27th Safar 1444AH
Assalamu alaykum warahmatullahi wabarakaatuh!
Praise be to Allah. We praise Him and seek His help and ask Him for His forgiveness. We seek refuge in Allah from the evil of our souls and from our sinful deeds. He whom Allah guides, no one can mislead and He whom He leaves astray none can guide. And we bear witness that there is no god except Allah who is alone and who has no partner and we bear witness that Sayyidina Muhammad is His servant and Messenger. May Allah bless him and his family and companions and may He favour him and give him peace a complete peace abundantly.
O servants of Allah! The major sickness that most of us suffer is that of miserliness and fear of poverty. As a result, no matter the amount of wealth that we have, we are not ready to willingly submit it to full Zakah assessment. We employ all kinds of tactics to under-pay the due Zakah as if Allah can be deceived. This is not only dangerous but self-destructive. For the true servants who take Zakah serious, I urge you to rejoice as “Allah is well pleased with them, and they are well pleased with Him” (Q58:22) and “Their Lord gives them good news of mercy from Him, and good pleasure, and Gardens [of Paradise] in which they shall have lasting bliss” (Q9:21).
The preoccupation, solely, of yourself with the life of this world is merely play and diversion; but if you believe and are cautious of Allah, [which pertain to the goal of the Hereafter] He will give you your rewards, and will not ask you your wealth [in return], all of it, rather, only the alms (Zakah) that are required from it. If He were to ask you for it, and demand it persistently, you would be niggardly, and this niggardliness would expose your rancour towards the religion of Islam.
Zakah on Business Activities
Many scholars are of the opinion that any business activity that brings any return to the entrepreneur or investor should be assessed for Zakah. If the activity has a prescribed nisab, such as gold, silver or paper currency, that nisab is applied for Zakah. But if the business has no declared nisab, its nisab is the nisab of commerce, one reason being that most business activities are considered as commerce and because, in actual fact, it is not the business name, such as Cadbury, Nestle Foods, or Smithkline Beecham that is taxed for Zakah, it is the individual investor, shareholders and owners of these corporations that are subject to Zakah. The properties of sole-proprietorship kind of business is subsumed to be same as the owner of the business. For example, if Zubair owns a biscuit factory as a sole-proprietorship and wishes to assess his Zakah obligation on the business, he takes into account the monetary value of all the biscuit ingredients he has in stock and all the unsold biscuits stored in storage. However, the factory building, machinery and equipment are not taken into account when calculating zakah.
The computation of Zakah on Business is based on the Working Capital Model that considers current assets (the stocks/inventory – finished goods, raw-materials and work-in-progress/process) and deducts current liabilities (debts payable within one year) and makes the necessary adjustments at year end. All assets used in the product of goods (e.g., plant & machineries, land and Building, Motor Vehicles, furnitures and equipments, etc.,) are all zakah-exempt. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) FAS 9 sets out accounting rules related to Zakat on Business.
Consequently, a loan taken out to acquire zakatable assets, such as raw materials, goods and so on, can be deducted from your capital and zakah would be paid on what remains. However, a loan taken out to acquire zakat-exempt assets, such as furniture, machinery and buildings are not deductible since the underlying assets are also not zakatable.
The Nisab is the monetary value of the nisab for gold and the rate applicable is 2.5% on the portion of the business owned by Muslims as non-Muslims are not zakatable. The calculation follows the follow below:
Formula: Zakat on Business = (Current Assets – Current Liabilities +/- Adjustments) x 2.5% x % of Muslim Ownership Share
The table below explains a simple case of business owner and the Zakah computation based on AAOIFI standard.
Today’s date: 12/12/2014
Today’s Nisab: N595,000
1. Current Assets N
Cash in hand 300,000.00
Bank balance 580,000.00
Closing stocks 450,000.00
Trade debtors 150,000.00
Total Current Assets (A) 1,480,000.00
2. Less Current Liabilities N
Trade creditors 50,000.00
Accrued operating expenses 200,000.00
Total Current Liabilities (B) 250,000.00
Net Current Assets (A-B) 1,230,000.00
3. +/- Adjustments N
Add Current Assets
+ Donations in last quarter 50,000.00
+ Personal drawings 3,000,000.00
Less Current Assets
– Obsolete stocks 100,000.00
4. Total Assets due for Zakat 4,180,000.00
4. x Zakat Rate 2.5% 104,500.00
5. x % of Muslim Ownership (E.g.:100%) 104,500.00
Total Zakat on Business 104,500.00
As for all items of trade and commerce (which includes anything that is obtained for the business of buying and selling: land, animals, food provisions, fabric, cars, spare parts, etc.) the inventory is evaluated annually and assessed for Zakah, whether the value is the same as the amount spent on it, more, or less. The owners of grocery stores, like any other business, must evaluate every item and give their Zakah. Simple bookkeeping of inventory, orders, cash on hand, and credits, that is non-delinquent loans, will give one a good picture of the zakatable assets. But if one is unable to account for everything in the store or shop, he should assess it according to his ability until he is sure that his conscience is clear.
There is no Zakah on what is within one’s dwelling or property which includes food, drinks, furniture, houses, animals, cars, clothes and shoes. The only exception is gold and silver. There is no Zakah on assets from rentals or lease, whether they are apartment units, taxi cabs, etc. That is, there is no Zakah on the apartment units, buses or cars for rental like yellow cabs company or trucks for rental or equipment. But there is Zakah on the proceeds or incomes from these rental assets if these assets reach the executable amount, either by themselves or in combination with other assets.
Zakah Issue Concerning Minors and Slaves
At the beginning of this topic, we did say that being a minor or insane does not take away the responsibility for Zakah for those with qualifying assets. It is not uncommon to see in some books that the condition of sanity and maturity are pre-conditions for zakah obligation. It is indisputable that Zakah is due on wealth belonging to minors whether it is in the form of money, crops or livestock and the responsibility falls on the trustees of the minor’s estate. Abu Isa at-Tirmidhi (RA) narrated from ‘Amr ibn Shu’ayb, from his father, from his grandfather that the Prophet (SAW) addressed the people and said: “Whoever becomes the guardian of an orphan who has wealth, let him do trade with it and not leave it lest it be consumed by Zakah.” Even though this hadith is classified as da’eef (weak) by an-Nawawi in al-Majmoo’, there is, indeed, guidance in it going by another hadith from Malik that he had heard that Umar ibn al-Khattab (RA) said, “Trade with the property of orphans and then it will not be eaten away by Zakah” (Muwatta’). ‘Abdu’r-Rahman ibn al-Qasim from his father said, “‘A’isha (RA) used to look after me and one of my brothers in her house. We were orphans. She used to pay the Zakah from our property” (Muwatta’).
Zakah is also paid on the property of the insane. Maturity or sanity is not a condition for Zakah. The majority of scholars are of the view that it is obligatory to pay Zakah on the wealth of minors and the insane. This is the view of Imam Malik, Imam al-Shaafi’i and Imam Ahmad. Abu Haneefah (RA) was of the view that Zakah is not obligatory for a minor, just as other acts of worship, such as prayer and fasting, are not required of him. But he stated that Zakah of crops and Zakah al-fitr are required of him.
The Hanafi opinion was invalidated by the argument that prayer and fasting are not required of a minor because these are physical acts of worship, and the body of a minor is not able to withstand them. As for Zakah, it is a financial duty, and financial duties are required of minors; if a minor were to destroy a person’s property, then he is required to pay compensation from his own wealth, and he is obliged to spend on his relatives if the conditions of that being obligatory are met.
They also said that there is no difference between regarding Zakah on crops and Zakah al-fitr as being obligatory for a child, and the Zakah of other things such as gold, silver and cash. If Zakah is required of him in the case of crops then it is also required of him in the case of all kinds of wealth, and there is no difference.
Slaves, including those who are partially but not completely freed, do not have to pay Zakah on any of these categories. That applies to all the categories of Zakah and to Zakah al-Fitr. If they have been completely freed they do not pay Zakah on any wealth in their possession until a whole year has passed from the day when they were freed.
Part 2
All Praises are due to Allah who has sent among the unlettered a Messenger from themselves reciting to them His ayat, purifying them and teaching them the Book and Wisdom. May the Peace and Blessings of Allah be upon His Confidant, Muhammad (SAW), his family, companions and those who follow their path until the Day of Judgment.
The Zakah on mines
Produce of the mines or mineral wealth are charged to Zakah. However, there is a difference of opinion among the jurists about the rates of Zakah to be levied. According to Maliki, Shafii and Hanbali schools of jurisprudence, mines are to be charged to Zakah at the rate of 2.5%. However, Hanafi Jurists hold that the mines are to be treated as spoils (like war booty which becomes possessed after victory over the enemy in a war situation) and are subject to Khumus or tax at 20% upon possession and the rules of nisab and hawl will not operate.
Some other Hanafi scholars are also of the view that only those mines can be charged to Zakah which are solid, may be melted and admit of imprints. So gold, silver, copper, iron etc. are to be subjected to Zakah, while coal, oil and gypsum are exempt.
According to Imam Malik (RA), there is no Zakah on mined things other than gold and silver – like lead, copper, iron, and arsenic. This Zakah is due when it reaches the minimum weight. One-fortieth (i.e., 2.5%) is due on that, not a fifth (20%) by the generality of the statement of the Prophet (SAW) who said “… there is no Zakah on what is less than 5 awqiyyas.” This implies that when there is five awqiyyas, there is Zakah on it, and that includes ore.
Zakah is due on gold or silver extracted from mines as soon as the weight of gold amounts to twenty dinars or the weight of silver to five uqiyyas. One-fortieth must be paid on the day it is extracted. One year waiting period (Haul) is not a pre-condition for Zakah on mines; it is due the day it is extracted or mined once it reaches the nisab of 5 awqiyyas (85g).
Subsequently, Zakah is due on all gold and silver continuously extracted from the same deposit, however small the amount until such time as that deposit has been worked dry. If work is begun on another deposit, no Zakah is due until the amount extracted reaches the amount on which Zakah is due.
Treasure-trove
Treasure-Trove is called Rikaz in Arabic. Such treasures are subject to Zakah at the rate of 20% by the Islamic state. The finder or discoverer of such treasures gets four-fifth while one-fifth goes to the State. In case the finder is a Mustamin (non-citizen), he gets nothing and the whole treasure would belong to the Islamic state. Khumus (20%) on buried treasure or treasure-trove is levied on the strength of the tradition reported by Abu Hurairah (RA) that the Messenger of Allah (SAW) said: “… there is one-fifth due from the buried treasure” (Bukhari, Muslim).
Things extracted from the Sea
The jurists differ about the Zakatability of the extractions from sea like pearls, ambergris, etc. Some hold that these are not Zakatable, while others maintain that Khumus (20%) lies on these products since these are comparable to minerals found in waste lands. It is reported that Sayyidina Umar (RA) levied Khumus on the pearls and other such like produce of the sea and appointed Sayyidina Yaali-b-Ummayah as Zakah collector. The justification for this had been provided by Abdullah-b-Abbas (RA).
As for the Malikis, what the sea throws up to the shore, like amber, pearls and other jewelry which he finds, they belong to the one who finds them and there is no fifth.
Insurance policies and provident/pension funds
In case the contributions to insurance policies and provident funds are compulsory, Zakah would be paid only when their amounts are received by the policy holder. But in case of voluntary contributions to such policies and funds, in the opinion of Syed Abul Ala Maududi, Zakah on the accumulated deposit in these policies or funds should be levied on year-to-year basis.
DEBTS PAYBLE:
1. Debts payable (Zakah payer) are deducted from his wealth and the remaining wealth, if it completes nisab, is subjected to Zakah. No distinction is, however, made between the personal debts or business debts. Every debt (besides Mahr – dowry) which the Muslim owes to others, is eligible for deduction. Mahr can also be deducted provided he intends to pay it on demand by his wife.
2. When nisab in several kinds of property is owned by a person who also owes a debt, he should first apply the debt against the gold and silver currency, then against the articles of trade and then against animals. Debt is deductible against the property which is chargeable to Zakah and not against the property which is exempt from Zakah. If a debt is secured against a particular asset, the debt should be deducted from the asset against which it has been secured. Again, if a debt has been obtained for the purpose of investment, then it should be deduced from the asset which has been created by that investment.
3. Debt cancels Zakah, even the debt of the Zakah, as opposed to the debts of vows and expiations which do not cancel Zakah. The difference is that the debt of Zakah is sought by the just Imam, and Zakah is taken, even by force, which is not the case with vows and expiations. Then there is an exception from that generality.
4. If, however, you have other assets on which Zakah is not due such as personal effects or slaves or domestic animals or private property which could be used to pay off your debt, then you do pay Zakah on your wealth. If your assets are not sufficient to pay your debt, then you calculate the difference between the debt and your assets and subtract the difference from the wealth on which Zakah is due. If there is still enough left for Zakah to be due you must pay the Zakah.
5. Debt does not, however, affect the obligation to pay Zakah on grain, dates or livestock nor does it affect the Zakah of mines or treasure. For instance, he may have some of these things and owe a debt which would absorb all he has. He still must pay Zakah on it and the debt does not cancel what is due on it. The difference between that and money is that the sunna has come that the debt affects money. As for livestock and fruits, the Messenger of Allah (SAW) and the khalifs (RA) after him sent assessors and agents and they estimated for the people and took the Zakah of their livestock from them and did not ask whether they had a debt or not.
DEBTS RECEIVABLE:
Debts which are receivable by the Zakah payer i.e., which are due to him from others, are treated on the strength of claim they contain. In this respect, debts receivable has been categorized by the Islamic jurists into three classes, namely, strong debts, medium debts and weak debts.
1. No Zakah on money owed until it is received. If the debt has been outstanding for a number of years you only pay one year’s Zakah on it after it is repaid. This pertains to loan and unpaid (credit) sales. It does not matter how many years pass: the Zakah of its owner is due one year after it is received if it is up to the minimum or is added to money he has and it reaches the minimum.
2. Claims which are inherited: If the debt owing to you on the goods has been inherited by you, you wait for one year after receiving payment before paying the Zakah due. If there is an inheritance which was not received for some years, or the goods which were sold are from inheritance, i.e. he inherited goods and sells them but does not receive that price for some years, or the debt is from a gift or sadaqa in the possession of the giver or a bride price in the hand of the husband or khul’ which he pays, or the fine of a tort in the hand of the perpetrator or his guardian, there is no Zakah on it except after a year from when he takes it, even if he delays it out of avoidance.
O servants of Allah! Know that Zakah is an act that reflects feelings of love and compassion on the part of the giver, who is considered to be ‘rich’ in the sense that he has more than he needs. Thus, it has a dual effect of purification: It purges the beneficiaries of any feelings of grudge and class hatred toward rich people, and purges the rich givers of feelings of greed, self-aggrandisement and miserliness. Such one that receive this guidance and is able to fulfill the obligation of Zakah should be happy and grateful for they are the ones whom Allah referred to when He (SWT) said: ‘Those that are saved from their own covetousness are indeed the one who will attain to a happy state’ (Q59:9).
Dear brethren! ‘Give to the near of kin their due, and also to the needy and the wayfarer. Do not squander your substance wastefully, for the wasteful squanderers are Satan’s brothers, and Satan has always been ungrateful to His Lord’ (Q17:26-27).
O Allah! Bring prosperity to our affairs in this world that is the preservation of our lives, and in the next world to which we shall return, and increase our good deeds in our lives, and make our death repose from evil.
O Allah! Make us love each other in Your Majesty and agree on Your sayings, and shade us with Your Throne on the day there will be no shade except its shade, and make us die as Muslims, and join us with pious people, and make our best deed its last one, and our best day the day we meet You.
Allahumma Aaamiiin!
Aquulu qawliy hadha wastagfirullah liy walakum innahu huwal ghafurun Raheem.
Suleiman Zubair
