Posts Tagged ‘nisab’

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Word of the week: Nisab

March 1, 2010

In the United States, earners with incomes above a specified amount become subject to the federal income tax.

Likewise, local governments often tax property only if it is worth more than a pre-determined amount.  For example, your canoe is exempt from ad valorem tax, but your yacht is not.

Islam also establishes minimum amounts to be taxed.  This definition comes from the glossary of the most authentic rendering of the Hadith, the Sahih Al-Bukhari, as translated by Dr. Muhammad Muhsin Khan:

Nisâb:  Minimum amount of property liable to payment of the Zakât…

Khan provides specific examples of how much the nisab is for money, crops, and livestock.  Muslims only pay zakat on wealth beyond the nisab amount.

What’s worth noting with this definition is the tax discrimination associated with the nisab.  Zakat is paid by Muslims, and the nisab applies to zakat.  No nisab applies to the jizya or kharaj, the taxes that non-Muslims are forced to pay.

Having less than a certain amount of wealth does not exempt non-Muslims from paying the jizya.  Producing a tiny amount of crops does not exempt non-Muslim farmers from paying the kharaj.

This definition has been added to the Money Jihad glossary.

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The Zakat: Part II

November 7, 2009

Leaving aside the profound flaws of the zakat for the moment, this second post in Money Jihad’s zakat series will address the legal and administrative details of zakat collections.

Who pays & when:  Muslim men and women pay the zakat.  Paupers who are eligible to receive the zakat do not pay the zakat.  However, there are numerous statements in the Hadith to the effect that giving just one date fruit is better than giving nothing.  Payment is due annually at Ramadan.

How much:  The Sahih Bukhari says “For silver the Zakat is one-fortieth of the lot (ie 2.5%)” (2.24.534).  In this passage “silver” has been interpreted throughout Islamic history as liquid monetary wealth, whether it’s in cash, gold, or silver.  The zakat tax rate of 2½ percent should be carefully distinguished from the Christian tithe of 10 percent, or American marginal income tax rates of 10 to 35 percent.  The zakat taxes wealth, not income; that is, it counts against everything a Muslim possesses at the end of their lunar year after paying any debts or expenses.  It is not a tax on profits or net revenues (which are subject to different tax rates, especially among Shiite Muslims).

Just to give you a sense of what the zakat tax rate means, multiply your net worth by 2½ percent.  Compare the result to what you paid in income taxes last year.  If your personal finances are like mine, the two figures are comparable.

Deductions:  With the zakat (somewhat similarly to taxes on personal property such as commercial inventory or privately owned boats in the United States), there is an established threshold value under which no goods are taxed.  In Arabic, this threshold value is known as the “nisab.”  For example, Sahih Bukhari 2.24.534 establishes that no zakat is due on less than 200 silver dirhams (which today would be several hundred U.S. dollars).

Animal wealth:

  • Animal nisab:  Apart from the 200 dirham nisab on monetary wealth, the Hadith outline nisab for animal wealth.  A Muslim pays no zakat on less than five camels or less than 40 sheep.  For animal wealth in general, the zakat is paid with a smaller number out of your animals or an animal of lesser value.  For example, if a Muslim owns between five and 24 camels, he pays the zakat with one sheep.  The larger your herds, the higher animal zakat you’ll pay. 
  • Camel taxesI’m trying to convey the animal tax as simply as possible, but the Hadith’s arcane rules on camel wealth are beyond my powers to condense.  Strikingly, Islam’s tax on money is explained in just one sentence, while the tax on camel wealth goes on for paragraphs after paragraphs.  I suppose this is what happens when a tax system that is supposed to endure for eternity is established in 8th Century Arabia.
  • Horse exemption:  The zakat is not due on horses (Shahih Muslim 2.24.542).  I cannot find a Koranic explanation for the exemption, but I have read elsewhere that it was granted because horses help carry holy warriors in jihad.

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