Interplay Between the Metaverse and Islamic Finance: Mutual Impacts and Implications for Taxation

The metaverse offers an evolutionary approach to taxation when viewed through Islamic financial principles, presenting three main scenarios for real-time, Sharia-compliant models. The first involves intra-metaverse transactions, where virtual assets are usually taxed only upon conversion to real-world assets. The proposed Islamic Non-Executed Tax Reserve Account (INETRA) system introduces mark-to-market taxation, levying taxes as assets appreciate. This challenges traditional tax deferral methods and suggests more immediate taxation. The second scenario covers cross-metaverse exchanges. When assets move between different virtual environments, the article argues taxation should occur instantly, similar to cryptocurrency exchanges. This is compared to a “constructive exit,” triggering taxable events akin to converting virtual currencies into Islamic-compliant assets. The third scenario examines conversions of virtual assets into fiat currency or real wealth. It critiques the focus on realized gains and recommends a framework that ensures value extraction from metaverse transactions. Special attention is given to metaverse sukuk (Sharia-compliant bonds) and other Islamic financial instruments, highlighting the importance of aligning them with Islamic tax compliance. The article emphasizes the role of financial statements and AAOIFI accounting standards in shaping tax calculations for Islamic banking, noting Saudi Arabia’s guidelines for sukuk management and VAT exemptions on certain transfers. Overall, the framework demonstrates how Islamic finance principles intersect with metaverse tax policy. Both domains share challenges in asset valuation and timing of taxable events, underscoring the need for internationally harmonized tax laws that balance ethical and economic considerations.