Zakah on Commercial Commodities
This term stands for all properties owned with the aim of investing them in trade. Ownership may be realized by importing or buying from the national market.
These properties include real estate, foodstuff, agro products, cattle ... etc. Also, these properties may include commodities in a shop owned by a person or more.
Difference between capital goods and commercial commodities
Capital goods denote those kept for private use, and not for trade, usually termed in accounting as fixed assets. They are utilized to bring forth production, such as machines, buildings, wagons, equipment, vessels, depositories, racks on which articles are exhibited, desks, furniture ... etc. These kinds of properties are not counted for Zakah.
However, commercial commodities, termed in accounting as circulated assets, intended to be invested in trade, such as commodities, articles, machines, wagons, lands, are liable to Zakah, in case they meet the conditions of Zakah.
Conditions for paying Zakah on commercial commodities
In addition to the conditions previously mentioned in Zakah on cash, there are two additional conditions:
1. Owning the commodity for return
The commodity should be bought in exchange for money, or bartered for another commodity or as a substitute for a debt, whether falling due or deferred. The same applies to articles taken by a woman as dowry, or the deferred amount of dower in case of separation from her husband.
However, the property owned by means of inheritance or donation, the article returned to the seller for a defect, or arable land is regarded as assets and Zakah due on it will be estimated on this basis.
This means that the owner of a property, when first buying it, should have the intention of investing it in trade. Thus, the intention is the key factor that decides whether the property is owned for private use or for trade. Fore example, a car first bought for private use, but intended to be sold if it sells well, will not be considered a commercial commodity, thus not counted for Zakah. However, a merchant who buys a number of cars for trade but keeps one for private use, this one will also be counted for Zakah, depending on his original intention.
In case one changes his mind to dedicate a commodity for private use instead of investing it in trade or vise versa, the second intention is to be taken into account.
The following activities are to be appended to commercial commodities as regards their liability to Zakah:
a) Commercial projects including purchase and sale activities carried out by small to medium businesses, speculation companies, limited or stock companies ... etc.
b) Commissioned activities carried out by brokers, middlemen and agents.
c) All kinds of money exchange and investment.
How to pay Zakah on commercial resources?
When the time of Zakah falls due, the commercial body, whether individuals or companies, should make an inventory and estimate the actual value of the commercial assets and goods. The value of these goods together with the cash money and total of the recoverable debts are considered the amount of commercial resources on which Zakah is due, after leaving out the amount of debts owed by the commercial body. Zakah is to be taken at the rate of 2.5%.
Imam Abu `Ubaid reported that Maymun bin Mahran said, "When Zakah falls due, a Muslim should see his property, whether cash or commodities, and estimate it in cash. If you owe debts to others, calculate their value and take them out of the total property and pay Zakah on the residual."
The rate considered upon estimating the value of commercial assets
Unlike the traditional accounting method which applies the lower rate, the value of commercial assets is to be estimated according to the current market value at the time when Zakah falls due, no matter whether it is higher or lower than the cost price.
As for commercial commodities, they are estimated according to the wholesale price, even though they are sold in retail. This is the view adopted by the Jurisprudence Academy in Mecca.
Should Zakah be paid in cash or out of the commodities?
Originally, Zakah on commercial commodities must be paid in cash. It is reported that `Umar bin Al-Khattab (may Allah be pleased with him) said to Hamas, "'Give Zakah on your wealth.' Hamas said, 'I have no trade other than leather quivers.' Whereupon `Umar said, 'Estimate their value and pay Zakah on them accordingly.'" This is because the cash is better for the poor as it helps him meet his needs however variant.
However, a merchant can pay Zakah out of the commodities in which he is dealing as a means of evading hardship and in case of recession.
Debts owed by others to a merchant
These debts are divided into two kinds:
1. Recoverable debts:
This is a debt owed by one who recognizes it and is able to pay, or a debtor who, though denies the debt, there is an evidence against him that in case he stands for trial he will be obliged to pay it. This kind of debts is also known as good debts. Thus, the amount of such kind of debts is to be added to the total sum on which Zakah is payable.
2. Irrecoverable debts:
This is a debt owed by one who repudiates it, while there is no evidence against him, or by a debtor who recognizes the debt but often procrastinates the repayment or suffers insolvency. Such debts are known as doubtful debts, and are not counted for Zakah unless they are actually repaid. Once this debt is paid, Zakah is payable on it for one year only, no matter how many years it has been owed by the debtor.
Zakah on Industry:
Industrial activities have more in common with commercial activities than other activities. Industry can in no way be separated from commerce. Rather, the industrial activity in general is based on buying raw material and selling them after manufacturing. Thus, all the rules of Zakah on commercial commodities are applicable to industrial activities. As for institutions that manufacture articles for the benefit of other clients, the tools utilized by such institutions are not considered as commercial commodities, e.g., entrepreneurship companies, iron and steel companies, goldsmiths and carpenters. However, in case such industrial companies buy raw materials and manufacture them with the aim of investing them in trade for their own benefit, such materials are to be considered as commercial commodities, which will be counted for Zakah after deducing the manufacturing expenditures.
Industrial activities are divided into two types:
This type includes buying already manufactured commodities with the aim of investing them in trade. The value of such commodities is estimated according to the market value. Then, through adding their value to the cash money and the external good debts, after deducing the debts owed by the payer, the amount of Zakah can be estimated.
This type includes the commodities manufactured by the payer of Zakah. In this instance, Zakah is paid only on the raw material before manufacturing and the materials added while processing, that will be a major component of the article after manufacturing. In the case of raw materials that remained in possession for a full year, or added into the duration calculated for a similar Nisab, such as cash money or commercial commodities, Zakah will be estimated according to the first duration, without calculating a new duration of a full year. This can be represented in a raw cloth that remains in factory for six months then made clothes. The amount of Zakah liable on both types is a rate of 2.5%.
Zakah Payable by Commercial and Industrial Companies
1. Collecting Zakah from commercial and industrial corporations depends on dealing with them as individual entities, provided that:
a) There is an issuance of a binding legal provision to pay Zakah.
b) It should be stipulated in the company bylaws.
c) A decision to this effect is taken by the corporation's general assembly.
d) The approval of all shareholders (to authorize the administration of corporation to pay Zakah on their behalf). This trend relies on the principle of Khultah that is supported by the Sunnah as regards Zakah on cattle. Some juristic schools were in favor of extending the principle of Khultah to all kinds of Zakah. This view was adopted by the First Conference on Zakah. However, in case none of the four above-mentioned conditions is realized, the corporation should estimate the amount of Zakah payable on its properties, then provide a sheet on an annual basis containing the amount of Zakah due on each individual share for easy reference by the shareholders.
2. A corporation should calculate the Zakah due on its properties in the same way as an individual entity.
The corporation should estimate the amount of Zakah payable on its properties according to their type: cattle, crops, commercial commodities ... etc.
Note: Zakah is not due on shares owned by the public treasury, charitable endowments, institutions administering Zakah or charitable associations.