Pandora Papers | Islam’s Approach to Tax Avoidance

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The Pandora Papers have thrown a spotlight on the various tax avoidance tactics used by several Muslim high net worths. These include:

  1. King Abdullah of Jordan
  2. The president of Azerbaijan
  3. The Qatari royal family
  4. Senior Pakistani politicians
  5. Mohamed Amersi, substantial donor to the Conservative Party
  6. And others.

This begs the questions – has anything wrong happened here? What does Islam say about tax? Does Islam say anything about tax avoidance?

Also, how we should we as individuals think about our own tax affairs?

We seek to answer these questions in this article.

In Brief

In brief, our conclusions are that something wrong has happened here and that Islam condemns a lot of this behaviour. We sketch out the Islamic tax system and find that it promotes:

  1. A progressive taxation policy, with a focus on wealth taxation;
  2. The circulation of wealth;
  3. The redistribution of wealth from rich to poor;
  4. A low-tax environment that promotes enterprise; and
  5. Pragmatism and flexibility in setting a tax regime.

We argue that it is our collective responsibility to campaign for governments to coordinate with each other to tighten tax loopholes, and for wealthy individuals to voluntarily pay their fair share of tax.

We also note that in our individual tax planning we can and should only use government-sanctioned tax-saving strategies, and avoid aggressive tax-avoidance schemes. We outline the specific kinds of tax-saving strategies that are acceptable and the kind that are unacceptable. Unfortunately, many of the unacceptable strategies are common in the Muslim community.

But first, what has actually happened?

What happened with the Pandora Papers

The Pandora Papers, as the name suggests, has opened a real can of worms. The BBC succinctly describes the leak:

The Pandora Papers is a leak of almost 12 million documents and files exposing the secret wealth and dealings of world leaders, politicians and billionaires. The data was obtained by the International Consortium of Investigative Journalists in Washington DC and has led to one of the biggest ever global investigations. More than 600 journalists from 117 countries have looked at the hidden fortunes of some of the most powerful people on the planet. BBC Panorama and the Guardian have led the investigation in the UK[1].

A number of Muslims have also been caught up in this leak. They include:

  1. King Abdullah of Jordan, who owns a £70m property portfolio in the UK and USA.
  2. the president of Azerbaijan and his family own £400m of property in the UK through various entities and individuals.
  3. The Qatari royal family avoided £18.5m in stamp duty land tax by conducting the deal offshore.
  4. Senior Pakistani politicians have several millions of pounds worth of property in the UK and USA.
  5. Mohamed Amersi, a substantial donor to the Conservative Party, was involved in a significant corruption scandal and questions have been raised as to the source of his wealth.

Is this a big deal?

This is a pretty big deal as a number of points of illegality and corruption have been raised regarding certain transactions in the leaks.

However, in many ways, that is the less interesting aspect of the leak. After all, we all agree that stealing money from your country through corruption and political power is a bad thing.

This can be quickly brought out by juxtaposing the examples of our modern Muslim leaders with that of the Righteous Caliphs.

Abu Bakr’s wife managed to save up a tiny amount each day in order to be able to cook a dessert in a month, and when he saw this, his conclusion was that they were getting too much and he cut their stipend further[2].

During the time of famine, Umar did not eat properly for many months and switched his daily food from butter to oil just like his poorest citizens were having to do.

Umar once saw his son selling camels and noticed that they were particularly healthy. Upon enquiring and finding out that his son had been grazing in common land (open to all), he was fearful that people would say that the Khalifa’s son got preferential treatment. So he told his son to sell the camels at cost and give any profits away.

Abu Bakr died leaving behind a servant, a bowl and a camel.

In other words, if Umar and Abu Bakr (rah) were leaders today it would be inconceivable that they owned large property portfolios in the UK and USA while there was still poverty in their own countries.

What is the problem with offshore tax havens?

The more interesting question is, where the wealth is legitimate, is it acceptable for the wealthy to store away their money in offshore tax havens?

How does offshore tax saving work?

The way these things work is that you set up a special purpose company in a low-tax or zero-tax jurisdiction and appoint a special company to act as the directors of your company. The wealthy person’s identity is therefore never made public on any government records.

This helps make transactions anonymously across the world, and to store your wealth in a place where it won’t get taxed whilst you’re waiting for the right investment opportunities.

Parking money in these tax havens means that they are not taxed by the countries in which those wealthy people are actually resident.

Estimates on the amounts of money offshore range from $5.6 trillion to $32 trillion and the IMF reckon around $600bn is lost in tax receipts every year.

Companies are no different and often park their spare cash in tax havens as well. Amazon, rather mindbogglingly, paid only £293m in tax on sales of $17.5bn in 2019 – a remarkable 1.67%.

How do large companies avoid tax?

These companies also exploit other complex tax saving strategies such as shifting the loss-making parts of their operations to the high-tax jurisdictions, paying employees and leadership in stock options and various other tricks.

Bizarrely, companies like Amazon even end up receiving substantial government subsidies for R&D as well as tax credits. Unlike other ordinary companies, larger companies like Amazon have a specific relationship manager with HMRC and each year they actually sit down and negotiate the appropriate amount of tax to pay.

Is this legitimate?

Legally, most of these schemes are fine. Certainly, a number of these schemes face challenges in court regularly, and Amazon (and companies like it) will almost always have some major tax court case running, but these companies and individuals are not seeking to break the law – just to interpret it in a particular way.

Morally however, the whole thing stinks.

We all like to avoid tax and reduce our liability as much as we can. At IFG we have written articles on it here, here and here.

But the kinds of things we write about – and are legitimate ways of reducing tax – are those schemes the government has put in place itself to incentivise certain behaviours. For example, the tax breaks available on SEIS/EIS eligible startups, are all about encouraging investment into entrepreneurship and innovation.

Parking away most of your net worth overseas on the other hand is not the same. The Treasury is not happy about that.

What lies at the heart of this immorality is unfairness. After all, the wealthy are still using the very same public services (hospitals, military, police, roads, clean air, airports, government services etc etc.) but aren’t paying for it. Instead, ordinary folks pick up that particular tab.

Islam and tax

This moral disapprobation also finds support in the Sharia and Islamic ethics.

But first, let’s quickly sketch out the Islamic taxation landscape as this will be helpful to us as we apply it to the question of tax avoidance.

What are Islamic taxes?

Islam sets out several tax (or tax-like) concepts:

  1. Zakat
  2. Ushr
  3. Jizyah
  4. Kharaj
  5. Dariba

Zakat is the most familiar of those and is a 2.5% compulsory form of charity that Muslims have to pay from their wealth every year. In format it is equivalent to a wealth tax. We have covered this in detail here and here.

We have also discussed this in a World Economic Forum article here.

Ushr is an annual charity due on proceeds from agricultural land. If the land has been irrigated manually then the tax rate is 5% and if it has only received irrigation via rain then the tax rate is 10%.

Jizyah is a form of tax levied on non-Muslim inhabitants of Muslim lands. The exact rate of such tax is variable and dependent on the circumstances and the decision of the leader at the time.

Kharaj are taxes on agricultural profits, from non-Muslim owned lands. Think of this as the equivalent to the Ushr.

There is a wider political and theological discussion around jizyah and Yaqeen Institute have covered it here. In short though, Muslims pay zakat and ushr, while non-Muslims pay jizyah and kharaj, and all such payments end up in the Bait al Maal whence it is directed into funding public services used by all.

Dariba are all other ad-hoc taxes levied from time to time by the state that are not enshrined within the sharia.

A general theory of Islamic taxation?

There are certain common trends that run through all the compulsory taxes the sharia levies, as well as the commentary of scholars who have focused in on this throughout the centuries:

Wealth taxes

The sharia focuses on taxing profits instead of income. Each of the divinely ordained taxes are focused primarily on wealth as opposed to flat rates or income-focused taxes. There is therefore a concept of the richest taking a proportionate share of the burden for public expenses.

Circulation of wealth

The sharia is focused on the circulation of wealth. The rules around zakat are explicit in this regard. If your assets are fully deployed into productive use then you will have no zakat due.

However, zakat is due on the cash and liquid elements of your overall net worth. The sharia can therefore be seen as encouraging the movement of money throughout society and impelling productive economic behaviour rather than just sitting on cash. This is further seen in these verses:

O you who have believed, indeed many of the scholars and the monks devour the wealth of people unjustly and avert [them] from the way of Allah. And those who hoard gold and silver and spend it not in the way of Allah – give them tidings of a painful punishment. [9:34]

As for gains granted by Allah to His Messenger from the people of ˹other˺ lands, they are for Allah and the Messenger, his close relatives, orphans, the poor, and ˹needy˺ travellers so that wealth may not merely circulate among your rich. Whatever the Messenger gives you, take it. And whatever he forbids you from, leave it. And fear Allah. Surely Allah is severe in punishment. [59:7]

Address inequality

The sharia is focused on reducing the gap between the rich and poor, to ensure there is a transfer happening between the two groups.

The verse from 59:7 is relevant for this point too. Additionally, the following hadith is pretty emphatic on the point:

Narrated Abu Huraira: The Prophet said, Every day two angels come down from Heaven and one of them says, ‘O Allah! Compensate every person who spends in Your Cause,’ and the other (angel) says, ‘O Allah! Destroy every miser.’ [Bukhari]

Encourage entrepreneurship

The sharia taxation system is generally a low-tax environment with the taxes even reflecting the cost of production. For example, the ushr tax rate is lower for those who have irrigated their land, as the sharia recognises that this will have cost additional money and therefore their ultimate profits will be reduced.

Ibn Khaldun[3] also makes a similar point about the delicate balance between taxation and entrepreneurship and enterprise. Infact, he goes further and contrasts sharia-only tax regimes versus other Islamic states that had added further dariba on top of the compulsory taxes. His argument is that additional aggressive dariba stifled enterprise and led to worse economic outcomes.


The taxes on non-Muslims in particular are characterised by flexibility. Jizyah rates would be agreed through treaties and contracts between the state and the non-Muslim group, while Kharaj taxes too were somewhat negotiable and a product of the political circumstance.

Does Islam say anything about tax avoidance?

The Qur’an and sunnah strongly condemn one who does not fulfil his charitable duties:

“Whoever is made wealthy by Allah and does not pay the Zakat of his wealth, then on the Day of Resurrection his wealth will be made like a baldheaded poisonous male snake with two black spots over the eyes. The snake will encircle his neck and bite his cheeks and say, ‘I am your wealth, I am your treasure.'” [Bukhari]

“And let not those who [greedily] withhold what Allah has given them of His bounty ever think that it is better for them. Rather, it is worse for them. Their necks will be encircled by what they withheld on the Day of Resurrection. And to Allah belongs the heritage of the heavens and the earth. And Allah, with what you do, is [fully] Acquainted.” [3:180]

Clearly, not paying zakat and equivalent compulsory payments is a big deal.

However, the discussion we are having in the light of the Pandora Papers is regarding the tax systems of a modern state – rather than sharia-ordained payments.

What is the relationship between the individual and the modern state?

The answer to that is well beyond the remit of this piece, but sensible answers[4] to this that are often given include:

  1. That many of the sharia teachings are still applicable as the scriptures do not distinguish between a Muslim ruler or a non-Muslim ruler in many cases. (the “No Difference Approach”)
  2. That here is an (explicit or implicit) contract between the individual and the state that sets out the obligations of each side. (the “Contractual Approach”)If we go down this approach, the following ahadith become very relevant:Safwan ibn Sulaym narrates from a number of Companions of the Messenger of Allah on the authority of their fathers who were relatives of each other, that the Messenger of Allah (PBUH) said: “Beware, if anyone oppresses (or wrongs) the one with whom one has an agreement (mu’ahid), or diminishes his right, or forces him to work beyond his capacity, or takes from him anything without his consent, I shall plead for him on the Day of Judgment.” [Sunan Abu Dawud, 3047]

Regardless of the route that one goes down, violation of the UK tax regime would be problematic.

But what about legal tax avoidance?

“Ibrahim, that’s great, but we’re talking about entirely legal tax avoidance, not the breaking of UK tax law. What does Islam have to say about that?”

Let’s look at the underlying purpose behind the No Difference Approach and the Contractual Approach.

When we live in any society – Muslim-ruled or not – there are several collective issues that require law, regulation, taxes and enforcement. Without them, society would break down into anarchy.

The No Difference Approach and Contractual Approach both point to us obeying the rules and laws:

  1. for the greater good; and
  2. because it is just the fair thing to do given everyone else is obeying the laws.

Today, a billionaire living in London can end up paying less tax than a nurse living in London. The nurse’s taxes are now paying for the road lights outside the billionaire’s house. Clearly something is broken.

The answer lies in moving away from the letter of the law and looking at the spirit of the law instead.

If we look at the spirit of the No Difference Approach and the Contractual Approach, it is clear that aggressive tax avoidance using overseas tax havens is unethical.

It does not matter that the billionaire does not technically have to pay tax; he still should.

What does this mean for my tax affairs?

There are acceptable forms of tax avoidance that have been sanctioned by the government. These include:

  1. Investing in SEIS/EIS eligible investments.
  2. Investing in the AIM index to reduce inheritance tax liability.
  3. Making use of the nil rate band, spousal exemption and the additional nil rate band when it comes to estates.
  4. Using Capital Gains Tax deferment strategies.
  5. Passing through acceptable and reasonable expenses through your business in order to reduce profit.
  6. Delaying payment of pension to keep below the annual tax-free income thresholds.

There are certain forms of tax avoidance that are either dubious or downright wrong. These include:

  1. Aggressively passing through all personal expenses via the business accounts in order to show a reduced profit or even a loss.
  2. Using family members to hold certain investments. This is definitely okay in some situations but aggressively done and it veers into the unethical.
  3. Making out that certain profitable sales from overseas are “gifts” and therefore exempt from tax.
  4. Using cash payments to avoid paying tax.

Our environment is being destroyed and we have a collective responsibility to it as Muslims. Each time we act in our self-interest we reduce the budget to protect the environment and provide public services.

For the grey areas, really the best check is – how would you respond if you heard your wealthy neighbour uses these tax-avoidance strategies? If you wouldn’t like it, don’t do it.


We live in a complex world and the laws of our lands are fundamentally incapable of dealing with international wealthy citizens with assets all over the world.

Therefore, it will usually be possible to stick to the letter of the law and avoid tax. But that is not the right thing to do, and it is (a) on these individuals to voluntarily pay tax; (b) government to coordinate and tax such individuals and corporations better; and (c) for us all to pressure our governments to achieve (a) and (b).

In our own tax affairs, we can and should avail of government-sanctioned and government-encouraged tax breaks, but should avoid aggressive tax avoidance tactics. Such moves do not befit a practicing Muslim.

As ever, these articles are not fatwa, these are informed analyses on modern financial matters with an aim of shedding light on how a Muslim should start thinking about these issues.

There is welcome news just breaking as I write this that 136 countries have agreed to a tax pact that sets a minimum tax floor of 15% globally. There is still a long way to go to properly implement this, but this is a great development and should give us all hope.

I look forward to hearing your thoughts on this. Please let me and others know on our Telegram chat here.

Further reading & Footnotes

Ethics and Taxation: The Perspective of the Islamic Tradition, Azim Nanji, The Journal of Religious Ethics , Spring, 1985, Vol. 13, No. 1 (Spring, 1985), pp.161-178


[2] Kitāb aṭ-Tabaqāt al-Kabīr, Siyar A’lam al-Nubala

[3] The Muqaddimah: An Introduction to History. Translated from the Arabic by Franz Rosenthal. Bollingen Series. 3 Vols. No. 43. New York: Pantheon Books.

[4] See this detailed fatwa here.

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Ibrahim is a published author and Islamic finance and investment specialist. He is currently the CEO of Islamicfinanceguru and its sister investment company Cur8 Capital. He holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an Alimiyyah degree from the Al Salam Institute, and an MA in Islamic Finance. Prior to setting up Islamic Finance Guru, Ibrahim was a corporate lawyer. He trained at Ashurst LLP and then specialised in private equity and venture capital funds at Debevoise & Plimpton LLP. He holds a Diploma in Investment Advice & Financial Planning & Certificate in Investment Management. Publication: Halal Investing for Beginners: How to Start, Grow and Scale Your Halal Investment Portfolio (Wiley) Ibrahim is a published author and Islamic finance and investment specialist. He is currently the CEO of Islamicfinanceguru and its sister investment company Cur8 Capital. He holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an…