).41 ElGamal,IslamicFinance:Law,EconomicsandPractice(2009CambridgeUniversityPress).42 FEVogelandSLHayes,IslamicLawandFinance:Religion,RiskandReturn,Arab&Islamic

LawsSeries(1998KluwerLawInternational).43 MAyub,UnderstandingIslamicFinance(2007JohnWiley&SonsLtd).44

ElGamal,

Islamic

Finance:

Law,

Economics

and

Practice

(2009

Cambridge

University

Press),

27.

8




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ThenormsthatcharacteriseIslamicfinancemaybeclassifiedintotwodimensionsa

moral and ethical dimension, and an economic dimension.45 The first deals

predominantlywithsocioeconomicjusticeandequitabledistributionthroughtaxby

wayof

zakat

(obligatory

alms)

and

the

prohibition

of

trading

in

forbidden

objects

and

hoarding.46 The economic dimension incorporates a number of distinct elements

identifiedbyObaidullah,namely:47

Freedomtocontract;48

Freedomfromriba(interest);49

Ghararorexcessivespeculationanduncertainty;

Freedomfromalqimar(gambling)andalmaysir(unearnedincome);

Trading and investment in forbidden acts and objects (such as gambling,pornographyandalcohol);

Dualityofrisk(partiesmustsharerisk);and

Assetbased financial transactions,basedon the condition that identifiableand

tangibleunderlyingassetsshouldunderpinfinancialtransactions.

Thejuristicprinciplesunderpinningtheseelementsarevastandextantandtranscend

intoveryfinedetailoverwhichthereisnounanimityamongthefourleadingIslamic

juristic

schools.

Thus,

as

a

means

of

standardising

these

principles,

the

Malaysian

SecuritiesCommission,theIslamicFinancialServicesBoardandtheAccountingand

Auditing Organisation for Islamic Financial Institutions (AAOIFI) have compiled

detailedguidelines for financialpractitioners to follow in theapplicationof Islamic

finance.50

45 KAhmad,StudiesinIslamicEconomics(1sted,1980TheIslamicFoundation);MUChapra,

IslamicEconomics:Whatitisandhowitdeveloped(2005EH.NetEncyclopaedia)

http://eh.net/encyclopedia/articlechapra.islamic.46 MTUsmani,AnIntroductiontoIslamicFinance(1sted,1998IdaratulMaarif).47 MObaidullah,IslamicFinancialServices(2006KingAbdulAzizUniversity)1012.These

havealsobeenidentifiedbytheAustralianFinancialCentreForumasessentialelementsin

Islamicfinance.See:AustralianFinancialCentreForum,aboven4,70.48 Quran2:275;4:29.49 Quran30:39;4:161;3:1302;2:275.Theprohibitionofinterestconstitutesoneofthekey

principlesofIslamicfinance.Instead,interestisreplacedbyaraftoffinancialalternatives

underpinnedbyrisksharingthroughpartnership.50 SecuritiesCommissionMalaysia,ResolutionsoftheSecuritiesCommissionShariahAdvisory

Council(2nded,2006KualaLumpur);AAOIFI,ShariahStandards(2008Manama,Bahrain:

AccountingandAuditingOrganisationforIslamicFinancialInstitutions).

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Among the financial products frequently referred to in Islamic financial contracts

are:51 murabaha or (costplus) financial transactions;52 ijara contracts (leasing

contracts);53mudarabahcontracts(trusteepartnership);54musharakacontracts(formsof

limitedpartnership);55

sukuks

(Islamic

bonds);56

and

takaful

(mutual

insurance

arrangement).57

Thepracticalmanifestationof theseproductswithin Islamicbanking institutions is

accomplishedwith the assistance ofboth shariah scholars and conventional legal

practitioners.58 This additional regulatory layer is meant to guide financial

institutions toensurecompliancewith the shariah in their financialactivities.59For

this reason, Islamicbanks are required inmanyjurisdictions to establish shariah

supervisoryboardsorcommittees.60

Giventhis

brief

exposition

of

Islamic

finance,

it

is

difficult

to

determine

the

extent

to

whichthisfaithbasedalternativemayinfluenceorpersuadeanysecularAustralian

51 AustralianTradeCommission,aboven15,8.52 Ibid8:aformofassetfinancingwhereanIslamicFinanceInstitution(IFI)purchasesan

assetandthensellsittoitsclientatahigherpricewithdeferredpayments.(Thehigher

pricerepresentstheinterestthatwouldnormallybepayable).53 Similartoahirepurchase,thebankpurchasestheassetandallowsthecustomertouseit

foranagreedperiodandforanagreedrent.54

A

form

of

limited

partnership

where

an

investor

(the

silent

partner)

gives

money

to

an

entrepreneurforinvestinginacommercialenterprise.Theprofitsgeneratedbythe

investmentaresharedbetweenthepartnersinapredeterminedfashion.Thelossesare

borneonlybytheinvestor.55 AformoflimitedpartnershipwherebothpartnersinMusharakamustcontributecapitalto

thepartnership.Bothpartnersoranyoneofthemmaymanagetheventure,oralternatively

bothmayappointathirdpartymanagertomanagetheinvestment.Whileprofitsmaybe

sharedinapredeterminedfashion,lossesaresharedinproportiontothecapital

contributed.56 Shariahcompliantfinancialcertificatesofinvestmentthataresimilartoassetbacked

bonds.

57 Similartoamutualinsurancearrangement,agroupofindividualspaymoneyintoa

Takafulfund,whichisthenusedtocoverpayoutstomembersofthegroupwhenaclaimis

made.58 YTDeLorenzoandMJTMcMillen,LawandIslamicFinance:AnInteractiveAnalysisinS

ArcherandRAAbdelKarim(eds)IslamicFinance:TheRegulatoryChallenge(2007JohnWiley

&Sons(Asia)).Theseauthorsprovideanextensivereviewofthemannerinwhichlegal

practitionersfrombothsideshavecollaboratedinproducinghybridspecimensofmodern

Islamicfinancialcontracts.59 AustralianTradeCommission,aboven15,7.60

SecuritiesCommission

Malaysia,

Resolutions

of

the

Securities

Commission

Shariah

Advisory

Council(2nded2006KualaLumpur).

10




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government toenact lawsto facilitate it in lightofproscriptions in theconstitution.

Thereforeit is importanttoconsidertherelationshipbetweenreligionand law,and

how this relationship has been dealt with by the courts. This will facilitate

understanding,to

determine

whether

it

is

appropriate

for

reforms

to

be

introduced

to

facilitateorfavourfaithbasedfinancialmodels.

RELATIONSHIPBETWEENRELIGIONANDLAWINAUSTRALIA

Todecidewhether, inanAustralian context, it isappropriate to consider financial

transactions structured in ways that ensure religious compliance, calls for an

understanding of the relationship between religion and law. It is questionable

whether such a relationship is tenable. In common law at least,while courtsmay

recognise faithas influential inpeoplesbehaviour through itsdiversity, thecourts

havealwaysadjudicated indisputeson thebasisofjusticeandequity.However, it

remainstobeseenwhatmeansthecourtshaveresortedtoinarrivingatdecisionson

issues concerning religion andwhether any settled law transcends to faithbased

financialissues.

In theAdelaideCompanyofJehovahsWitnessesIncvCommonwealth,LathamCJnoted

thatintheearlyhistoryofmankinditwasalmostimpossibletodistinguishbetween

governmentandreligionandthatacleardistinctiononlyemergesrelativelylatein

human development.61However, LathamCJ acknowledged even inmoremodern

timesthat

religious

beliefs

and

practice

cannot

be

absolutely

separated

either

from

politicsorfromethics.62ThissentimentissupportedbyGleesonCJ:

theseparationbetweenreligion,morality,andlaw,whichmostpeoplenowtake

for granted, is relatively recent although the division is not as clear cut as

manypeopleassume.63

Historically, the earliest courts in England were not courts of common law but

ecclesiasticalcourts,64withthedevelopmentofthecommon law itselfseenasbeing

intimatelyboundupwithChristiantheology.65Bermanstates:

basic institutions, concepts, and values of Western legal systems have theirsources inreligiousrituals, liturgies,anddoctrinesof theeleventhand twelfth

centuries, reflectingnewattitudes towarddeath, sin,punishment, forgiveness,

and salvation, aswell as new assumptions concerning the relationship of the

61 AdelaideCompanyofJehovahsWitnessesIncvCommonwealth(1943)67CLR116,125(Latham

CJ).62 Ibid125 6(LathamCJ).63 MGleeson,TheRelevanceofReligion(2001)75AustralianLawJournal93,93.64 PBabie,BreakingtheSilence:Law,TheologyandReligioninAustralia(2007)11

MelbourneUniversityLawReview1,2.65 Ibid.

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(2010)20REVENUELJ

divinetothehumanandoffaithtoreason.Overtheinterveningcenturies,these

religious attitudes and assumptions have changed fundamentally, and today

theirtheologicalsourcesseemtobeintheprocessofdryingup.66

Therelationshipbetweenreligionandlawhasnotalwaysbeenpleasant.Ithasbeenobserved thatChristianityhasbeenused and abusedbyWestern law to produce

profoundlynegativeoutcomes for individualsandgroups.67Suchabuse led to the

Enlightenment against irrational passion, which tried to break the link between

religionandlaw.68Whetherthisbreakisfullyachievedisquestionable,asinalegal

system that purports tobe secular, this can lead to a complex and controversial

relationship.69 Part of the problem is that the division between religion, legal

philosophyandpoliticalphilosophycannotbeneatlymaintainedintherealworld.70

For example,blasphemy continues tobe anoffence in theUK and itsChristianity

focushasbeenupheld,astheoffencedoesnotapplytootherreligions.71InAustralia,blasphemyhasbeenlargelyrepealedfromsuchthingsasfilmregulations.72

MorespecificallyforAustralia,GleesonCJhasobservedthatAustralianswouldnot

expectAustralian law toenforce religiousdoctrine,asAustralia is seenasbeinga

multicultural society,whichnecessarily involvesamultiplicityofvalues, including

religious andmoralvalues.73Thepublicperception of the separationbetween law

(state)andreligionwasexemplifiedearlyinAustraliasfederalism,asapetitionwas

said to havebeen signedby 30,000Australiansprotesting againstAustralias first

66 Ibid,quotingHaroldJBerman,LawandRevolution:TheFormationoftheWesternLegal

Tradition(1983).67 Ibid12.68 CEvans,TheDoubleEdgedSword:ReligiousInfluencesonInternationalHumanitarian

Law(2005)6(1)MelbourneJournalofInternationalLaw,2.69 Ibid.70 Ibid.71 GBlake,Promotingreligioustoleranceinamultifaithsociety:Religiousvilification

legislationin

Australia

and

the

UK

(2007)

81

The

Australian

Law

Journal

386,

387

8:

In

the

UKblasphemyandblasphemouslibelarecommonlawoffencestriableonindictmentand

publishablebyfineorimprisonment[itcontinuestoexisttoday][atp388,perRvChief

MetropolitanMagistrate,exparteChoudhury(theSatanicversescase)[1991]1QB429,43947].

TheoffenceofblasphemyisonlyapplicabletoChristianity.Therehavebeenunsuccessful

attemptstorepealtheoffenceintheUK.72 Ibid389.Previously,therewasreferencestothetermblasphemousinfederallegislation

(Australia)suchastheCustoms(CinematographFilms)Regulations1956(Cth)(repealed),

Regulation13,whichprohibitedtheCensorshipBoardfromregisteringimportedfilmsand

advertisingmatterwhichwere,interalia,blasphemous.Theoffencewasabolishedin

Queenslandin

1899.

73 Gleeson,aboven63.

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PrimeMinister,EdmundBarton,payingacourtesycallon thePope inRomewhile

returningfromavisittoLondon.74

Neverthelessreligiousinfluencecanexist,albeitindirectattimes,onvariousaspects

of civil and criminal law, and largelybyway of religious influence onmorality.75

AustralianPrimeMinistershaveacknowledgedhowtheirownreligiousbeliefshave

influencedtheirpolicydecisions.76

Puig and Tudor argue that Australian constitutionalism does not have a strict

separationofstateandreligion,particularlywhencomparedwiththatfoundinother

nations,suchastheUnitedStates.77Mortensenarguesthat,notwithstandingappeals

to the contrary, in the Australian polity, integration as opposed to separation of

churches (religions)and state is thenorm. Integration findsexpression in ananti

discriminationprinciple

by

which

citizens

have

equal

rights

to

bring

their

religious

beliefs into thepublicsquareandgovernmentsonly role is todealevenhandedly

betweenthem.78Thislackofawallofseparationbetweenreligionandstateislikely

tocontinuegiventhecourtsinterpretationofconstitutionalprovisionsdealingwith

religion.79

These conclusions canbe supportedby legislative (in)action concerning same sex

union and themeaning of marriage. Brennan concludes that same sex union in

Australiaconfirmsseparationbetweenstateandreligionthatmaybemoreofthesoft

thanthehardvariety.80GleesonCJusestheexampleoftheunlawfulnessofbigamy

toprovideagoodexampleof the influence thatreligionhashad,andcontinues to

have,on the law.Heargues that, it isdifficult toexplainwhybigamy iscriminal,

74 Ibid94.75 Ibid.76 Forexample,formerPrimeMinisterJohnHowardhaspublicallyacknowledgedthathis

policieshavebeeninfluencedbyhisProtestantbeliefs:LiberalRuledocumentary

broadcastonSBS:http://www.sbs.com.au/documentary/program/liberal

rule/about/synopsis[accessed22July2010].77 GVPuigandSTudor,Totheadvancementofthyglory?Aconstitutionalandpolicy

critiqueofparliamentaryprayers(2009)20PublicLawReview56,70.78 Ibid,quotingReidMortensen,Judicial(In)ActivisminAustraliasSecularCommonwealth

inChristineParkerandGordonPreece(eds),TheologyandLaw:Partnersor

Protagonists?(2005)8(1)Interface:AForumforTheologyintheWorld52.79 Ibid54.80 Babie,aboven64,quotingFrankBrennan,ChurchStateConcernsaboutSameSex

MarriageandtheFailuretoAccordSameSexCouplesTheirDueinChristineParkerand

GordonPreece(eds),TheologyandLaw:PartnersorProtagonists?(2005)8(1)Interface:A

ForumforTheologyintheWorld83,83.

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(2010)20REVENUELJ

even though no deception is involved, except by reference back to religious

doctrine.81

This influence of religion is illustrated by the existence at the beginning of the

AustralianConstitutionofapreamblewhichhasbeendescribedasa constitutional

obeisancetoGod.82Thepreamblereads:

WHEREAS the people of New South Wales, Victoria, South Australia,

Queensland,andTasmania,humbly relyingon theblessingofAlmightyGod,

haveagreedtouniteinoneindissolubleFederalCommonwealth

Itappearsthatthewordingofthepreamblewasintendedtoappealtothosevotersof

religiousconviction for the formationofaFederation.83However,thoseopposed to

theinsertionofthereligiousovertonesinthepreamblethensoughttheintroduction

of s 116 to provide some religious safeguards.84 This articlewill later analyse theextenttowhichs116hasbeeneffectiveinprovidingreligiousguarantee.

Anothervery clear connectionbetween theAustralianparliament and religion are

the current standing orders forboth theHouse ofRepresentatives and the Senate

which state that each sitting is to begin with two prayers one a prayer for

Parliament and the other theLordsPrayer.85Thispractice ofprayer commencing

parliamentarysittingsisnotuniquetoAustralia,asothercommonlawjurisdictions

such asNew Zealand, Canada, theUK and theUnited States also do this.86 The

Lords Prayer in Australia has been clearly identified as Anglican in terms of

denominationaffiliation.87PuigandTudorhaveconcluded thatwhile thesayingof

the Parliamentary prayer is technically constitutional they questionwhether it is

[morally]appropriate.88

Thisisnottosaythatthereisnotanawarenessofactivestepstakentoensuregreater

inclusiveness of people with different backgrounds in Australia. For example,

legislationineachoftheAustralianjurisdictions,apartfromtheCommonwealthand

81Gleeson,

above

n

63,

94.

82 TBlackshield,ReligionandAustralianConstitutionalLawinPRadan,DMeyersonand

RFCroucher(eds),LawandReligion:God,theStateandtheCommonLaw(2005Routledge)82.83 PuigandTudor,aboven77,61,referringtotheOfficialRecordoftheDebatesofthe

AustralasianFederalConvention,ThirdSession,Melbourne,20Januaryto17March1898,

VolV,1732.84 Ibid,referringtoHenryHigginsofVictoria.85 Ibid;StandingOrder38fortheHouseofRepresentativesandStandingOrder50forthe

Senate.86 PuigandTudor,aboven77,57.87

Ibid58.

88 Ibid.

14




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theNorthernTerritory,makesracialvilificationunlawfuland/orcreatesanoffenceof

racial vilification.89 There are similar definitions of race or racial group in this

legislation, which refer to colour, nationality and/or national origin, descent or

ancestry,and

ethnicity

or

ethnic

origin.90

However,

only

the

jurisdictions

of

Queensland,TasmaniaandVictoriahave enacted religiousvilification legislation,

with similar legislation having been rejected in NSW, WA and SA.91 Religious

vilificationisdefinedas:

Apersonmustnot,byapublicact,incitehatredtowards,seriouscontemptfor,

orserveridiculeof,apersonorgroupofpersonsonvariousgroundsincluding

religionofthepersonormembersofagroup.92

Adefence forreligiousvilification includepublicactsdonereasonablyand ingood

faith

for

a

purpose

in

the

public

interest.93

However,

it

has

been

observed

that

there

is

verylittleinAustraliasconstitutionthatdemandssuchseparationbetweenstateand

religion.94

ItisarguedthatitwouldbenavetoconsiderthatAustraliasdominantreligionhas

notpermeatedinpartAustraliaslegalsystemincludingtaxlaws.Forexample,this

religious influencecanbe indirect,suchas thefacilitationof legalrelationshipsthat

are inaccordance (ornot inconflict)with it. It isnotargued that there isanovert

intenttodiscriminateonreligiousbeliefs.Nevertheless,it isarguedthatAustralias

legalsystem(whichishistoricallyinfluencedbyChristianity)cansitawkwardlywith

Australiansofdifferentreligious,ornoreligious,beliefs.This religious influence ismoreacutenowbecause,whilepreviouslytheremayhavebeengreatercongruency

betweenAustralias legalsystemandreligiousbeliefsduetoa largelyhomogenous

population over the last centuryAustralia has actively encouraged immigration

resultinginalargerethnicmixwithdifferentreligiousbeliefs(greaterheterogeneity).

Consequently,itisarguedthatreligioncan,anddoes,influenceAustraliaslaws.

89 Blake,aboven71,391:eg,AntiDiscriminationAct1991(Qld),s124A.90 ForexampleAntiDiscriminationAct1991(Qld),s4.91 Blake,aboven71,393.92 Since7June2001theAntiDiscriminationAct1991(Qld)hasincludedreligiousvilification

provisions:AntiDiscriminationAct1991(Qld),ss124Aand131A.93 Forexampleoftheapplicationofthegoodfaithandpublicinterestdefencesee:Deenv

Lamb[2001]QADT20,whichwasacaseaboutacomplaintbyaMuslimrelatingtothe

pamphletdistributedbyacandidatefortheseatofMoretonintheFederalelectionheldon

10November2001.ThePresidentfoundthatthepamphletincitedhatredandserious

contemptforMuslimsasawhole,butnotunlawfulbecauseitwaswithinanexception.94 PuigandTudor,aboven77,70.

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(2010)20REVENUELJ

Specialtaxtreatmentofreligiousinstitutions

A clear example of the influence of religion and the provision of preferential

treatmentarethetaxconcessionsavailabletoreligiousorganisations.Forexample,s

505IncomeTaxAssessmentAct1997(Cth)exemptsfromtaxtheincomeofcharitable,

religious,scientificorpubliceducationalinstitutions.

Somearguethatthepresenttaxdispensationisarchaicandinequitable;thatitdoes

not reflect presentday realities in themarketplace; that religious tax exemptions

imposecostimpostsonthepublicgenerallyand,thebenefitsareforthepurposeof

advancingreligionandnotthenationalinterest.95Thesesentimentsarebasedonthe

premisethatasAustraliaisasecularstate,thereisnoneedtoadvanceanyreligion.

Very recently,Carling inarguing for reformofAustralias tax lawalsoquestioned

lossof

fiscal

revenue

through

generous

exemptions.

96This

tension

was

recognised

by

KirbyJ(dissenting)inFCTvWorldInvestments:

A taxation exemption for religious institutions, so far as it applies, inevitably

affords effective economic support from the Consolidated Revenue Fund to

particularreligiousbeliefsandactivitiesofsomeindividuals.Thisiseffectively

paidforbyothersacrosstransferenceofeconomicsupport.Thecourtsmust

recognise that this is deeply offensive to many nonbelievers, to people of

different faiths and even to somepeople ofdifferent religiousdenominations

whogenerallysharethesamefaith.97

KirbyJ (supra)wenton toemphasise the importanceofequitybetweenAustraliantaxpayers:

charitable and religious institutions should share with other Australian

taxpayerstheliabilitytopayincometaxupontheirincome.Exemptionneedsto

beclearlydemonstratedasconformabletolaw.98

Further,nonreligiousgroupsargue that s116of theConstitutionwas intended to

make Australia a secular state and that reality ought tobe reflected in denying

preference to religion in tax exemptions and other privileges.99 They rely on the

argumentadvancedbyMurphyJthat:

95 JPerkinsandFGomez,Taxesandsubsidies:thecostofadvancingreligion(2009)93

AustralianHumanist6,6.96 RCarling,TheUnfinishedBusinessofAustralianIncomeTaxReform(2010TheCentrefor

IndependentStudies).97 FederalCommissionerofTaxationvWordInvestmentsLtd[2006]FCA1414,250.98 Ibid.99 TheAtheistFoundationofAustralia,ResponsetotheHonWayneSwansPressReleasenumber

36regarding

Australias

future

tax

system

(June

24,

2008).

However,

many

submissions

have

beenmadetotheHenryReviewonAustraliasFutureTaxSystembyotherinterestgroups

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Thecrushingburdenof taxation isheavierbecauseofexemptions in favourof

religiousinstitutions,manyofwhichhaveenormousandincreasingwealth.100

Therejoindertothedenialargumentadoptsadifferentlineofreasoning,preferring

thatAustraliashouldbeconstruedasapluralisticsocietyratherthanasecularone,ifby secular onemeans a societywhere there is no place for religion.101 Further,

religious institutions relying heavily on tax concessions, fill a raft of charitable

obligationsaimedatpromotinghumanwellbeingmanyofwhich falloutside the

remit of state social services.But even here, tax laws for promoting nonreligious

activitiesbynonprofitorganisationshavebeenfoundtobecomplexandconfusing102

andnoteasilyaccordedtaxexemptstatus.103

Anissuethatariseswithinthisdiscourseis:whatisreligionandhowitisdefined.

Thisissue

featured

very

prominently

in

the

well

known

High

Court

case

Church

of

the

New Faith v Commissioner of PayRoll Tax (Vic) (the Scientology case). ChiefJustice

MasonandBrennanJheld:

For legal purposes the criteria of religion are twofold: first belief in a

supernatural being, thing or principal; second, the acceptance of canons of

conduct inorder togiveeffect to thatbelief, though canonsof conductwhich

offendagainsttheordinarylawsareoutsidetheareaofanyimmunity,privilege

orrightconferredonthegroundsofreligion.104

TheHighCourtdecisionwasa reversalofanearlierdecisionbyCrockettJ in the

Supreme Court of Victoria dismissing the plaintiffs appealby holding that the

whotakeadifferentviewtothatespousedbytheAtheistFoundation.Amoredetailed

discussionistofoundat;

.Forexample,

exemptionsfromstampduty,payrolltaxandmunicipalrates.100 ChurchoftheNewFaithvCommissionerofPayrollTax(Vic)14ATR794(MurphyJ).For

instance,thecommercialoperationsofSanitariumFoodCompanycontrolledbyTheSeventh

DayAdventistChurch.101 FrBrianLucas,ModernisingCharityLawReligion SomeComments,paperpresentedatthe

QueenslandUniversityofTechnologyconferenceonModernisingCharityLaw(18April

2009).102 KKeating,TheNationalGovernanceoftheNonProfitSector(2007TheWinstonChurchill

MemorialTrustofAustralia)32.SeetheReportoftheSenateStandingCommitteeon

Economics,Disclosureregimesforcharitiesandnotforprofitorganisations,December2008

especiallyChapter8,availablefrom:

http://www.aph.gov.au/senate/committee/economics_ctte/charities_08/report/report.pdf

(accessed20December2009)103 FederalCommissionerofTaxationvWordInvestmentsLtd[2006]FCA1414.104 (1983)14ATR769,769.

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(2010)20REVENUELJ

taxpayers religiouspretentionswerea sham.105Those pretentionswereprecisely

thegrounds (orcanonsofconduct) relieduponby theChurchofNewFaithseeking

exemptions from payroll tax. On a closer reading of the judgment, the second

criteriaof

canons

of

conduct

suggests

that,

provided

the

canons

are

not

offensive

as

MasonandBrennanJJobserved,otherfaithsmayadducegreater flexibility in their

religiousconvictionstoqualifyfortaxexemptions.ItisunderstandablethatLatham

CJ held very early in theJehovahWitnesses case that, itwouldbe difficult, if not

impossible,todeviseadefinitionofreligionwhichwouldsatisfytheadherentsofall

the many and various religions that exist.106 Given Mason and Brennan JJs

judgment, there would be little doubt that Islam would be readily accepted as

demonstratingtheindiciaofreligion.Ifthisisindeedso,howdoreligionsviewtax

law?

Religionandtaxlaw

Given that it is proposed to amend tax laws to facilitate faithbased financial

transactionshowdoesreligionviewtax?Thisargumentiscrucialtoconsiderasa

meanstofullyappreciatewhethergovernmentsshouldbeproactiveinimplementing

taxreforms.

InHallidayvTheCommonwealthofAustralia[2000]FCA950thenexusbetweentaxlaw

andIslamicreligiouspracticeswasraised.Theexamplegivenintheparticularsofthe

casewas

that

those

of

the

Muslim

faith

are

enjoined

to

not

tax,

tithe

or

charge

interest. Ineffectwhat theapplicantsarguedwas that theonward transmissionof

taxes constitutedaviolationof the free exerciseofany religion. In the taxpayers

view,taxcollectionwassittingatoddswithMuslimreligiousconvictions.

This argument however, may be dismissed on the grounds of an incorrect

understanding of taxation visavis religion. Furthermore, the three dominant

Abrahamic faiths,althoughprofessingdifferentviewson tax,havenotvitiated tax

impositionboth in itscustomary formand itspresentcharacter.Their treatmentof

taxisexploredtodemonstratehoweachreligionsowntenetsacknowledgetherole

of tax in society.There ismerit in raising this issue sinceAustraliascosmopolitan

societies follow a number of religious affiliations the dominant being the

Abrahamicfaiths.107

105 (1983)14ATR769,769.106 (1943)67CLR116.107

ABSCensus

of

Population

and

Housing

2914.0.55.002.

The

dominant

religions

being:

Christianity63.9%;NonChristian5.6%;Noreligion18.7%andOthers11.8%.

18




21/38


TheJudeoChristianperspective

The earlyJudeaChristian practices of tithing108maybe accepted as one form of

taxation.Conceptually,tithingisfoundintheOldTestamentandmeansgivingatenth

of ones property for religious purposes as amoral obligation.109 These (inkind)

paymentswere tobedeposited in theTemple fordistribution to theLevites.110The

scriptural verses supporting these practices established some form of taxation as

obligatory on its adherents.However, some commentators suggest that theNew

Testamentdoesnot recommendnorcommand thepayingof tithes.111 Importantly,

theJudeoChristianfaithsdidrecognisetaxationonproduceofthesoilasaformof

income, tobe collected andbrought to the storehouse.112 Further,when asked if

peopleshouldpaytaxestoCaesar,Jesusrepliedthat,whatbelongedtoCaesarmust

begiventohimandsomustthingsthatareGods.113

Overthecenturies,thelevyingoftaxthroughtithinghasmutatedthroughdifferent

stratagems adopted by different regimes prompted by various circumstances in

whichfiscalabusewasclearlyvisible.Theimportantpoint,asMcGeeargues,isthat

evenifsomeformoftaxationwerefoundtobemandatory,therealwaysexistways

ofminimisingtaxpayment,evenifthatmeantblatantevasionjustifiedonscriptural

grounds114aviewsharedbyCrowe.115

Thereisalsotheviewthat,intermsofJewishlaw,apersonisdutyboundtofollow

thelawsofacountrywhichincludesthepaymentoftaxes.116CohnandTamariboth

holdthattodootherwisewouldbetobringshametothereligionandlimittheability

topracticetheJewishfaith.Christianviewsontaxationlargelyreflectthosefoundin

108 Abrahampresentingatenthofhisproperty(Genesis14:20).109 SeeRWMcGee,TheEthicsofTaxEvasionandTradeProtectionismfromanIslamic

Perspective(1997)(1)CommentariesonLaw&PublicPolicy250,250.110 ReferencestotithingmaybefoundinLeviticus27:30;Numbers18:26;Deuteronomy14:24

andChronicles31:5.111 Fordifferencesinopinions,seehttp://www.gotquestions.org/tithingChristian.htmland

http://www.thebiblepage.org/biblesays/tithing.shtmlwheretheseissuesarediscussedat

length.112 Malachi3:10.113 Matthew,22:17,21.114 McGee,aboven2,220.115 RWMcGee,ThreeViewsontheEthicsofTaxEvasion(2005http://ssrn.com/abstract)1,citing

MartinCrowe,TheMoralObligationofPayingJustTaxes(1944).116 GCohn,TheJewishViewonPayingTaxes(1998)1(2)JournalofAccounting,Ethics&Public

Policy109;MTamari,EthicalIssuesinTaxEvasion:AJewishPerspective(1998)1(2)

JournalofAccounting,Ethics&PublicPolicy121.

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(2010)20REVENUELJ

Jewish teachings with some variations among different denominations.117 The

commonviewaccordingtoMcGeeandCohnisthatbothfaithsregardtaxevasionas

unethical howevermuch some followersmay differ ethically.118 The philosophical

reasoncited

as

justification

for

payment

of

taxes

is

that

if

each

person

were

to

pay

their fair share the burden to the rest of society wouldbe fairer.119 This same

utilitarianargumenthowever,hasbeenusedbynonreligious institutions insisting

that taxexemptionseffectivelycreate tax imbalances.120McGeeandCohnhowever,

produce empirical evidence showing that all major religions frown upon tax

evasion.121

TheIslamicperspective

The recognition of taxation in Islam generally follows the traditions in Judeo

Christianteachings,albeitwithsomedifferences.122TheequivalentoftithesinIslam

is the ushr, or a tenth of gross agricultural output a tax calculated taking into

account for instance, whether the land is irrigated naturally or by man.123

Etymologicallyushrhasthesamemeaningasmaasher(thetithe)inHebrew.124But

in Islam this tithe isonlyduewhen there isaproduce, to theextent thatwhen the

produceisdestroyedbyactsofGod,itspaymentlapses.125Thusushrisaformoftax

onincomeinthesensethatitisthevalueofgoods(produce)thatbecomethebasisof

taxableincome.126Raanaarguesfurtherthatthecaliph(theheadofstatetoday)has

theright to levyon thepeople theamountneeded if fundsarenotavailable in the

publictreasury.127Theushrwasafixedlevy,butthejuristAbuYusuf128inhistreatise

117 RWMcGee,IsTaxEvasionEthical?(1994)42(2)UniversityofKansasLawReview,411;ED

Schansberg,aboven3.118 McGeeandCohn,aboven2.119 RWMcGee,ThePhilosophyofTaxationandPublicFinance(2004KluwerAcademic

Publishers).120J

Perkins

and

F

Gomez,

Taxes

and

subsidies:

the

cost

of

advancing

religion

(2009)

93

AustralianHumanist6.121 McGeeandCohn,aboven2,21.122 BAShemesh,TaxationinIslam(1965Brill).123 MUChapra,TheIslamicWelfareStateanditsRoleintheEconomyinKAhmad(ed),

StudiesinIslamicEconomics,(1980TheIslamicFoundation)160,citingQaradawi(I:394397).124 IMRaana,EconomicSystemunderOmartheGreat(1977MuhammadAshraf)68.125 NPAghinides,MohammedanTheoriesofFinance(1961Premier)286.126 FLokkegaard,IslamicTaxationintheClassicalPeriodwithSpecialReferencetoCircumstancesin

Iraq(1950Brenner&Korch).127

IMRa

ana,

Economic

System

under

Omar

the

Great

(1977

Muhammad

Ashraf)

73.

128 TheChiefJusticeandtaxadvisortothecaliphHarunalRashid.

20




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on taxation in Islam proposed amodel of proportional taxation and not a fixed

levy.129

Adifferentvariantoftheushrknownastheushuralsoexistsoneintroducedbythe

secondcaliphUmarthatresembledatypeofsalestax.130Itwaschargedtotraders

whoenteredtheIslamicstatetoconducttrade.131

A third form of taxation in Islam iswhat iswhat is known as kharaj or land tax

payabletothestateirrespectiveofwhoownstheland.132Theimplicationsofthese

taximpositionsisthatthestatesrighttotaxislegitimisedalthoughthisrightisnot

tobeassumedtobeunfettered.Chaprahasarguedthat:

[While]Islamdoesallowthe levyingoftaxestoareasonableextenttomeetall

necessary and desirable state expenditures, it does not permit an unjust tax

structure which penalises honesty and creates an unIslamic tendency ofevadingtaxes.133

Chapra argues that an Islamic state has the right to raise resources through tax

collection:134

ThisrightisdefendedonthebasisofthePropheticsayingthatinyourwealth

there are also obligations beyond the zakat, and one of the fundamental

principlesof Islamicjurisprudence is that asmallbenefitmaybesacrificed to

attainalargerbenefitandasmallersacrificemaybeimposedinordertoavoida

largersacrifice.Mostjuristshaveupheld therightof thestate to tax. If the

resourcesof thestatearenotsufficient, thestateshouldcollect funds from the

peopletoservethepublicinterestbecauseifthebenefitaccruestothepeopleit

istheirobligationtobearthecost.

While taxationhasbeenacceptedasan institutionalised function in theAbrahamic

faiths,itremainstobeseenhowthesefunctionsconvergeinAustralianlaw.

129 AYusuf,KitabalKharaj,TaxationinIslam(BShemesh,Trans1969Brill)731798.130 IMRaana,EconomicSystemunderOmartheGreat(1977MuhammadAshraf).131 Officers(calledashirs)werepostedatborderstocollectthetaxes.Thesewerepayable

annually,basedonrecordsoftradevolume:AYusuf,KitabalKharaj,TaxationinIslam(B

Shemesh,Trans1969Brill)4068.Onthisbasisitmaybeimpliedthatallpersons,foreigners

andlocals,wereobligedtopaytaxesimposedbythestate.132 MNSiddiqi,MuslimEconomicThinking:ASurveyofContemporaryLiteratureinK

Ahmad(ed),StudiesinIslamicEconomics(1980TheIslamicFoundation)191,214.Thekharaj

generallymeanttaxrevenueakintorentaloralevybasedonlandvalue:DCDennett,

ConversionandthePollTaxinearlyIslam(1950CambridgeUniversityPress);IMRaana,

EconomicSystemunderOmartheGreat(1977MuhammadAshraf).Farmerswouldtherefore

payboththeushrandthekharaj:Chapra,aboven124,161,citingQaradawi,vol1,415.133 MUChapra,TowardsaJustMonetarySystem(1985TheIslamicFoundation)89.134 Chapra,aboven123,160.

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(2010)20REVENUELJ

INTERPRETATIONOFSECTION116CONSTITUTION

Havingestablished that thereappears tobe inherentlya linkbetween religionand

lawinAustraliatowhatextentdoestheAustralianConstitutionfetterorenablethe

Commonwealth parliament to enact tax laws to facilitate faithbased financial

transactions?

Section 116 of theAustralianConstitution is thepivotal section in setting out the

relationshipofstate(beingtheCommonwealthofAustralia)andreligion:

TheCommonwealthshallnotmakeanylawforestablishinganyreligion,orfor

imposing any religious observance, or forprohibiting the free exerciseof any

religion,andnoreligioustestshallberequiredasaqualificationforanyofficeor

publictrustundertheCommonwealth.

This section provides four guarantees in relation to religion three ofwhich are

influencedby theFirstAmendmentof theUnitedStatesConstitution.135However,

only twoof the fourguaranteeshavebeen interpretedby theHighCourt: (a)The

Commonwealth shall notmake any law for establishing any religion; and (b)The

Commonwealth shall not make any law for prohibiting the free exercise of any

religion. However, both of these interpretations have narrowed the potential

operationofs116,whichisdealtwithseparatelybelow.Itisarguedthatthefourth

guarantee, religious test for public office, would not be infringed with the

introduction of tax reforms to facilitate faith based transactions. The second

guarantee,imposingreligiousobservance,willbeconsideredwiththefreeexercise

guarantee.

(a)TheCommonwealthshallnotmakeanylawforestablishinganyreligion

On the first guarantee against the Commonwealth establishing any religion, the

HighCourthassaidthattheCommonwealthisprohibitedfromenactinglawstoset

up a religion as theofficial religion of the country.136Thismeans that, even if the

Commonwealth makes laws that favour one religion over another, this will not

necessarilybreach

s116.137

135 PuigandTudor,aboven77,61.136 Ibid63.137 AttorneyGeneral(Vic);ExreBlackvCommonwealth(1981)146CLR559,582(GibbsJ),6089

(BarwickCJ,StephenJ),616(MasonJ),653(WilsonJ):whiles116mayprohibitthe

CommonwealthParliamentfromconstitutingaparticularreligionorreligiousbodyasa

statereligion

or

state

church,

it

does

not

stop

the

Commonwealth

Parliament

supporting

religiongenerally.

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BarwickCJframedwhattheprohibitiononestablishmentmeansinAttorneyGeneral

(Vic):ExreBlackvCommonwealth:138

Establishing a religion involves the entrenchment of a religion as a featureof

and identified with the body politic It involves the identification of thereligionwiththecivilauthoritysoastoinvolvethecitizeninadutytomaintain

itandtheobligationoftheCommonwealth.139

Inthesamedecision,StephenJexplained:

[T]ospeakofareligionbeingestablishedby lawsofacountrymaywellbe to

includemuchmorethantheactofaccordingmaterialrecognitionandstatustoa

setofbeliefs, a system ofmoralphilosophyorparticulardoctrinesof faith; it

wouldcertainly include therecognitionofaparticularreligionorsect,with its

priestlyhierarchyandtenets,asthatofthenation.140

In interpreting s 116, the use of theword for hasbeen critical, as observedby

SundbergJinHallidayvtheCommonwealthofAustralia:

InAttorneyGeneral (Vic); Ex re Black v TheCommonwealth (1981) 146CLR 559

severalmembers of the court considered the import of theword for in the

expressionforestablishinganyreligion.BarwickCJ(atp583)thoughtthatthe

word indicated that the law must be intended and designed to set up the

religionasaninstitutionoftheCommonwealth.GibbsJ(atp598)saidtheword

for looked to the purpose of the law rather than to its relationshipwith a

particularsubject

matter

Mason

J

(at

p

615

616)

was

of

the

view

that

for

connoted a connectionbyway of purpose or resultwith the subjectmatter

whichwasnotsatisfiedby themere fact that the law touchesor relates to the

subjectmatter...Thereisnoreasontothinkthatthemeaningattributedtofor

intheexpressionforestablishinganyreligionshouldnotapplytothewordin

theexpressionforprohibitingthefreeexerciseofanyreligion.141

However,somesee theuseof theword forasmoreofagrammaticalnecessity in

theinitialdraftingoftheprovision,ratherthanasimposingaparticularmeaning.142

(b)The

Commonwealth

shall

not

make

any

law

for

prohibiting

the

free

exercise

of

anyreligion

ThesecondguaranteeconsideredbytheHighCourt,thefreeexerciseprovision,has

alsobeeninterpretednarrowly.TheprovisionwasspecificallyconsideredbyGriffith

CJinKryggervWilliams:143

138 (1981) 146 CLR 559: referredtoastheDOGSCase.139 AttorneyGeneral(Vic):ExreBlackvCommonwealth(1981)146CLR559,582(BarwickCJ).140 Ibid606(StephenJ).141 HallidayvtheCommonwealthofAustralia[2000]FCA950,463(SundbergJ).142 PuigandTudor,aboven77,67.

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(2010)20REVENUELJ

To require aman todo a thingwhich hasnothing todowith religion is not

prohibitinghimfromafreeexerciseofreligion.Itmaybethatalawrequiringa

man todo an actwhichhis religion forbidswouldbeobjectionable onmoral

grounds,butitdoesnotcomewithintheprohibitionofs116.144

ItwasobservedinAdelaideCompanyofJehovahsWitnessesIncvCommonwealththatall

religionsarepotentiallycoveredbytheprovision:

Section116appliesinexpresstermstoanyreligion,anyreligiousobservance,

the free exercise of any religion and any religious test. Thus the section

appliestoallreligions.145

The courts in interpreting s 116 have also tried to reconcile andbalance religious

freedomwithabilityofgovernmentstogovernandmaintainanorderedsociety.This

isclearly

evident

in

the

sentiment

expressed

by

Latham

CJ

in

the

Jehovahs

Witnesses

case:

Cananyperson,bydescribing(andhonestlydescribing)hisbeliefsandpractices

as religious exempt himself from obedience to the law? ... The complete

protectionofallreligiousbeliefsmightresultinthedisappearanceoforganized

society, because some religious beliefs regard the existence of organized

societyasessentiallyevil146

LathamCJ referred to thejurisprudence that had alreadybeen established in the

UnitedStatesconcerning the freeexerciseofreligionwhichdidnotallowreligious

practices to excusebreaches of the criminal law.147 An example usedwas that a

Mormoncouldnotusehisreligiousbeliefsofpolygamy toexcusehimselffrom the

criminallawagainstsuchacts.148

The approach of the High Court is that this right of religions freedom is not

absolute,thereasoningbeingreligionissobroadapoliticalandethicalconceptthat

it is liable tobemisinterpreted to include objectionable, if not otherwise illegal,

ritualsandpractices.149TothisendtheHighCourtmaytakethegeneralinterestinto

account, and that if a law has general application then that law is not likely to

143 (1912) 15 CLR.ThiscaseconcernedtheprovisionoftheDefenceAct1903(Cth)andheld

thatimposingobligationsonallmaleinhabitantsoftheCommonwealthinrespectof

militarytrainingdoesnotprohibitthefreeexerciseofreligion.144 KryggervWilliams(1912)15CLR369(GriffithCJ).145 AdelaideCompanyofJehovahsWitnessesIncvCommonwealth(1943)67CLR116,123(Latham

CJ).146 Ibid132(LathamCJ).147 Ibid1312(LathamCJ).148

ReynoldsvUnited

States

(1878)

98

US

145.

149 PuigandTudor,aboven77,61.

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infringe the right of free exercise.150That is, the courthasbalanced the competing

public interestsof freedomofreligionand theregulationofanorganisedsociety.151

JusticeWilliamsframedthisbalancingactas:

[T]hemeaningandscopeofthe[theConstitution,s116]mustbedetermined,not

asanisolatedenactment,butasoneofanumberofsectionsinternedtoprovide

in their interrelation a practical instrument of government, within the

framework of which laws can be passed for organising the citizens of the

Commonwealthinnationalaffairsintoacivilisedcommunity,notonlyenjoying

religioustolerance,butalsopossessingadequate lawsrelatingtothosesubjects

uponwhich the Constitution recognises that the Commonwealth Parliament

shouldbeempowered to legislate inorder toregulate its internalandexternal

affairs.152

For example it hasbeen held (obiter) that a law overriding the confidentiality ofreligiousconfessionsisnotalawprohibitingthefreeexerciseofreligion.153InKruger

vCommonwealth, BrennanCJ stated that for a law tobreach the right of freedom

expressedins116,therehadtobeaclearintent.Thatis,Toattractinvalidityunders

116, a lawmust have the purpose of achieving an objectwhich s 116 forbids.154

Consequently, a lawwhichjust incidentally affects that freedomwillbe notbe

invalidduetos116.155

AlsotherefusalofpermanentresidentstatustoapersonwhohadcometoAustralia

to takeup thepositionof the Imamofamosquewasheldnot tobeadecision to

prohibitthefreeexerciseofreligioneventhoughitwasacknowledgedtherewould

besomedisruptionofworship.156Indeeditappearsthats116hasbeeninterpreted

more as proclaiming tolerance for different religions, aswell as the right for an

absenceofreligiousbelief.157

Hoganhasobservedthat:

The constitutional standing of the relationshipbetween church and state in

Australia is auniquemixtureof elementsderived from aBritishConstitution

and tradition of law, from a superimposedAmerican principle of separation,

150 Ibid.151 AdelaideCoofJehovahsWitnessesIncvCommonwealth(1943)67CLR116,132(LathamCJ),

and155(StarkeJ).152 Ibid159(WilliamsJ).153 SDWvChurchofJesusChristofLatterDaySaints[2008]NSWSC1249(SimpsonJ).154 KrugervCommonwealth(1997)190CLR1,40(BrennanCJ).155 Ibid1344(GaudronJ).156 MinisterforImmigrationandEthnicAffairsvLebaneseMoslemAssociation17FCR373(Fox,

BurchettandJacksonJJ).157 PuigandTudor,aboven77,67.

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(2010)20REVENUELJ

and from the evolving pattern of Australian federalism and judicial

interpretation.158

It is argued that the guarantee against imposing religious observancewouldbe

interpretedinasimilarmannerthatis,incidentalobservancewouldbevalid.

Because of the interpretation the High Court has accorded to s 116, it may be

concludedthatitisnotaguaranteeofan individualcivilright,insteaditshouldbe

seen as a regulator ofCommonwealth power.159 Even though the distinctionmay

seem tobemere syntax, the result isprofound,asnotedbyStephenJ inAttorney

General(Vic);ExreBlackvCommonwealth:

[thats116didnotcomprise]somebroadstatementofprincipleconcerningthe

separationofchurchandstate,fromwhichmaybedistilledtheconsequencesof

suchseparation.160

However,LathamCJ in theJehovahsWitnessescasedidspecify the importanceofs

116forminorityreligionsasthemajoritycanlookafteritself:

Section 116 is required to protect the religion (or absence of religion) of

minorities,and,inparticular,ofunpopularminorities.161

KirbyJ (dissenting) in Federal Commissioner of Tax vWorld Investments Ltd,while

acknowledgingthenarrowinterpretationgiventos116stated:

for

clear

historical

reasons,

the

secular

character

of

the

Commonwealth

and

its

lawsand the separationof thegovernmentaland religiousdomainsconstitute

settledfeaturesofconstitutionalisminthiscountry...162

Neverthelesstheextentofthereachofs116isclearlyarticulatedbyRichJinChurch

ofNewFaithvCommissionerforPayrollTax(Vic):

Freedomof religion isnot absolute. It is subject topowers and restrictionsof

governmentessentialtothepreservationofthecommunity.Freedomofreligion

maynotbe invoked tocloakanddissemble subversiveopinionsdangerous to

theCommonwealth.163

158 MHogan,SeparationofChurchandState:Section116oftheAustralianConstitution

(1981)53(2)TheAustralianQuarterly214,214.159 PuigandTudor,aboven77,64.160 AttorneyGeneral(Vic);ExreBlackvCommonwealth(1981)146CLR559,609(StephenJ).161 AdelaideCompanyofJehovahsWitnessesIncvCommonwealth(1943)67CLR116,124(Latham

CJ).Thelearnedjudgefurtheridentifiedthats116protectsnotonlyopinion,butalsoacts

doneinpursuanceofreligiousbeliefs.162 FederalCommissionerofTaxvWorldInvestmentsLtd(2008)236CLR204,249(KirbyJ)

(dissenting).

163 ChurchofNewFaithvCommissionerforPayrollTax(Vic)(1983)154CLR120,149150(RichJ).

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Havingestablished thats116hasbeen interpretednarrowly in termsofseparating

state and religion, for tax reforms to occur to facilitate Islamic finance,would the

Commonwealthspowertotaxbesufficient?

POWERTOTAXUNDERSECTION51

AkeyissuetofacilitateIslamicfinanceinAustraliais,amongstotherthings,theneed

fortaxreform.TheprimarypowerthattheCommonwealthwouldrelyonwouldbe

s51(ii)whichspecifiesthat:

The[Commonwealth]Parliamentshall...havepowertomakelawswithrespect

to ... (ii) Taxation;but not so as to discriminatebetween States or parts of

States.164

The taxing power given to theCommonwealth hasbeen described asbeing verybroad.Indeed,IsaacsJ(dissenting)inRvBargerdescribeditinthefollowingway:

Theunlimitednatureof the taxingpower is incontestable. Itsexerciseupon

all persons, things and circumstances in Australia is, in my opinion,

unchallengeablebytheCourts,unlessajudicialtribunalfindsitrepugnantto

someexpresslimitationorrestriction.165

BartonJidentifiedthatitwaspossibleforsuchataxingpowerwhenexercisedtothe

full it may destroy the interest or the industry taxed.166 Due to its width, the

Commonwealthcan

select

any

criteria

it

chooses

to

impose

tax.

Indeed

cases

have

indicated that the purpose or motive of the legislature or even the economic

consequencesoftaxlegislationhavenorelevance.167

ThebroadinterpretationoftheCommonwealthspowertotaxhasbeenstatedaspart

ofthereasonfortheCommonwealthsdominanceoverfinance,includingthefederal

governments assumption of control over income taxation in 1942,168 which

confirmedthattheCommonwealthcouldgiveitselfpriorityforpaymentoftaxover

thestates.169

164 CommonwealthofAustraliaConstitutionAct(Cth),s51(ii).165 RvBarger(1908)6CLR41,945(IsaacsJ)(dissenting).166 OsbornevCommonwealth(1911)12CLR321,345(BartonJ).167 MacCormickvFederalCommissionerofTaxation(1984)158CLR622.168 SGuy,ConstitutionalLaw(2010PearsonAustralia)314,referringtoSouthAustraliav

Commonwealth(FirstUniformTaxCase)(1942)65CLR373.169 Ibid318:Similarlythecourtheld[intheFirstUniformTaxCase]thats221oftheIncome

TaxAssessmentAct1936(givingprioritytotheCommonwealthinthepaymentofincome

tax)wasalsoalawwithrespecttotaxationandthereforesupportedbys51(ii).

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(2010)20REVENUELJ

The earlyHigh Court decision of R v Barger construed the power subject to the

reservepowersdoctrine.170ThismeantthatanActimposingataxontheproductsof

a manufacturer unless the manufacturer offered its employees fair conditions of

employmentcould

be

constitutionally

invalid.

However

this

reserve

power

doctrine

hasbeensubsequentlyrepudiatedbylaterHighCourtdecisions.171Forexample,later

theHighCourtupheldthevalidityofCommonwealth lawswhichused land taxto

breakuplargeconcentrationsofland.172

In the Fairfax case,173KittoJ endorsed the opinion expressed in theUnited States

SupremeCourtinUSvSanchez(1950)US42,44:

thatataxdoesnotceasetobevalidmerelybecauseitregulates,discourages,or

evendefinitelydeters theactivities taxed ...Nordoesa statutenecessarily fall

becauseittouchesonactivitieswhichCongressmightnototherwiseregulate.

ThisisbecausetheHighCourttraditionallyfocusesuponalawsdirectlegaleffect,

rather than its indirect or economic consequences in characterising laws for

constitutionalpurposes.174ThedecisioninFairfaxhasbeenstatedasrecognisingthat

thetaxationpowerisnotlimitedtotheraisingofrevenueforgovernmentpurposes.

Indeedawide rangeofobjectives fiscal, socialandeconomicmaybeachieved

throughtaxlegislation.175Forexample,theHighCourthasupheldthevalidityofa

scheme designed to encourage higher levels of investment in Commonwealth

securities.176

InMacCormickvFCT,BrennanJheldthatthes51(ii)power:

extends toany formof taxwhich ingenuitymaydevise [and] theParliament

may select such criteria as it chooses, subject to any express or implied

limitations prescribed by the Constitution, irrespective of any connection

betweenthem.177

170 Ibid294.171 Ibid.172 REKreverandGKewley(eds),AustralianTaxation:principlesandpractice(1987Longman

Cheshire)38:OsbornevCommonwealth(1911)12CLR321.173 FairfaxvFCT(1965)114CLR1,13(KittoJ).174 Aboven15,68quotingSouthAustraliavTheCommonwealth(1942)65CLR373,4245

(LathamCJ).175 KreverandKewley,aboven172,39.176

FairfaxvFCT

(1965)

114

CLR

1.

177 MacCormickvFCT(1984)158CLR622,655(BrennanJ).

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Indeed politicshasbeen statedas agreaterpractical restrictionon tax legislation

ratherthanlegal,providedtheconstitutionalboundariesarenotinfringed:178

unders51(ii)theParliamenthas,primafacie,powertotaxwhom itchooses ...

exemptwhom itchooses ...[and]imposesuchconditionsastoliabilityorasto

exemptionsasitchooses.179

Guyargues thatanexpansiveapproach in theexploitationof its limited legislative

powers is illustrated by Kitto J invoking the seminal proposition of Dixon J in

MelbournevCommonwealth:180

Speaking generally, once it appears that a federal law has an actual and

immediateoperationwithinafieldassignedtotheCommonwealthasasubject

of legislative power, that is enough. Itwillbe held to fallwithin the power

unlesssome

further

reason

appears

for

excluding

it.

That

it

discloses

another

purpose and that the purpose lies outside the area of federal power are

considerationswhichwillnotinsuchacasesufficetoinvalidatethelaw.181

Orputanotherway:

Ifalaw,onitsface,isonewithrespecttotaxation,thelawdoesnotceasetohave

thatcharacter simplybecauseParliament seeks toachieve,by itsenactment,a

purposenotwithinCommonwealthlegislativepower.182

Nevertheless,tofallwithinthisbroadheadofpowerthelegislationmustbeenacting

atax.

Tax

has

been

stated

to

be

a

compulsory

exaction

of

money

by

apublic

authorityforpublicpurposesenforceablebylaw.183Anearlierinterpretationreferred

totaxastheprocessofraisingmoneyforthepurposesofgovernmentsbymeansof

contributionfromindividualpersons.184

InMacCormickvFCT;Camad InvestmentsPtyLtdvFCT,185GibbsCJ,Wilson,Deane

andDawsonJJintheHighCourtidentifiedthefollowingsixcharacteristicsofatax.

Firstly, it is a compulsory payment and secondly, the moneys are raised for

178 RHWoellner,SBarkoczy,SMurphy,CEvans,andDPinto,AustralianTaxationLaw(20thed

2010CCHAustraliaLimited)678.179 FairfaxvFCT(1965)114CLR1,16(TaylorJ),and1213(KittoJ).180 (1947) 74 CLR 31. Guy,aboven168,300.181 MelbournevCommonwealth(1947)74CLR31,79(DixonJ).KnownastheStateBanking

Case.182 NorthernSuburbsGeneralCemeteryTrustvCommonwealth(1993)176CLR555,589(Mason

CJ,Deane,TooheyandGaudronJJ).183 MatthewsvTheChicoryMarketingBoard(Vic)(1938)60CLR263;276(LathamCJ);appliedby

GibbsJinTheStateofVictoriavTheCommonwealth(1971)122CLR353,416.184 RvBarger(1908)6CLR41,68(GriffithCJ,BartonandOConnorJJ).185 (19831984)158CLR622.

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(2010)20REVENUELJ

government purposes. Thirdly, the moneys do not constitute fees for services

rendered and next the payments are not penalties. Fifthly, the exactions are not

arbitraryorcapricious;andfinally,theexactionshouldnotbeincontestable.

Theimportanceofclassifyingwhetheralawinvolvedataxasopposedtoafeefor

service was illustrated in Air Caledonie International v Commonwealth186 which

concluded that immigration fees forarrivingpassengers inAustraliawasa taxand

notafeeforservice.

However, there are somedirect constitutional restrictionson theCommonwealths

taxation power, and they relate to the nondiscrimination of states;187 the non

preferenceof states;188 laws imposing tax should onlydealwith tax andnot other

matters;189 the senate is not to introduce or amend tax legislation;190 and the

Commonwealthcannot

impose

tax

on

state

property.

191

Otherprovisions

that

ar

Documents

Tax Reforms to Facilitate Islamic Finance