Bitcoins, NFT – what is Zakat like in the XXI Century?

22 June 2021

One of the obligations of a Muslim is to pay zakat. It is one of the five pillars on which Islam is based. Over time, the zakat payment procedure has changed considerably, which has also affected the Islamic financial system as a whole. Thus, for instance, nowadays there are more and more Muslims who make money on bonds, cryptocurrencies and NFT. This is not surprising, since we live in a digital age, where everything, even money, is on cards and on the Internet.

So what is zakat?

Zakat is an annual compulsory tax in Islam that every Muslim must pay on his property and income. Zakat must be paid by all independent, free, able-bodied adult Muslims. All the proceeds go to the fund to help coreligionists in need. Zakat is paid from a part of a Muslim’s property and money for the benefit of certain categories of people in need, and the tax deduction is 2,5%. Another important criterion here is the availability of nisab – the zakat taxable amount, which this year is 310 000 rubles.

With online zakat payments becoming more and more popular every year, it is crucial that you pay attention to where your money is going. In this regard, make sure you tick the box called ‘zakat’.

Another feature of modern zakat payments is that funds can now be transferred in more than one instalment. Thanks to Internet banking, which makes it much easier to manage your finances these days, you can set up a direct debit and pay zakat in equal amounts throughout a year. Of course, it does not mean that you cannot pay the whole amount at once.

So what is included in the concept of nisab? First of all, this is traditional cash, gold and silver (except for one you carry with you). As far as business is concerned, zakat is paid for existing cash, accounts receivable and work in progress. Zakat is not paid for fixed assets.

Another issue of concern to many Muslims is shares. It is noteworthy that if shares are bought in order to be quickly sold, then zakat must be paid on the full amount of shares. If you buy with the intention of investing for the long term, then zakat is paid on the underlying asset.

It is the same with real estate: if you buy for resale, then zakat is calculated on the basis of the value of a house. But if a house is purchased for residential or rental purposes, then zakat is not paid for it.

A few words about cryptocurrency

The term ‘cryptocurrency’ means in Russian ‘virtual currency protected by cryptography’. First and foremost, cryptocurrency is a quick and reliable payment and remittance system based on the latest technologies and outside the control of any government.

In order for regular money to emerge in an account in electronic form, it must first be deposited into an account physically, for instance, via a bank or a payment terminal. That is, for conventional currency, an electronic form is only one of representation forms. Cryptocurrency is issued directly online and is not connected in any way to any conventional currency or to any government currency system. Anyone with necessary computer hardware and special software can mine it online. In the process of mining, the computing power of the equipment solves algorithms, the complexity of which is gradually increasing, and once solved, it produces a coin – a set of encrypted information. The proof of a coin’s existence on the network is a blockchain – a kind of account. This currency is stored in a decentralized manner, distributed across users’ electronic crypto wallet.

A lot of modern scholars argue that it is necessary to get reinsured and pay zakat on such income. Others are convinced that zakat is not paid on cryptocurrency.

What NFT is and how it works

NFT (non-fungible token) is a unique non-interchangeable digital key created from a cryptocurrency. NFT cannot be destroyed or replaced by another such token. It is a kind of uniqueness certificate of a digital object. It is noteworthy that a non-interchangeable token does not affect the copying of a file in any way. It just confirms that a particular digital object is in the possession of a particular user.

NFT can be used to sell or buy any digital object – music, image, 3D model, text, game object, etc. Its essence is to register some kind of ownership of a particular virtual object in a blockchain. It is impossible to replace or delete the information about the owner. In other words, it resembles purchase of an expensive picture. That is, it belongs to you but at the same time it can be displayed in a famous gallery for public. It is also worth mentioning the fact that any person can take photos of this picture or use its copy on the Internet.

Zakat is paid on NFT only if you are going to sell it or use it to make a profit in the nearest future.

Rental payment

If a person leases a flat or a house, he or she must pay zakat (2,5%) only on the rent received which has reached nisab and for which a year has passed according to the lunar calendar from the moment of receipt of money. Therefore, when leasing your flat, you have to pay zakat only on the rent that will be paid to you, provided that this amount of money reaches nisab and a year has passed.

Who must zakat be paid to?

When considering which charity organization is best to send your zakat to, it is important to consider not only the effectiveness of a charity organization, but also their level of influence. The Quran allows zakat to be paid by those who are engaged in charity. And there is certain wisdom in it.



Ilmira Gafiyatullina

Photo: Creative Commons