Intangible Assets Are Exempted from Zakat, Company Director Explains

Intangible Assets Are Exempted from Zakat, Company Director Explains

Majid Ali, a Scholar and Director of UK-based company MNIMA LTD, was curious to figure out how much Zakat he owed on his intangible assets. Eventually, he found the answer – none.

Intangible assets include intellectual property, brand recognition, patents, licences – all things that have the potential to generate future economic benefits, but whose exact value is difficult to work out for the purpose of paying Zakat. There has been debate among scholars on what to pay Zakat on considering shareholdings. However, Majid’s research has led him to the conclusion that intangible assets are exempted from Zakat. Only tangible assets require Zakat to be paid on them.

Majid explains, “For the most part, intangible assets fall under the umbrella of intellectual property. In a broader sense, they’re knowledge – and nowhere in Islam is a Zakat on knowledge required. Prophets had the highest knowledge and intellectual property – however they never paid Zakat on it. This is proof that there is no Zakat on intangible assets.

“If someone with average savings, an average car and an average house were to design the next big tech product in their garage, then they Tweeted about this product and receive high brand appeal and built up high value intangible assets in the form of brand value and intellectual property, what happens if they were to pass away? Did they pass away rich and wealthy? I asked this question many times and the answer I have received is always the same – they would have died of average wealth, meaning that intangible assets are in themselves not wealth.

“Likewise, we would not expect an educated person to pay Zakat on knowledge gained through their University education.”

It’s a either or, either investment in tangible assets or intangible assets, by subduing tangible assets with Zakat payable on them, the likelihood of investments in intangible assets is larger. While there is no Zakat to be paid on knowledge, Majid adds, this doesn’t mean it does not contribute to a better society. A McKinsey study links a higher rate of intangible assets with a higher rate of economic growth. Therefore, a build-up of intangible assets, or the knowledge economy, is key to higher productivity and higher earnings – which will in turn lead to more tangible assets within society, subject to Zakat. With no Zakat payable on intangible assets, they will grow within society. This will help to create and grow the knowledge economy within Pakistan as the growth of intangible assets drives the growth of the knowledge economy.

Majid adds, “Pakistan has traditionally relied on import led growth which is not sustainable. This approach has led to multiple balance of payment crises. Knowledge economy growth is sustainable, whilst carrying on forever, as knowledge goes to infinity. This also won’t result in the balance of payment crises we have become accustomed to.”

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