Praise be to Allah the Cherisher and Sustainer of all the worlds who provided us a chance to serve His cause. When we look around, we see financial problems in affluent as well as in the poor countries. If we look deep enough we can easily see that these problems are an indication of the crises in economic and political aspects of life which is the outcome of ideals, values and institutions of the modern civilization based on selfishness. Values have become the things of the past.

The only way to set the house in order is to call for a basic change in our approach through a thorough understanding of socio-economic situation which has given rise to capitalism, socialism, fascism, communism, and so on but all these approaches have been unable to solve these problems and mankind is still in the socio-economic mess. The problem is not the lack of natural resources as compared to population which is suggested by the European economists but the actual problem is the inequitable distribution of wealth. Islam provides a solution through putting back one element which is missing in all these philosophies, and that is Allah (God) who is the ultimate provider and Sustainer of the world, Who has directed through His Prophets such as Abraham, Moses, Jesus and Muhammad (may peace be upon them all) to establish the System of Az-Zakah for the distribution of wealth. That's why Zakah have been obligatory in the Shari'ah (Laws) of all these Prophets.

System of Az-Zakah requires every well-to-do Muslim to help his poor brethren as an obligatory act of worship. His wealth is not to be spent solely for his own comfort and luxury but also for the needs of the rightful claimants from his wealth, and they are the community's widows and orphans, the poor and the invalid; those who have the ability but lack the means to get useful employment and those who have the talent but not the money to acquire knowledge and become useful members of the community.

Those who do not recognize the call on their wealth of such members of their own community are indeed cruel. For there could be no greater cruelty than to fill one's own coffers while others die of hunger or suffer the agonies of unemployment. Islam is a sworn enemy of selfishness, greed and acquisitiveness. Disbelievers, devoid of sentiments of universal love, know only how to grab wealth and increase it through lending it out on interest. Islamic teachings are the antithesis of this attitude. Islam requires that one shares one's wealth with others and helps them stand on their own feet to become productive members of the society.

Our research and study of the problem in the Muslim world and world at large indicate that the system of Az-Zakah, directed by Allah Himself - the third main pillar of Islamic faith, is the most neglected one. It will not be a misstatement to say that this pillar of Islam has not been established at all, neither on the state level nor on the community level. Zakah is the main and only pillar as far as socio-economic life of this world is concerned. How a building of this worldly life can stand when the main and the only pillar is missing?

For this humble servant of Allah being a Ph.D, a post graduate in Economics, a post graduate in Business Administration with major in accounting, a graduate of Law with special emphasis in Islamic Law (Shari'ah) and working as an educator for 3 years and auditor for 18 years, it became incumbent to fulfill the task of presenting the Islamic solution to the socio-economic problem facing the world today. We tried to acquire as much written material on the subject of Zakah as possible but unfortunately, with the exception of a few, such as Allama Yousuf Islahi, most of the writers on the subject have completely missed the very basic principles of `Al-Zakah'. While most writers of Indo-Pak Subcontinent and Middle East have dealt Zakah as the action of collecting from the rich and distributing to the poor and appears to have neglected the rest of the categories ordained by Allah in Al-Qur'an; the writers of the North America and Europe have dealt Zakah as Income and property tax, so much so that, even the exemptions are calculated exactly similar to the Internal Revenue Service such as Br. Monzer Kahf and Br. Mahmoud Abu-Saud. The truth of the matter is that both of these approaches are extremes and do not represent the Institutions of Al-Zakah. This "Al-Zakah" manual is aimed to present the real balanced and moderate system of Al-Zakah based on Islamic Shari'ah.

The knowledgeable readers, whom Allah has given Islamic as well as economic and accounting knowledge are strongly urged to revise those portions of this manual which needs to be upgraded and we will Insha-Allah revise the new addition accordingly. We are fully aware that our rendering does not and could not do justice to all the aspects of Divine scheme of this pillar of Islam. However, to reach the destination, one has to take the first step. To accomplish the System of Al-Zakah on the community level in accordance with the Divine Commandment `Zakat-ul-Mall' Agency is being established. To facilitate Zakah calculation, Short and Detailed Zakah Return and sample forms for Zakah Collection, Zakah Pledge and Application for the poor and needy are developed and made a part of this manual. Sample calculation models for the two accounting approaches stated in this manual are also made a part of the manual for professional accountants and major businesses. After calculating the Zakah, funds should be forwarded to the Zakah collecting agency, which is established for this purpose to direct your funds according to Islamic Shari'ah as if you yourself would have done if you were to do that job, at your local community or forward the funds to ‘Zakat-ul-Mall Inc.’, supervised by reputable ulema for compliance with Shari’ah. Its address appears on the last page of this manual. All such payments are tax deductible in North America for IRS purposes.

This Manual has been reviewed by two CPA's, over nine Ulema and reputable universities , such as, Jam-e-Al-Azhar, located in Cairo - Egypt, to verify the accuracy of calculation, terminology and Shari'ah requirements. We are very grateful to them for their contribution. May Allah Almighty give them a generous reward and may Allah help us all to work hard for the cause of Islam and His pleasure.

A' meen

Muhammad Farooq-i-Azam Malik

Ramadan-ul-Mubarak 1, 1413 A.H

February 23, 1993.

Revised on: Ramadan-ul-Mubarak 27, 1425 A.H.

(November 11, 2004.)

2 - INTRODUCTION

For a long time there has been a need of a brief composition of juristic work regarding the third pillar of Islam, Zakat-ul-Mall, in a simple language identifying the various aspects of this system from Shari'ah as well as from modern complicated economic systems point of view, providing step by step work-sheets in the shape of schedules and Zakah Return similar to the Tax return for easy calculation of Zakah, the Islamic financial responsibility - a source of Social Security in the Muslim Ummah. So that the Muslims may take an advantage of this research work to uphold this act of worship. As you may realize this pillar of Islam has been the most neglected one. As a result Muslim Ummah is facing financial hardships inspite of possessing the richest natural resources of the world.

Zakah is not an income tax or a property tax and it should not be considered like one as it appears from the write-up of Br. Monzer Kahf "The Calculation of Zakah". The main basic principle underlying this Third Pillar of Islam is to encourage the Muslims to put their wealth in circulation and not hold it depriving the others from its benefits of changing hands through business and trade. If any one holds the wealth from circulation for one full year, he should pay Zakah equal to the minimum benefit it would have yielded to the poor, needy, in the way of Allah and so on. This minimum benefit assigned by Prophet Muhammad (peace be upon him) is its 1/40th or 2.5%. That's why merchandise inventory change over of several times during the year has no effect on the Zakah calculation, Zakah is only on the ending physical inventory at the end of the fiscal year. That's why assets which are used in business to generate funds are exempt from Zakah because those assets are responsible for putting the wealth in circulation. Furthermore Zakat-ul-Mall is based on the principle of paying thanks to Allah for His grace and bounty in gaining wealth without efforts in the cases of windfall profits, unexpected fortune, finding a treasure etc., that's why the rate of Zakah on such items is 1 /5th or 20%. While paying thanks to Allah for His grace and bounty in the case of natural resources like agriculture when it is irrigated by rain fall the rate of Zakah is 1/10 or 10% whereas if it is irrigated by ones own efforts the rate of Zakah is 1 /20th or 5%. Similar principle with varying rates applies to ranching operation. Furthermore, one must understand that Zakah is an act of worship and a method prescribed by Allah Himself for paying thanks to Allah in order to be His 'Abdan shakoor' (grateful devotee) therefore, it is not a levy or burden like income tax or a property tax. This is Divine commandment for the distribution of wealth among the community members. Another major difference between Zakah and Taxation is that the person paying the Zakah is not expecting any worldly benefit in return, while the person paying income tax is expecting the government services in return.

In Islam Salah and Zakah are two most important acts of worship. Salah is a training for all the acts of worship relating to body and soul, while Zakah is the training for all the acts of worship relating to wealth. There are only two kind of obligatory rights and duties. First are the rights of Allah and their related duties. Second are the rights of other human being and their related duties. Salah prepare the believers to fulfill the Rights of Allah, while the Zakah play a role to fulfill the Rights of other human beings. Al-Islam is the name of fulfilling these two kinds of Rights in a proper Way.

In the establishment of Deen, Zakah is the second most important act of worship. Salah play the most important role in spiritual elevation, while Zakah play the most important role in financial stability which is the backbone of worldly life. Combination of spiritual and worldly lives in a balanced way is called "Sirat-ul-Mustaqeem" the Right Way. That's why in the Holy Qur'an whenever Allah ordered the believers to establish Salah, He ordered the believers to pay the Zakah and these two acts of worship have been obligatory on each and every Ummah before us. For example in Surah Al-Anbiyaa after mentioning the incident of putting Prophet Ibrahim in fire and fire becoming cool and comfortable for him, and mentioning Prophets Loot, Ish'aq and Yaqoob, Allah said:

"We made them Imams who guided people by Our command, and We revealed to them the doing of good deeds, establishing the Salah and paying the Zakah, and Us alone they served" [21:73].

In Surah Al-Ma'idah while addressing the Children of Isra'el,:

"Allah said (to the children of Isra'el) I am with you only if you establish Salah and pay Zakah" [5:12].

In Surah At-Taubah while addressing the Muslims Allah said:

"So if they repent, establish the Salah and pay the Zakah, then they are your brethren in Deen (Al-Islam)” [9: 11].

In Surah Al-Anfal Allah said:

"Those who establish Salah and spend in charity out of the sustenance which We have given them, they are the True believers". [8: 3-4]

Since Salah and Zakah are the two basic pillars of Islam, therefore, denying any one of them or differentiating in any one of them is equal to becoming Murtad (traitor or disbeliever). Syyiduna Abu Bakr Siddiq (may Allah be pleased with him), when some of the tribes refused to pay Zakah, said: "I swear in the name of Allah that I will make Jihad against those who differentiate between (the obligation of) Salah and Zakah" - (Tibrani).

Those who do not pay Zakah are given the warning of a dreadful punishment in Surah At-Taubah:

"To those who hoard up gold and silver and do not spend in the cause of Allah, proclaim a dreadful punishment. The Day will surely come when their treasure will be heated in the fire of Hell, and their foreheads, sides and backs branded with them. They will be told: this is the wealth, which you hoarded. Taste then what you were hoarding”. [9:34, 35].

In order to save the believers from this dreadful punishment Allah asked the Prophet in the same Surah:

"Take alms (Zakah) from their wealth, so that their wealth may thereby be cleansed and purified, and pray for them...” [9:103].

After this introduction let us try to understand this pillar of Islam and do our best to comply with this act of worship. May Allah help us all to strive hard for His cause to gain His good pleasure.

Âmeen

3 - DEFINITIONS

Zakah:

Zakah literally means - growth and increase as well as purification. The payment of Zakah purifies and cleans the remaining wealth because it is blessed by Allah for compliance with His commandment. Zakah is considered an act of worship relating to one's wealth. The giving of Zakah leads to increase the wealth in this world, develop the religious merits in the next and purify the giver from sins. The Divine verse: "Take from their property alms in order to purify them from their sins" illustrates the spirit of Zakah. Zakah is an obligatory Sadaqah enjoined on the members of the Muslim community, so as to take the surplus money from the comparatively well-to-do members of the society and give it to the destitute, needy and the other welfare projects along with spreading the true understanding of Islam.

Sadaqah:

Sadaqah is from the word 'Sidq' which means `truth'. Sadaqah is that charity out of one's wealth which is given with true heart (from the depth of one's heart) to seek the pleasure of Allah. Sadaqah can be compulsory, such as Zakah or voluntary, such as charity. Al-Qur'an uses the word `Sadaqah' for both. In other words, while every Zakah is Sadaqah, only the Sadaqah, which is obligatory (fardh), is called Zakah.

Nisab:

Nisab means the ownership of that quantity of wealth through which one is called wealthy. In Shari'ah term `wealthy' is used for that individual or business who owns, free of any encumbrances, 3 ounces of gold (20 mithqals = 4.25 grams of fine gold) or 21 ounces of sterling silver (200 dirhams = 595 grams. A silver dirham is equal to 2.975 grams) or the equivalent of either one's value over and above the necessities of life in accordance with one's status and standard of living in the community of one's residence. For those who are in Ranching business, their Nisab for sheep and like animals is 40 heads, for cows and like animals is 30 heads, for camel and like animals is 5 heads. Nisab for Trade Merchandise is equivalent to the price of 21 ounces of sterling silver.

Ard-al-Tijarah:

Ard-al-Tijarah means completely owned business property, free and clear of any debt, which is obtained for resale purposes and is growing in value and nature (Nami); such as inventories of merchandise, raw material, goods in progress, finished goods, goods in transit depending on the passage of title to the goods, as well as commercial agriculture and ranch products.

Ard-al-Qinyah:

Ard-al-Qinyah means the property which is kept for the personal or business use and is not acquired with the intention of trade or resale. This property is not subject to Zakah.

Usher:

Usher literally means one-tenth but in Islamic terminology it is Zakah on agriculture products, whether one-tenth or one-twentieth.

Tamleek:

Tamleek means to make the Zakatees owner of the Zakah funds without imposing restriction on its usage except regarding the Islamically prohibited items like intoxicants, gambling etc.

4 - WHAT IS ZAKAH ?

Zakah is a corner stone of financial and fiscal affairs of an Islamic Community. Its importance can be judged by the fact that at different places in Qur'an, the commandment to perform Salah (prayers) is followed by the commandment of paying Zakah (obligatory charity). Just as Salah is an act of worship relating to the body and soul, so is Zakah an act of worship relating to wealth. Islam recognizes that a human being has two fold relationships: first, his relationship with his Creator (Allah) and second, his relationship with other human beings. This relationship has given rise to the Rights of the respective parties and he is under obligation to fulfil them. Salah plays a role to fulfil the rights of Allah, while Zakah plays a role to fulfil the rights of other human beings. In other words Al-Islam is the name of fulfilling these two kinds of Rights in a proper Way, and this is also called 'The Right Way' which in Arabic is called Al-Sirat-al-Mustaqeem.

Zakah is a compulsory charity levied by an Islamic Law on the members of the Muslim community, so as to take the surplus money from the comparatively well-to-do members of the society and give it to the destitute, needy and the other welfare projects along with spreading the true understanding of Islam. Thus it provides the principles of a true welfare state where the people with less means could share with others to improve the income distribution. The importance of Zakah can be noted by the fact that Al-Qur'an has mentioned Salah and Zakah together at about 32 places as two of the foremost duties after the affirmation of the Faith. A person who fulfills these two duties properly is considered to have fulfilled all his religious obligations. A person, who makes ablution, put up good clothing and go all the way to present his body and soul in complete obedience to Allah inside the Masjid, cannot be expected to disobey Allah outside the Masjid. That's why Al-Qur'an presented Islam, a combination of Salah and Zakah as a testimony of one's real faith,

“Allah said (to the children of Israel) I am with you if you establish Salah and pay Zakah”. [5:12].

The institution of Zakah is aimed to root out the love of the material world from the heart of the believer and inculcate in it the pure love of Allah. Al-Zakah is a means to cleanse the Muslim society from stinginess, malice, jealousy, hard-heartedness and exploiting of others. Al-Zakah is also a means to inculcate and develop pure and noble feelings of love, sacrifice, goodness, sincerity, well-wishing, co-operation and companionship. In the Sunnah, Zakah is reckoned as one of the five pillars of Islam. Zakah being a compulsory payment becomes the right of the entire community or society to the wealth of individuals, as prayers is the right of Allah on the believers. Since Zakah has religious Islamic sanctity of the highest order, its collection is easy, inexpensive and voluntary.

Zakah is regarded by some as mere alms giving ; but this is a wrong interpretation of the tenets of Zakah, as illustrated in Al-Qur’an. Although private charity and payment by individuals privately is permissible, it is required to be organized on community or state level. Moreover, the beneficiaries of Zakah have been prescribed in the Al-Qur’an and it is not open to the State or collecting agency to divert the funds of the Zakah for purposes other than those prescribed in Qur'anic verse which reads:

"Verily the Sadaqah (Zakah) are for the poor and the needy and those who collect them and those whose hearts are to be reconciled, and to free the captives and the debtors and for the cause of Allah, and for the wayfarers; a duty imposed by Allah. Allah is the Knowledgeable, Wise." [9:60].

Thus it is clear that not only the definition of Zakah is precise but the amount collected by way of Zakah is also to be distributed in a precise manner. Therefore, Al-Qur’an clearly illustrates the mechanics and chief beneficiaries of Zakah.

5 - ZAKAH IN ISLAM AND IN THE SHARI'AH OF PRIOR PROPHETS

Importance of Zakah in Islam can be understood by the very fact that Allah's commandment of establishing the Salah (prayer) is immediately followed by the commandment of paying the Zakah in such a way that it is made an integral part of Iman (Islamic Faith), and it appears that the whole of Islam is based on these two main pillars after the Belief in Allah and His Rasool. It is important to know that Zakah has been obligatory in the Shari'ah of all the Prophets; as Allah , after mentioning Prophets Ibraheem, Lut , Ishaq and Yaqoob, has stated in Surah Al-Anbiyaa:

"We made them leaders who guided other people by Our Command and We sent them revelations to do good deeds, establish Salah and pay Zakah. To Us alone did they serve.”[21: 73]

Likewise while stating the purpose and mission of Prophet Muhammad (peace be upon him) and the Muslim Ummah, Allah has stated in Surah Al-Hajj:

"Strive in the Way of Allah as you ought to strive with sincerity and discipline; He has chosen you and has not laid upon you any hardship in the observance of your faith - the faith of your father Ibrahim. He named you Muslims before in the prior scriptures where the believers were called Muslims and in this (Al-Qur’an, the believers are being called Muslims); so that His Rasool may testify against you and you yourselves may testify against rest of the mankind. Therefore, establish Salah, pay Zakah and hold fast to Allah; Who is your Protector - what an excellent Protector and what a splendid Supporter!”[22: 78]

Prophet Isma'el (peace be upon him):

In surah Maryem, the address of Prophet Isma'el is quoted in the following words:

"Also relate to them the story of lsma'el in the Book; he was a man of his words and was a Rasool and a Prophet. He commanded his people to establish Salah and give Zakah, and was the one with whom his Rabb was well pleased.”[19:54-55]

Children of Isra'el:

Allah took the covenant from the Children of Isra'el. This fact has been stated in surah AL-Baqarah as follows:

“Remember, We took a covenant (firm commitment) from the children of lsra'el: ‘You shall worship none but Allah; be good to your parents, relatives, orphans and destitute; speak fair to the people, establish Salah, and pay Zakah’. But you broke the covenant except a few of you, and you paid no heed.”[2: 83]

In Surah Al-Ma'idah reference is made to this covenant in these words:

“Allah did in fact made a Covenant with the Children of lsra’el and appointed twelve chieftains from among them and said: I am with you; if you establish Salah (prayers) pay Zakah, believe in My Rasools, support them and give a generous loan to Allah (spend in charity), I will certainly forgive you your sins and admit you to gardens beneath which the rivers flow. However, if anyone of you, after this, violates this covenant, he will indeed go astray from The Right Way”.[5: 12]

Prophet Isa (Jesus) peace be upon him:

In Surah Maryem, the address of Prophet Isa (Jesus) to the Children of Isra'el is quoted in the following words:

"I am indeed a servant of Allah. He has given me a Book and made me a Prophet. His blessing is on me where ever I go. He has commanded me to establish Salah and give Zakah as long as I live”.[19:30-31]

Prophet Muhammad (peace be upon him):

Allah has made it very clear to the Believers that if they want to attain felicity, Allah's pleasure and an abode in Paradise, they should adopt the characteristics of the True Believers which are stated in Surah AL-M'uminun, of which 1st. three are as follows:

"Indeed successful are those Believers, who are humble in their Salah; avoid vain talk; and are punctual in the payment of Zakah”. [23: 1-4]

While stating the effects and credits given for spending in His way, Allah has proclaimed the following similitude:

"The parable of those who spend their wealth in the wayof Allah is that of a grain, which sprouts into seven ears, each bearing one hundred grains. Allah gives manifold increase whom He wishes. Allah has boundless knowledge. Those, who spend their wealth in the cause of Allah and do not follow their charity with reminders of their generosity or injure the feeling of the recipient, shall get their reward from their Rabb; they shall have nothing to fear or to regret. Kind words and forgiveness is better than charity followed by injury. Allah is Self-sufficient, Forbearing”.[2:261-263]

6 - OBJECTIVES OF AZ-ZAKAH

A. Generosity

Az-Zakah trains the believers in generosity and motivates the believers to rush towards the achievement of goal and passing the test for which they are here on Earth during this worldly life, this objective is stated in Surah Âl-e-'Imran as follows:

"Rush towards the forgiveness from your Rabb and a Paradise which is as vast as Heavens and the Earth, prepared for the righteous people; those who spend generously in the way of Allah - whether they are in prosperity or in adversity - those who control their anger and forgive other people, for Allah loves such charitable people”.[3: 133-134]

Az-Zakah also saves the believers from casting themselves into destruction by their own hands, because those communities who do not take care of the poor and needy among themselves, incur the wrath of Allah Therefore Believers are required to be charitable and even call such a help to the needy a loan to Allah, and He promises to pay back in full, plus a reward equal to ten times. Allah says in Surah Al-Baqarah:

"Give generously for the cause of Allah and do not cast yourselves into destruction by your own hands. Be charitable; Allah loves those who are charitable”. [2: 195]

"Whatever wealth you spend in charity, it is to your own advantage; provided you give to seek the pleasure of Allah. Whatever wealth you spend for the sake of Allah will be paid back to you in full, and you will not be wronged”.[2: 272]

B. Righteousness

Righteousness can not be achieved without unconditional love and obedience to Allah and His Rasool, and the main hindrance in the modern world is the love of materialism. Az-Zakah helps the believer to attain righteousness as it is stated in Surah Âl-e-'Imran:

"You can never attain righteousness unless you spend in the cause of Allah that which you dearly cherish; and whatever you spend, surely it is known to Allah”. [3: 92]

C. Felicity

Al-Zakah is a source to attain felicity and gain the maximum credits through: fulfilling the rights of the relatives, poor and needy people in the community, actively participating in the charitable work, seeking the pleasure of Allah and not to be stingy like the unbelievers. Furthermore, Allah wants the believers to clearly understand those actions which are blessed by Him and meet His approval. Allah advises the believers in Surah Ar-Rum:

"O Believers, give what is due to your relatives, the needy and the traveler in need. This is best for those who seek the pleasure of Allah and it is they who will attain felicity. That usury, which you give to increase through the wealth of people, does not increase with Allah: but the Zakah that you pay to seek the pleasure of Allah shall be repaid to you many times over.”[30: 38-40]

D. True Faith

Al-Zakah brings the believers closer to Allah and helps them in attaining the true faith. It inspires the believers to feel happy in helping the needy and inculcate in them the quality of sacrifice which distinguishes them from the Hypocrites, who merely provide the lip service and faith has not gone down to their hearts. Since hypocrites consider Al-Zakah a tax or a levy, so they give reluctantly and such half hearted contribution are not acceptable to Allah, Who, while addressing the hypocrites, has very clearly stated in Surah At-Taubah:

"Say: ' `Whether you give willingly or with reluctance, it will not be accepted from you; for you are the people who are transgressors ". The reasons which prevent their contributions to be accepted are: that they disbelieve Allah and His Rasool; that they come to offer Salah but reluctantly; and that they offer contributions but unwillingly. Let neither their wealth nor their children dazzle you: in reality Allah intends to punish them with these things in this life and that their souls may depart while they are still unbelievers.” [9: 53-55]

E. Protection

Al-Zakah serves as a protection from the severe punishment which is specially prepared for those who hoard up wealth and do not spend in the cause of Allah and to help the needy in their community, as Allah says in Surah At-Taubah:

"O Believers! Indeed most of the (Jewish) rabbis and (Christian) priests misappropriate the wealth of people and debar them from the Way of Allah. To those who hoard up gold and silver and do not spend it in the Way of Allah proclaim a painful punishment. The Day will surely come when their treasure will be heated up in the fire of Hell, and their foreheads, sides and backs branded with them. They will be told: "This is the treasure which you hoarded. Now taste what you were hoarding!”[9: 34-35]

F. Forgiveness

Al-Zakah is a source of prosperity. In this regards the saying of the Holy Prophet is: "Al-Zakah is the treasure of Islam". Islam guarantees that a Muslim community who will establish the system of Al-Zakah will never be poor. It is Shaitân who seduces the people towards the wrong direction and creates a fear of loss in the minds of those who want to spend in the path of Allah or for the welfare of the poor and needy people of the community. Shaitân tries his best to make sure that a believer may not spend for a good cause and become eligible for the reward from Allah, rather leave all that they own for Taghût (Satanic forces). Allah admonishes the people not fell into the trap of Shaitân to earn His wrath. The fact is that no one in the history of mankind has ever gotten poor for spending in charity. Allah says that the only way to increase your wealth and seek His forgiveness is to spend in charity. Surah AL-Baqarah states this fact in the following words:

"The Shaitân threatens you with poverty and prompts you to commit what is indecent, while Allah promises you His forgiveness and bounties and Allah has boundless knowledge”.[2: 268]

G. Party of Allah

Al-Zakah helps in joining the 'Party of Allah' and avoids falling into the category of disbelievers, because Allah has very clearly stated in the Qur'an that the people who do not establish Salah and pay Zakah are false in their claim of being the believers. There is a 'Party of Allah, His Rasool and the Believers', and it is the duty of a Believer to leave other parties and join the Party of Allah. If a Muslim befriends a person, who is outside this party, may he be his father, brother, son, relative, countryman or any one else, and maintains with him the relationship of affection and support, he should not expect that Allah would like to keep up relation with him as his supporter. Allah has very explicitly explained that in Surah AL-Ma'idah:

"O' Muslims! Your real protecting friends are Allah, His Rasool and the fellow believers - the ones who establish Salah, pay Zakah and bow down humbly before Allah. Whoever makes Allah, His Rasool and the fellow believers his protecting friends, must know that Allah's party will surely be victorious”.[S: 54-56]

H. Paradise

Al-Zakah is a means to get Paradise which Allah has prepared for the Believers. Allah also wants the believers to excel both in spiritual as well as in worldly lives. Just as Salah plays the most important role in spiritual elevation of the believers, similarly Zakah plays the most important role in their financial stability. When a person embraces Islam and recites Qalimah Tayyabah: "There is no God but Allah and Muhammad (peace be upon him) is His Rasool," he enters into a bargain between him and Allah, as a part of this bargain, Allah promises the believer to grant him Paradise, this transaction is stated in Surah At-Taubah in the following words:

"Indeed Allah has purchased from the believers their persons and their wealth and in return has promised them the Paradise; they (believers) fight in the cause of Allah and slay and are slain. This is a true promise which is binding on Him mentioned in Taurât (Torah), the Injeel (Gospel) and the Qur'an; and who is more true in fulfilling his promise than Allah? Rejoice, therefore, in the bargain which you have made, and this is a mighty achievement.”[9:111]

7 - WHO SHOULD PAY ZAKAH ?

The one who has recited: “La Ilaha Illullah Muhammad-ur-Rasool Allah” (There is no god but Allah and Muhammad is His Rasool) and has testified according to the commandment of Allah Almighty in Surah Al-Anaam:

"Declare, surely my Salah, my devotion, my life and my death are all for Allah, the Rabb of the Worlds. He has no peer, thus I am commanded and I am first of the Muslims.” [6: 162-163]

The one (may be an individual or an organization) who is in possession and has free and clear ownership of "Productive Nisab". The one who believe in the Five Pillars of Islam and believe that Zakah is the 3rd Pillar of Islam and a mandatory act of worship relating to their wealth, which is in excess of their basic needs, in order to render thanks for His bounty. Productivity, real or hypothetical, is considered to be present in one of the following cases:

· When property is gold or silver,

· When property is intended for trade.

· When harvest is ready to be used.

· When animals are pastured for trade or business.

· When minerals and oil resources are extracted for sale.

8 - WHEN ZAKAH BECOMES OBLIGATORY?

Zakah becomes obligatory when following conditions are met :

A. One must be a sane adult, because maturity, reason and responsibility are based on this quality. However, according to the Malikies (especially in regards to cattle and crops) and also according to AL-Shafa'i minors and insane are also under obligation to pay Zakah.

B. One must be a Muslim, because the payment of Zakah is a divine commandment and is considered an act of worship which can be performed only by a Muslim.

C. One must be a Free Citizen in order to comply with the provision concerning the transfer of ownership by the Zakah-payer to the Zakah beneficiary, because a slave cannot own any property.

D. One must be an owner of the property. Possession of property alone is not sufficient; ownership of property is necessary condition for Zakah.

E. Property must be more than Nisab (i.e. 3 ounces of gold or 21 ounces of Sterling silver or their equivalent value).

F. Property must be over and above the necessities of life; necessities of life may include Residential home, clothes, utensils, furniture, cars and other such items irrespective of their value, whether actively used or not, which were purchased for personal use and not for re-sale.

G. The Nisab must also be free from debt. However, according to AL-Shafa'i indebtedness does not affect the obligation of Zakah. According to the accepted Hanafi view, the debt is applied against the property which is subject to Zakah and not against property which is destined for the satisfaction of necessities and is consequently exempt from Zakah.

H. Nisab assets must be of growing nature and value; such as, property intended for trade or business, gold, Sterling silver, ranch operation and so on. If the assets are not of growing nature, they are not subject to Zakah even if they be over and above the basic necessities of life; such as, more than one car in the household, utensils not in daily use, more than one set of furniture and so on.

I. Intention of paying the Zakah; since Zakah is considered an act of worship, therefore, the payment of Zakah must be accompanied by the intention to discharge the obligation of Zakah.

9 - WHEN ZAKAH IS DUE ?

One full year must have been elapsed over the Nisab of productive property. The lapse of a year is essential "because time is indispensable for productivity to materialize". Hadith of Rasool-Allah is explicit, "No Zakah is due on property before there elapse over a year". The property acquired in the course of the year is added to the Nisab of the property already in existence. However, AL-Shafa'i has a difference of opinion that additional property acquired during the year should not added to the original Nisab.

In the case of Agriculture products (Farming) : at the time of harvest, as Allah has commanded in Surah AL-Ma'idah:

"It is He who has created all kind of plants; trellised and untrellised, the palm trees, the field crops with produce of different kinds, the olive and pomegranates similar in kind yet different in taste. Eat of their fruit in their season and give away their Zakah on the harvest day. Do not be spendthrift; surely He does not love the spendthrifts”.[6:141]

This may be once, twice or as many times as possible under the modern methods of cultivation. Nisab in this category is on "Khamsa Aosaq" which is approximately 10 Lbs.

In the case of Ranching operation: when the cattle are pasteurized after acquisition and one year has elapsed. However, the off springs which were born during the year will be counted for the purposes of Zakah. Animals raised for riding and for meat are exempt except when raised for trade and business. Nisab is ownership of at least 40 goats, sheep and other like animals, 30 cows and other like animals and 5 camels and other like animals.

In case of finding a treasure, windfall profits and similar gains without directed efforts, at the time gaining the custody or ownership.

Minerals and other mine products, oil and sea resources: at the time of extracting, catching and marketing.

10 - HOW TO PAY ZAKAH ?

Zakah is supposed to be paid to Islamic State and in the absence of Government Agency, Muslim Community is under obligation to organize Islamic Bait-ul-Mall for the purpose of collecting and disbursing the Zakah according to the need and priority based on the categories stated in the Divine Revelation of Al-Qur’an. To comply with this obligation, Zakat-ul-Mall Inc. has been established in the United States of America to organize Islamic Bait-ul-Mall. For details about this corporation, its board members, objectives and operations, visit its web-site “www.zakatulmal.com” / “www.zakatulmal.org” /“www.zakatulmal.net”.

It is NOT necessary to tell the individual that the amount is Zakah money. Therefore, it can be disbursed to the eligible people in the shape of prizes and gifts, only intention of disbursing the Zakah is enough.

Zakah can be given in advance in a lump sum or in the installments provided the individual or business entity had Nisab prior to its disbursement. Zakah can be prepaid for three years in advance on an estimated basis. In the second and third year, if the actual Zakah payable exceeds the prepayment then just pay the balance. If, however, prepayment exceeds the actual Zakah for the second and third year then the exceeded amount should be considered "Sadaqah" to get blessings from Allah.

In case of a family where man is head of the household, he is responsible for the payment of Zakah by those who are under his control of influence. Same is the case for the one who is a trustee.

In the case of destruction of loss of ones assets resulting in one's insolvency after one have calculated the Zakah; it is still due and payable whenever the solvency is restored.

If the cash that has been set aside for the payment of Zakah is destroyed or lost, you still have to pay the Zakah form your other assets.

Zakah can be given in kind or in cash value. In modern economy cash is more appropriate. Items can also be purchased for the individuals or institutions from the Zakah funds for disbursement purposes.

Under normal circumstances Zakat-ul-Mall should be disbursed for the needs of the Local Community, except in case of extra ordinary circumstances or an important project qualified under Zakah category is located elsewhere.

Zakah can be given to individuals, families as well as institutions.

Qardh-i-Hasna can also be given from the Al-Zakah fund to the needy to put them back into business or for their training and education to make them capable of earning their own living and to broaden the future Zakah base. This is one of the most recommended categories in North America.

Zakah can be given as one time help and also as repeated times depending on the circumstances and needs.

Zakah can be given to the relatives but not to the immediate family and dependents (whether ascendants or descendents) - however, brother, sister and in laws are eligible for Zakah if deserving. As a matter of fact, there is double reward for doing so; one for giving Zakah and second for being kind to you relatives (Silah Rehmi).

Zakah should be given based on Lunar Calendar; however, it can be given by Solar Calendar since we did not come across any restriction in this regard based on our research. However, since lunar calendar is 355 days and solar is 365 days, therefore, the rate of Zakah used for Solar Calendar should be 2.577% instead of 2.5%. The month of Ramadan is considered to be more fitting from reward point of view; however, any month can be fixed for that purpose. In North America months of November and December are recommended for IRS Tax exemption purposes.

One very important condition of Zakah is that the individual or Institution to whom Zakah is given should be made the OWNER of the funds with no strings attached except when a restriction is imposed based on the circumstances and habits of the individual to avoid misuse of Zakah funds for Un-Islamic or illegal purposes.

Zakah is considered paid and obligation discharged when given to Zakah Collection Agency or Institution (Wal A'meleena Alaiha). Then it becomes the obligation of the Zakah collection Agency to disburse in accordance with the Qur'anic injunctions.

Zakah can be given by the relatives on behalf of one another. Such as husband can pay for the jewelry of his wife.

11 - DOCTRINE OF TAMLEEK

According to Hanfi school of thought, obligation of Zakah has not been discharged until you made the Zakatee, to whom you have given Zakah, the owner of Zakah payment. Some of them claim that this condition is fulfilled only when it reached its final destination and most of them have mentioned in all their write-ups the first two categories of Zakah and has neglected the other six categories ordained in Al-Qur’an. They claim that "Laam" with Al-Foqaraa and Al-Masakeen denote that condition. Well the same "Laam" also go for Al-A'meleena Alaiha. Scholars such as Yousef Islahi and Abul ‘Ala Maududi assert accordingly that the same "Laam" for Tamleek is applicable to Al-A'meleena Alaiha, just like the Poor and Destitute. The Zakah obligation is properly discharged when the Zakah funds are given in the ownership of Zakah Collecting Agency. Since after accepting the Zakah funds, it becomes the Agency's obligation to disburse the funds according to the Qur'anic injunctions, there should be no restriction or condition imposed on the spending once the payee is made the owner of Zakah funds (which is agreed upon by all Ulema from all schools of thought). Therefore, there can be no restriction imposed on the Zakah Collecting Agency after making the agency an owner of Zakah funds.

12 - RATES OF ZAKAH

Rate of Zakah is different on different assets. Before one calculates the Zakah, one must first know all the categories of the assets, their beginning and ending balances. Then calculate the Zakah based on the following rates. These rates are also made a part of the Zakah calculation Forms which are the final part of this Manual.

Cash and cash equivalents, Gold, Silver, Jewelry made of gold and/or silver (weight of diamonds, pearls and other precious stones can be deducted), Trade or merchandise inventories, accounts receivables, Marketable securities, Shares of Stocks, Bonds and all other kind of business property acquired for trade. Investment and resale: the Zakah rate is 2.5 % or .025% (1/40th).

Agriculture products: All agriculture products are subject Zakah called "Usher". Although literally it means one-tenth but in Islamic terminology means Zakah on agriculture products. Some jurists claim that there is no Zakah on those products which can not be stored like, fruit, vegetables etc. However, our research indicates no such provision in Shari'ah and furthermore, in modern age every thing can be stored, therefore, non-zakatability does not apply. This category of Zakah has two categories:

Cultivation dependent on rainfall. The Zakah rate is 10% (1/l0th). Zakah has to be paid first without any consideration of the expenses. Expenses of cultivation have to be paid from the remaining 90%.

Cultivation through irrigation, not dependent on rainfall. The rate of Zakah is 5% (1/20th). Zakah has to be paid first without consideration of the expenses. Expenses of cultivation have to be paid from the remaining 95%.

Ranch operation: the rate of Zakah is different in all three categories:

A. Poultry, Goats, sheep and like animals:

From 1 – 120 head = 1 head

121 - 200 heads = 2 heads

201 - 399 heads = 3 heads

400 - 499 heads = 4 heads

500 heads = 5 heads and thereafter (1) head on every 100 heads

but nothing on fractions.

B. Cows and the like animals:

From 30 – 39 heads = 1 head of one year old

40 – 49 heads = 1 head of two year old

60 – 69 heads = 2 heads of one year old each

70 heads = 1 head of one year old and I head two years

old, and thereafter for every 30 count 1 head of one year old and for every 40 heads count 1 head of two years old but nothing on fractions which can not be divided into 30 or 40 counts.

C. Camels and the like animals:

From

1 - 9 heads = 1 head of goat

10 - 14 heads = 2 heads of goats

15 - 19 heads = 3 heads of goats

20 - 24 heads = 4 heads of goats =

25 - 35 heads = 1 head of same kind of over (1) year old.

36 - 45 heads = 1 head of same kind of over (2) years old.

46 - 60 heads = 1 head of same kind of over (3) years old.

61 – 75 heads = 1 head of same kind of over (4) years old.

76 – 90 heads = 2 heads of the same kind of over (2) years old.

91 – 120 heads = 2 heads of the same kind of over (3) years old.

And on 121 plus heads will start the beginning rate of (1) goat for every five and (2)

goats for every ten camels or like animals.

Note: Zakah can be given in kind or cash, equivalent to the fair market value of

the above mentioned animals.

Windfall profits, Oil extraction, Minerals and mine operation:

For items in this category the Zakah rate is 20% (1/5th).

Sea Resources:

For This category the Zakah rate is 2.5% or .025% (1/40^th).

13 - WHEN TO PAY ZAKAH ?

Zakah, in most cases, is due once a year. People engaged in farming and mining are required to pay Zakah immediately after harvesting or extraction. Allah says in the Qur'an:

"O Believers, spend in Allah 's Way the best portion of the wealth you have lawfully earned and that which We have produces for you from the earth, and do not pick out for charity those worthless things which you yourselves would not accept but with closed eyes. Bear in mind that Allah is Self-sufficient, Praiseworthy”.[2:267]

Traditionally Zakah is paid during the month of Ramadan. However, payment of Zakah in the months of November and December is recommended so that you can claim a Tax Deduction in the same year. You can establish your own financial year for the purposes of Zakah and make the payment in the month following the end of the year. Zakah not paid in the past also remains payable. Any Muslim who has not paid Zakah on Zakatable assets in the past should pay now. In the terminology of Islamic Law this payment for the past would be "ada" (valid discharge of obligation) and not just "ghada" (defective but obligatory discharge).

Unlike other kinds of property, Zakah on crops and fruits does not become due after the lapse of a full year since reaching the Nisab. Rather, the determining factor here is the agricultural season and the crop. This is confirmed by the Qur'anic verse,

"But render the dues that are proper on the day that the harvest is gathered."[6:141]

Thus, Zakah will be due on each crop produced by the land at the same year. The time when Zakah on crops and fruits becomes due begins when they are ripe. However, crops and fruits should first be gathered and piled in the threshing floor. Thus in case the yield is wasted before piling, unintentionally or due not to negligence, no Zakah is due on it. Zakah on crops and fruits, however, is due on the owner who sells the ripe yield of his land or gives it in donation or the one who dies after the crops are ripe. But in case the owner dies before the crops are ripe, Zakah will be incumbent on the buyer or the donee or the heir of the owner.

In case someone wants to use the solar year, he can use the solar calendar through raising the percentage of Zakah to 2.577% instead of 2.5% so as to make up for the difference between the two calendars.

14 - ZAKATABLE ITEMS

Following items, whether personal, trade or real estate are Zakatable according to Islamic Shari'ah. These items must be identified, time of ownership determined and included in the Calculation of Zakah:

A. Cash or cash equivalents; such as, certificates of deposit, promissory notes, traveler checks and other paper money.

B. Pension fund, IRA funds, provident fund, and employer’s profit sharing fund including company contribution to the extant of vested interest.

C. Gold and Silver.

D. Precious metals and Stone which are a part of business inventories.

E. Trade / merchandise inventories.

F. Secured accounts and notes receivables.

G. Marketable securities.

H. Share of stocks, stock options less the furniture and equipment of that company if known.

I. Agriculture products at the time of cultivation.

J. Ranching operation; such as Camels, Cows, Goats etc.

K. Rental Income from real and personal properties.

L. Real estate used in real estate business.

M. Windfalls (unexpected fortunes).

N. Maritime, road and air equipment manufactured for sale.

O. Communication network, Computers and other such equipment manufactured for resale.

P. Patents, Trade marks and other intangibles carrying definite determinable value.

15 - NON-ZAKATABLE ITEMS

The following items are exempt from Zakah:

A. The Debtor: Because the debtor is required to honor the obligation of a creditor, the property that he owns does not therefore, warrant the Zakah.

B. Dimmer property: Dimmer is a property which has slipped out of one's possession with little chance of recovery. Dimmer property is exempt from Zakah according to Abu Hanifah, Abu Yusuf and Mohammad Ibn AL-Hasan, because the condition of productivity is absent. According to Zufar and al-Shafi, however, dimmer property is subject to Zakah for past years; when recovered, because upon its recovery the cause of Zakah, namely a complete Nisab, has come into existence. But, if the property is deliberately hidden or buried, it does not qualify for such exemption.

C. Property which lacks productivity and is part of necessities of life, and is being actively used even though occasionally during each year are exempt from Zakah. The examples of such items are:

· Dwelling houses.

· Wearing apparel (excluding gold and silver, irrespective of value).

· Household utensils.

· Riding animals and vehicles.

· Arms kept for use.

· Food for self and family use.

· Articles of adornment, if not made of gold and silver.

· Gems, pearls, rubies, emeralds and the like (if intended for personal use)

· Books and tools.

· Animals used in cultivation.

· Factors of production in business and manufacturing.

· Animals of Dairy Farms, (Zakah is on Dairy products).

· Decoration pieces irrespective of their value.

· Fisheries for hobby not for sale.

· Domestic animals i.e. cows, goats, chickens, for household.

· Rental houses, shops, warehouses & Rental items i.e. taxi cabs, trucks, buses, furniture etc. (Zakah is on net rental income).

· Trust (Waqf-fi-sabeel-lil-Lah) property.

The principle behind the exemption is to avoid hardship on the part of the Muslim to pay Zakah on items which need to meet the daily needs of life as well as items required in trade but not intended for sale or trade. It is interesting to note that the Taxable limit or exemptions as developed in modern theory of taxation is based on this principle.

The property of minors and the insane: The property belonging to minors, the insane and the non-Muslims since they lack respectively maturity, reason and the condition of being Muslims. However, according to Malikies (especially in regards to cattle and crops) and also according to Shafa‘i these properties are subject to Zakah.

Death of the property owner prior to the elapse of a full year without a will directing the settlement of the Zakah from the third of his estate.

16 - HOW TO CALCULATE AL-ZAKAH?

A. Pure Gold and Gold Jewelry

Zakah on pure gold and gold jewelry is based on the market price on the date of calculation (preferably, the 15th of Ramadan or any other date that you have fixed for your Zakah calculation).

If it is not pure gold i.e. 24 Carats, then use the following formula:

a. Pure gold - 24 Carats @ the market price.

b. Jewelry - 22 Carats @ 92% (market price X .92)

c. Jewelry - 18 Carats @ 75% (market price X .75)

d. Jewelry - 14 Carats @ 58% (market price X .58)

A deduction of 2% is allowed from the weight of jewelry studded with stones, since there is no Zakah on diamonds, rubies, emeralds, pearls etc. (if these stones are the part of your personal assets, however, Zakah is payable on precious and semiprecious stone if you are in the jewelry and precious stones business). If the stones are proportionately too many then you can make your best estimate because your dealing in Zakah calculation is directly with Allah, Who is All-Knowing, All-Observant.

B. Pure Silver, Silver Jewelry and Household Items

Zakah is payable on Silver, whether it is pure or in the form of jewelry, utensils, decorative items, medals, crockery, cutlery etc. at the market price on the day of calculation. To arrive at the value of pure silver for jewelry, deduct 2% and to arrive at the valuation for utensils, cutlery etc., deduct 10% from the total weight of that jewelry or item.

C. Real Estate

Zakah is payable on those properties which are held as an investment with the intention to sell at a future date for profit. In a case you bought a property for personal use but later on you change your intention and want to sell that property but have not sold yet, and one year has passed, you are under obligation to pay Zakah on such property.

If you are a developer or you are in a real estate business i.e. buying, developing and selling, or buying and selling the real estate. You are under obligation to pay Zakah on all completed unsold and held for sale properties at the fair market value. Zakah is also payable on receivable after deducting loans and other liabilities.

Zakah is also payable on buildings, shops, storage warehouses and land held as business property which is not being actively used and self occupied for your own business. There is a misconception that there is no Zakah on such a property, which is not true. The only property, exempt from Zakah, is the one which is self occupied, and is being actively used by you for your own business.

D. Business Stock and Inventory

Stocks-in-trade and inventory of all kinds of businesses (including old parts, scrap, cars if in car business) are subject to Zakah, provided there value is more that 21 ounces of pure silver. The inventory and stocks must be valued at Cost Price, which include purchase price plus transportation plus fees and customs if any. All accounts receivable from your customers must be added to the inventory price. Accounts payable and loans against the inventory or stock must be deducted to arrive at the net cost. Dead stock or merchandise should also be included in the inventory at the scrap or salvage price.

All vehicles used in business for transportation and security are exempt from Zakah being the factors of production (those elements which are necessary for running a business). Similarly factory building, machinery, fixtures and furniture used as factors of production are also exempt from Zakah. However you have to pay Zakah on the finished goods inventory, including the goods in transit which are still in your ownership.

E. Securities

A security represents a part of a loan owed by the company or the body that gives this security. A fixed interest, which is not affected by the company's profits or losses, is to be offered on this security. However the company is obliged to repay the loan at a determined time. A security has a nominal value, that is the original value, and a market value, which is determined by demand and supply. Dealing in securities is prohibited as it brings about a usurious interest.

Though dealing in securities is not lawful, Zakah is due on their par value, which is to be added to other kinds of property, after reaching the Nisab and the lapse of a full year. All usurious interests gained from securities are to be spent in charitable purposes, in a way to assist the common good except in building mosques and printing copies of the Holy Qur'an. However, this spending will be regarded a means to get rid of the ill-gotten gain, but not a Zakah. One is not allowed to spend thereof on himself or on his household. It is recommended that the owner should dedicate it to those afflicted by famines, strains, disasters and the like.

F. Partnership

Zakah is payable by the Partnership itself, however, if the partnership is not paying Zakah, the partners are under obligation to pay Zakah on their respective shares. The easy way, to calculate your share for Zakah purposes, is to get a copy of the Balance Sheet, look for the amount of 'stock holder's equity', multiply it by your share percentage to arrive at your share amount, then add your share of profit and deduct the amount of withdrawals to date in order to arrive at the amount on which the Zakah is payable. Please note that all this calculation is to be done and Zakah is to be paid before the payment of Income Tax, since income tax for the current period is not deductible from the Zakatable amount.

G. Loans, Bonds, Provident Funds, IRA's, Pension Funds

Zakah is payable on the loans advanced by you to your friends and relatives, and

should be treated as cash on hand. You may deduct the loans payable from that amount to arrive at the net Zakatable amount. Zakah is also payable on Government Bonds, Postal saving Certificates, Provident Funds, Earnest Money Deposits, Tender Deposits, Security Deposits, Deposits in IRA accounts, cash value of your Term Life Insurance and the Pension Funds plus an amount to the extent of your ownership in your Employer's contributions in such funds.

H. Debts

A debt is defined as an amount of money owed by someone. It is counted for Zakah in case it is recoverable. After repayment, money is to be added to the total sum of properties counted for Zakah. However, the debt owed by the payer of Zakah is to be excluded from the total sum liable to Zakah. 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 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) Non-recoverable debts:

This is a debt owed by one who denies it and there is no evidence against him, or by a debtor who recognizes the debt but makes excuses for repayment or suffers insolvency. Such debts are known as bad 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.

I. Mutual Funds and Company Shares

A share indicates any of the equal interests or rights into which the entire capital stock of a corporation is divided. Holding shares is regularly evidenced by one or more certificates. It is liable to gain or loss. A shareholder is free to sell his shares whenever he likes. A share has a par value, determined when first issued, and a market value determined on the basis of supply and demand in the banknote markets in which the shares are circulated. Holding shares in a joint-stock company is judged on the basis of the kind of company activities. Shares in a company that has usurious dealings or produces prohibited commodities such as alcoholic drinks is unlawful.

Your investment in your company shares and Mutual Funds are also subject to Zakah. Values of your company shares can be taken from the quoted value at the time of your Zakah calculation. This quoted share value is available from the daily release of a stock exchange in which your company shares are being traded, if your company shares are not on any stock exchange then contact the company's personal, chief financial officer or company's CPA.

In case the company pays Zakah on its shares, the shareholder is not obliged to pay Zakah on his shares to avoid twice giving Zakah.

J. 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 open market. These properties include real estate, foodstuff, agro products, cattle ... etc.

(i) 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 variable assets, intended to be invested in trade, such as commodities, articles, machines, wagons, lands, are liable to Zakah, in case they meet the following conditions:

(a) Intention :

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.

(b)Owning the commodity for return on investment :

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.

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.

(ii) The Following Activities Are Considered Commercial Commodities

· Commercial projects including purchase and sale activities of businesses, speculation companies, limited or stock companies ... etc.

· Commissioned activities by brokers, middlemen and agents.

· All kinds of money exchange and investment.

(iii) The Value of Commercial Assets and Commodities

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.

Commercial commodities are valued at the wholesale price, even though they are sold in retail. This is the view of the Jurisprudence Academy of Makkah.

(iv) Can Zakah Be Paid Out Of The Commodities?

Zakah on commercial commodities should be paid in cash. It is reported that Syyiduna `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 Syyiduna`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 variety of needs.

However, a merchant can pay Zakah out of the commodities in which he is dealing.

K. 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. 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 include:

(i) Manufacturing

If the commodities are manufactured by the payer of Zakah, then 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, Zakah will be estimated according to the first duration, without calculating a new duration of a full year.

(ii) Marketing

To market already manufactured commodities with the objective 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.

L. Fruits and Other Crops

All agriculture produce, including fruits, commercially grown flowers, vegetables and all types of grains are subject to Zakah at the time of harvest before deducting any expenses related to the harvest, those expenses have to be paid from your remaining share. The passing of one year time period is not applicable in these cases. If your crops were irrigated by the rain water, pay 10% of the produce, if the crops were irrigated by the canals and tube wells, then pay 5% of the produce and if it was partially rain, and partially canals and tube wells, then pay 7 1/2% of the produce as the Zakah. Grains retained for self-consumption are exempt from Zakah; therefore, you can deduct that quantity before the Zakah calculation. You can give ALZakah in kind or pay its value in cash.

According to Imam Abu Hanifah (May Allah’s mercy be upon him) and other jurists who stuck to the outward meanings of the related Qur'anic and Sunnah texts, Zakah is due on all crops and fruits grown with the aim of investing the arable land. A Qur'anic verse says,

"O believers, spend in Allah’s way the best portion of the wealth you have lawfully earned and that which We have produced for you from the earth, and do not pick out for charity those worthless things that you yourself would not accept but with closed eyes. Bear in mind that Allah is Self-Sufficient, Praiseworthy”.[2: 267].

However, plants that grow without human efforts, such as wood trees, grass, reeds ... etc. are not counted for Zakah, unless they are intended to be invested in trade. In such case they will be treated in the same way as commercial commodities.

(i) Agricultural Products

Agricultural products are not counted for Zakah unless they are intended to be invested in trade. In such case they are treated in the same way as the commercial commodities.

(ii) Approximate Estimation

Sometimes the owner of fruits and other crops has no time to estimate the yield of his land by measuring. In such case he is permitted to have this yield estimated by an expert and pay the mount of Zakah accordingly. According to Al-Awza`i and Al-Laith, this method of estimation can be applied to all kinds of fruits and crops. Estimating the amount of Zakah is carried out after the fruits and other crops are ripe, while paying it is performed after the process of drying (as in the case of dates and raisins). An amount of one-forth or one-third or any other quantity necessary for the consumption of owner’s household is to be exempted from the obligation of paying Zakah The owner can get an experts opinion in this regards.

(iii) The Expenditures of Cultivation

According to Ibn `Abbas and other jurists, all expenditures of ploughing, planting, fertilizing, and harvesting are to be deducted from the total amount counted for Zakah, provided that these expenditures do not exceed one-third of the total yield.

(iv) Leased Land

A lessee of a land has to pay Zakah on its produce of fruits and other crops. The owner of the land, on the other hand, will add the leasing value to other cash money in his possession and pay Zakah on them. In case the produce of land is shared due to a contract or crop-sharing (which implies that the owner appoints another person to take care of cultivating or irrigating the land in return for a portion of its yield), the Zakah is due on both parties once the yield reaches the Nisab (5 wasqs or 653 kilograms).

(v) General Rules Relating to Crops and Fruits

Crops and fruits of like kind are to be added and estimated together, while those of different kinds, like fruits and vegetables, are to be estimated separately.

In case the crop varies in quality, Zakah is given on the basis of the average, but not lesser, rate.

The value of plantations, grown in different soils, is to be added together, so long as they belong to the same owner.

Though the owner of land should pay Zakah from the crop, some scholars maintain that it is permissible to pay it in cash according to the market value.

(vi) Exemptions

Following crops and fruits are exempt from Zakah :

· The amount consumed by the owner while the crops or fruits are still raw.

· The amount consumed by the beasts utilized in cultivation.

· The amount consumed by the wayfarers.

· The amounts donated as a charity.

M. Cattle and Other Animals

The term cattle include camels, cows (including buffaloes) and sheep (including goats). All grazing animals like goats, sheep, camel, cows, and chickens are subject to Zakah, however, the egg laying birds and milk producing animals are exempt from Zakah - since they are the factors of production and the Zakah is on their produce. You can give the Zakah of animals and birds in kind or its value in cash. For detailed rates of Zakah, please refer to the rates of Zakah.

There are some conditions which were laid down with the aim of easing restrictions on the owner, so that he gives Zakah willingly. Thus, Zakah achieves the noble aims for which it is ordained. These conditions are:

(i) Cattle exploited in cultivation are not counted for Zakah. This is confirmed by the Prophet's saying, ''Nothing is due on the cattle used in cultivation.''

(ii) The cattle raised for trade will be treated exactly as the commercial commodities; Zakah on them will be calculated on the basis of their value not number.

N. Mineral Resources

Mineral resources consist of all minerals extracted from the inner layers of the earth or the seabed, whether liquids as petroleum, solid as salt or gases like butane, and whether metallic like iron or non-metallic like sulfur, no matter whether the minerals are extracted one at a time or in parts. In case the work ceases because of emergency such as repairing equipment or due to a strike on the part of the workers, the extracted minerals are to be added together in a way to complete the minimum amount counted for Zakah. However, in case the work ceases due to the transfer of the activity or for another reason, then resumed again, this interruption is to be considered in calculating the minimum amount counted for Zakah in a way that the new extracted amounts of minerals will not be added to the amounts extracted before the halt.

Zakah on minerals is not paid on annual basis; it is promptly due on any extracted and filtrated portion of minerals so long as it reaches the Nisab liable to the payment of Zakah. The term 'minerals' includes all minerals extracted from the earth or the seabed. Zakah on pearls, coral, fish, and amber is to be paid in the same way as commercial commodities.

O. Buried Treasures

Zakah on treasures extracted from the earth is to be paid at the rate of 20% immediately. This is the view adopted by the majority of jurists, as it is supported by the Prophet's Hadith, "On treasures extracted from the earth one-fifth is due as Zakah."

P. Capital Goods

Capital goods stand for all properties that, though not invested as trading objects, yield a profit to the owner such as real estate, trucks, steamers, planes…etc. These assets are not counted for Zakah; rather, Zakah is to be paid on their revenues by adding them to the mount of Zakah payable on the owner's cash money and commercial commodities after the lapse of a full year.

Q. Earnings from Jobs or Other Professions

Earnings stand for all that is earned. In case a person gets certain gains beside the already existing properties counted for Zakah before the lapse of a full year, whether these gains are of the same kind of the existing properties or not, such as money gained from trade or the offspring produced by cattle, the earned property is to be added to the already existing properties.

According to Abu Hanifah, Zakah is to be paid on both after the lapse of a full year, regardless whether the recently earned property was the yield of the already existing properties or not. As for the property earned is of a kind other than that already existing, e.g. a person who has a property in the form of cash money and then earns a property in the form of cattle, the newly earned property is not added to the already existing property. Rather, it is to be regarded as a separate property with separate calculation as regards the amount of Zakah and the duration after which Zakah is payable.

All savings from wages or salaries received by workers or employees are to be added to the amount of money already in the possession of the worker or the employer, and, after reaching the Nisab and the lapse of a full year, Zakah is to be paid on the total sum. A cautious person may resort to calculating the approximate amount he expects to save and give it in Zakah in advance, then calculate the total sum of his properties at the end of the year and pay any outstanding amounts. Any increase paid above the amount of Zakah will be regarded as a Sadaqah.

R. Property acquired through unlawful means

Unlawful property indicates all that is legally forbidden to be owned or invested. The forbiddance may be attributed to the harmful nature of the object itself such as carrion, alcoholic beverage, and pork, or to the improper way through which this property is acquired, such as gambling, usury, bribery, etc.

Gaining property through an illegal way is not considered an acknowledged way of ownership. The acquirer has to pay it back to its original owner or to his heirs in case the former dies. In case it is impossible to identify the original owner, the property is to be disposed of in charitable purposes. It will be considered a charity whose reward goes to the original owner.

Money received in return for carrying out a prohibited activity is to be disposed of in charitable purposes, but not paid back to its original owner.

Money received from an employer who insists on dealing in unlawful transactions, such as usurious dealings, is to be disposed of in charitable purposes, but not returned back to the employer.

In case it is impossible to pay back the same unlawful property, the acquirer may pay back anything similar to it or its value to the original owner. In case it is impossible to identify the original owner, the property is to be disposed of in charitable purposes. It will be considered a charity whose reward goes to the original owner.

The property declared unlawful due to a blemish in its nature is not counted for Zakah, since it is legally considered as valueless. It should be disposed of in a suitable manner.

The property declared unlawful due to its being acquired through unlawful means is not counted for Zakah due to the absence of lawful ownership. In case this property is returned to its original owner, it will be counted for Zakah for one year only. This is the unanimously held opinion among the jurists regarding this issue.

Please Note:

Your payment of lncome Tax or Sales Tax does not release you from the liability and obligation of Al-Zakah.

17- TRADE ZAKAH (Ard-al-Tijarah)

There are two types of wealth. The first type, which is not subject to Zakah, includes those capital assets owned for personal use or for the purpose of using them in one's business. Examples of such assets are the tools and machines used for production or marketing. These assets are called `Retentive' or `Holding Assets' and in Islamic terminology they are called `Ard-al-Qinyah'. These assets are similar to non-current assets. The second type, which is subject to Zakah, includes those assets manufactured or purchased for making a profit by reselling them. These assets are called `Business or Trade Assets and in Islamic terminology they are called `Ard-ul-Tijarah'. These assets are similar to current assets. Islamically, wealth is everything that can be possessed and utilized in a normal way. In the case of trade Zakah, wealth is Cash, Inventory, Customers' Receivable, and Marketable Securities minus all Liabilities related to theses items.

The wealth subject to Zakah, must meet the following conditions:

· Complete ownership, either in the owner's possession (on hand) without any restriction or with someone else but under the owner's control.

· Growing or subject to growing (nami).

· Exceeds minimum amount (Nisab).

· Exceeds basic personal and trade needs.

· Clear of debt

· The passage of one lunar year of ownership except ranching operation, agricultural, mineral, oil, and any other extracted item.

In its simplest form, Zakah on trade wealth is due on any completely owned property (clear of debt) for resale purposes and growing nature (not used in business) that lasted for one lunar year and exceeded a minimum amount.

Applying the above conditions in today's business environment is not a simple task. Business entities maintain accounting records and prepare financial statements according to generally accepted accounting principles. These principles were developed for different purposes and different methods are used in this regards. Different countries may have different methods adopted as generally accepted accounting principles.

In accounting terminology, the costs of goods or services incurred while creating an item of future benefit up to the point of its being ready to fulfill its original purpose (use or sale) are capitalized as assets. This item must be owned by the enterprise and have a determinable value. Assets acquired for use in manufacturing, selling, administration and investment activities are referred to as non-current assets, while assets acquired through manufacturing or purchase for resale, or those obtained in the course of trade or acquired for business purposes; are defined as current assets.

Accountants use different methods of valuation to adjust changing prices (i.e., for inflation). Examples of these methods are constant dollar, current value, or a combination of the two. The assets are recorded at cost. Then when prices change, they are valued at either the original cost (historical cost) or adjusted to reflect the price-related changes. There are two accounting approaches for changing prices: constant dollar (general price level changes) and current cost (specific prices changes). General price level adjustment uses a general price index, such as the consumer price index. Under current cost accounting, there are two major approaches: current entry price (replacement cost) and current exit price (net realizable value).

Islamic jurists, like accountants, do not agree on which method to use. For example, Jabir ibn Zayd (Abu Ubayd 1395/1975, 521) recommends the sale value on the day on which the amount of Zakah is determined. Kahf (1980, 15) prefers the lower of the cost or market price. There is another opinion, that of Ibn Rushd (Al-Qaradawi 1977, 337), which supports the item's historical cost.

Valuing trade assets (inventory, for example) according to the selling price does not take into consideration the current environment, for there are certain expenses involved, such as commission, advertising, transportation, and others, which were not present to any extent in the past. Therefore the valuing method should be the net realizable value, which is determined by subtracting the expected selling expenses from the sale price. Another opinion (ibid. 337) is to use the wholesale price, since it is easy to sell the item at that price. In layman's terms, this would be the replacement cost at the end of the zakatable year. We agree with this replacement cost concept.

18 - Zakah Collection

Collecting Zakah from commercial and industrial corporations is based on:

a) There is a binding legal provision to pay Zakah.

b) It is 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 such as Zakah on cattle. In case none of the above applies, the corporation should estimate the amount of the Zakah payable on its properties, and then provide a sheet on an annual basis containing the amount of Zakah due on each individual share for easy reference by the shareholders.

Note:

Zakah is not due on shares owned by the public treasury, charitable

endowments, and institutions administering Zakah or charitable associations.

19 - ACCOUNTING METHODS OF CALCULATING AL-ZAKAH

There are two main methods of calculating the Trade or Business assets for the Zakah purposes:

A. Net working capital approach (current assets less current liabilities). However, this approach may not meet the debt-free and passage of one year condition to compute the Zakatable amount.

B. Net Equity or Owner's Equity approach: This approach is being used in Saudi Arabia.

(A) Net Working Capital Approach :

The Zakatable amount of trade assets can be determined through the net working capital (current assets less current liabilities) at the end of the accounting period (Shahhatah, al Tatbiq, 1397/1977, 146; Shahhatah, Muhasibah, 1400/1980, 204). This implies that net working capital is equal to the growing capital which is free of debt and has lasted for one year. This may be accurate if we assume:

· Simple activity.

· A direct relationship between current assets and current liabilities, that is, the current assets are financed by (and only by) capital and short-term liabilities.

During the early days of computing Zakah on trade assets, business transactions were very simple, for they took only a short period of time, were mostly based on individual activities, and relied on manual performance. Most trade activities were in the form of proprietorship, but today's business transactions are not so simple. The creation of transactions as well as the advanced technology of manufacturing has all led to the need for capital assets (fixed assets) which can assist in producing and maintaining trade assets.

Also in the past, financing was simple, as it consisted of personal capital or simple partnership. If there was any need for additional capital, it was obtained through short-term financing that took place over short disconnected periods. Therefore, any change in financing during operating cycle (increasing or decreasing of debt) was rare. Today, the vast increase in the size of economic units and large corporations has opened many new avenues for raising capital through short-term and long-term financing. This has subsequently led to increases and decreases in resources during the accounting period (one year). For example, short-term and long-term liabilities were used to finance both short-term and long-term assets. The mingling of funds sources (equity, long-term and short-term financing) and the application of funds (current assets which include trade assets and long-term assets not subject to Zakah) lead to differences between net working capital and growing capital. Therefore, it is difficult to relate the source of funds to the application of funds to determine a direct relationship between them for calculating the Zakatable amount.

From the above discussion, it is clear that the accounting concept of net working capital does not agree with the Islamic concept of growing capital. Therefore, the net working capital should be adjusted to account for the mingling between the funds' sources and applications in order to arrive at the correct Zakatable amount. If some one wants to use the accounting concept of net working capital, following adjustments are suggested:

Net working capital at end of year:

Add (+): short-term debts used to

finance fixed assets

pay off long-term debt, or

reduce capital stock

Subtract (-) long-term debts used to finance short-term assets (trade assets)

Equals (=) growing capital

(B) Net Equity (Owner's Equity) Approach:

The Owner's Equity concept is used in Saudi Arabia to determine the Zakatable amount. This approach determines the Zakatable amount through the net equity invested in the current assets (trade assets) according to the Zakah Agency as follows:

First ADD:

1) Paid-in capital (plus owner's account if proprietorship) at the beginning of the year. Any addition during the year is ignored, since it does not meet the "passage of one year" condition.

2) Retained earnings (prior year earnings) including any reserves or appropriations.

3) Net income for the year before any distributions.

4) Income to be distributed unless it is deposited in a bank under the direction of stockholders. The company has no right to withdraw it or to earn money on it.

From the above, DEDUCT:

1) Net fixed assets at the end of the year after deducting accumulated depreciation and any related debt, but not more than the sum of paid-in capital, retained earnings, reserves, and owner's capital at beginning of the year (1, 2, and 3 above).

2) Investment in another entity.

3) Actual losses for the current year or prior years.

This system removes, from calculation, the increase in cash which resulted from paid-in- capital (additional investment) during the year, because the passage of the one year condition is not met regardless of weather it was invested in trade assets (current assets ) or in retentive assets (fixed assets). However, the system does not assume this condition on a cash increase caused by the sale of fixed assets during the year. That is because:

The increase in cash due to the sale of fixed assets after the payment of its liability during the year is considered to have passed the one year condition and therefore is added to the growing capital at the beginning of the year. This means that (other things remaining the same) the Zakatable amount at the end of the year is larger than that at the beginning of the year.

If the cash or any trade assets used to purchase or finance fixed assets and to pay off liabilities of growing capital are deducted form capital subject to growing, the Zakatable amount at the end of year will be smaller than it was at the beginning.

Therefore in determining the Zakatable amount, any new investment (additional paid-in-capital) during the year should be deducted from the growing capital at the end of the year as follows:

Zakatable amount = Growing capital at the end of the year - Net increase in paid-in capital during the year.

Please Note:

The samples of Applications for the above mentioned two approaches, an Appendix (developed by Brs. El-Badawi and Al-Sultan in their article "Net working Capital" published in Volume 9, Spring 1992 issue of the A.J.I. S. S.) is being made a part of this Manual.

20 - TO WHOM ZAKAH IS PAYABLE

Zakah is the right of a Muslim, it cannot be given to a Non-Muslim except in the category of "AL-Muallafatay Qolubohum', for which the explanation is provided in category #4 below. Rasool Allah said: “I am commanded that I collect Zakah from the rich among you and distribute to the poor among you". The same was the practice during the reign of Khulafa-ir-Rashideen (The Righteous Caliphs). Only Muslims were employed in the Administration of Collection and Disbursement of Zakat-ul-Mall, and it was always Collected and Distributed on the Central Level. As for the categories of Disbursement are concerned, Allah Almighty Himself specified the Eight Categories in Surah At-Taubah as follows:

" In fact The Sadaqah (Zakah) collection is for the poor, the helpless, those employed to administer the funds, those whose hearts need to be won over to the Truth, ransoming the captives, helping the destitute, in the Way of Allah and for the wayfarer. That is a duty enjoined by Allah; and Allah is All-knowledgeable, Wise” [9:60].

Our research shows the following explanation of these Eight Categories:

1. Poor - Those who are unable to fulfill their basic needs:

Those who do not have enough for their basic needs, who is in need of financial help, whether they do not earn any income due to some incapacitation or they earns less than they need to sustain a minimum standard of living. This category include all those Muslim men and women who need help to make both ends meat, not have enough provisions for food and other basic necessities of life after utilizing all available government sponsored programs; i.e. unemployment, welfare, food stamps, social security, energy assistance, housing assistance and other such programs. This also includes handicaps, orphans, widows, old, unemployed and victims of calamities or natural disasters. In North America this may also include those individuals who can not get any government sponsored programs because of their immigration status.

2. Destitute - Those who are helpless victims of the circumstances:

Those in need who are under hardship of insolvency and are keeping their conditions hidden form others. They do not go around begging people for help. Allah has highly recommended such people in the following words:

"Charity is for those needy people who are engaged so much in the cause of Allah that they can not move about in the land to earn their livelihood: the ignorant think that they are wealthy on account of their modest behavior. You can recognize them by their look because they do not make insistent demands on people. Whatever you spend on them, surely Allah knows it.” [2:273]

Those people may be trying their best to get better jobs and at present their wages are not enough to coupe with their legitimate needs. They are considered rich because of their status in the community but in fact they are not. These are considered to be more eligible than the 1st. category because the people in 1st. category ask for help while the people of 2nd. category do not.

Please Note:

The people who will fall under these categories are those who have no control over changing their financial conditions and are victims of circumstances. The unwillingness to work, with the availability of employment opportunities that suit the capacity and qualification of the person disqualifies him/her to be in any of these two categories even if such unwillingness is rationalized on the basis of spending all time in worship.

3. Employees of Zakat-ul-Mall Collecting Agency:

Reasonable wages and other costs of collecting Zakah by an organization or agency can be paid form the Zakah funds irrespective of the financial status of the employees. The organization, which bears the responsibility of collecting and distributing Al-Zakah, may use full or part time employees. These are to be paid according to the market rates based on the qualification, responsibilities and job descriptions.

4. Those whose hearts need softening for Islam:

New Muslims, who are wavering and need time to learn more about Islam; Muslims, living in the border areas of the Islamic State, who need stronger support to fight ; non-believers, who agree not to fight against Muslims or otherwise become helpful to the Muslims and Islamic cause, are included in this category. This also includes new Muslims whose hearts can be assured or brought closer by giving, as well as non-Muslims who may stop attacking the Islamic faith as a result of helping them through contributions. It may also be given to Muslims who are paid by others to divert them away from Islam, i.e., in order to counter-balance the activities of Christian missionaries.

5. Freeing Muslims from bondage / slavery:

This category may include bailing out or paying fine for innocent victims of circumstances who were sentenced by a court to pay fine and in case of non-payment to serve jail term.

6. Those who suffer losses in good faith from persons or incidents beyond their control:

This category includes individuals who are hit by natural disasters that took away their assets or properties. Debtors are helped by Al-Zakah even in the cases where they may be earning income that is satisfactory for their living as long as the payment of the debts heavily burdens their current income, on the other hand, debts that are originally of long term and are basically done against future earnings and within the expected future capacity of the debtors. Debts/loans that are against property and disposition of such property can satisfy the payment of the loans or debts, such as mortgages, are not considered in this category. This means that only currently due debts are to be paid from Al-Zakah if the debtor is not able to pay them. Additionally, if the debtor dies without leaving sufficient assets to pay back all his debts, the creditors may be paid out of Al-Zakah.

7. In the way of Allah:

This term has a very wide scope including, Islamic Education Scholarships, development and translation of Islamic Books and curriculum, Publication and free distribution of Islamic literature which includes books, pamphlets and so on. This category covers all the activities that help in making Islam predominant among mankind. In this sense, it does not include the public services such as building a road or a mosque in the normal cases. It must be pointed out, however, that the definition of what is "In the way of Allah" is dynamic in the sense that whether a project is included in this category or not, depends on its circumstances. For example: Building a School or an Islamic Center in an area where Muslims or Muslim children are faced with the threat of being dissolved in a Non-Islamic culture may qualify in this category, whereas the same does not qualify in this category if located in an area where the Islamic society or the government is under obligation to takes care of such services.

8. Travelers - Wayfarers:

Handicapped travelers who are stranded due to circumstances beyond their control are eligible under this category. In this category, help is extended to a wayfarer who has neither an access to his property at home nor has any means to get back home. Such a traveler can be given help from Al-Zakah even though he/ she might be rich at home. Traveler must not be subjected to the condition of paying back what was given when he/she was in need.

SOURCES OF INFORMATION

Al-Qur'an - The Divine Guidance provided by Allah Almighty to Mankind.

Al-Hadith - The Divine Guided Actions and sayings of the Holy Prophet

Ahkam-i-Zakat - Mufti Muhammad Rafi Usmani

Khutbat & Fundamentals of Islam - Abul A‘ala Maududi

Fiqh-ul-Zakah - Yusuf Al-Qardawi

A Fiqh-us-Sunnah - As-Sayyid Sabiq

As'an Fiqhah Part-II - Muhammad Yusuf Islahi

Zakat and Taxation (An article in A.M. S. S.-3:77) - Dr. Abdul Quader Shaikh

Networking Capital (An article in A.J.I. S. S.-V9: 1,92) - El-Badawi and Al-Sultan

The Calculation of Zakah (An article in A.M. S. S.-3:77) - Dr. Monzer Kahf

Fatawa:

Islamic Jurisprudence Academy in Jeddah and Makkah.

Islamic Research Academy in Cairo.

The First Zakah Conference held in Kuwait (1984).

The Third Conference of the Islamic Bank held in Dubai (1985).

Symposiums of Zakah held in Cairo, Kuwait and Bahrain (1988,1989,1992 and 1994).

The Sixth Dallah Al-Barakah Symposium held in Algeria (1990).

APPENDIX - I

ACCOUNTING METHODS OF CALCULATION

APPLICATIONS

Applications of the two concepts discussed in the accounting methods of calculating Zakah are presented below utilizing the financial statement of figures I through IV.

FIGURE I

INCOME STATEMENT FOR THE YEAR ENDED 12/31/1990

Sales	$900,000
Cost of Sales	(585,000)
Gross Margin		$315,000
Operating Expenses	$227,500
Depreciation	27,500	(255,000)
Operating Income		$60,000
Gain from Sale of Land		20,000
Net Income		$80,000

=======

FIGURE II

BALANCE SHEETS

AS OF

12/31/1989 AND 12/31/1990

12/31/1989 12/31/1990

Current Assets $252,000 $239,500

Fixed Assets 200,000 451,500

Total Assets $ 452,600 691,000

======= =======

Current Liabilities $ 52,000 $111,000

Long-Term Liabilities 190,000 255,000

Owner's Equities

Capital `` $100,000 $ 170,000

Reserves 72,000 72,000

Retained Earnings 5,000 3,000

Current Income 33,000 210,000 80,000 325,000

Total Liabilities and

Operating Expenses $452,000 $691,000

======= =======

Notes:

During 1989, current Liabilities are attributable to current assets, and long-term liabilities are attributable to long-term assets.

Fixed assets increased due to the purchase of new equipment ($189,000) and the purchase of new land ($100,000), and decreased due to the sale of old land ($10,000) and depreciation ($27,500).

The land purchase was financed by issuing bonds for the amount of $100,000. The equipment purchased was financed by cash ($16,500) and short-term liabilities ($24,000).

Long-term liabilities increased by the issuance of bonds payable ($100,000) and long term debt ($5,000), and decreased by the payment of long-term debt ($40,000). The long-term debt of $5,000 was used to finance current assets.

FIGURE III

STATEMENT OF

NET WORKING CAPITAL

AS OF

12/31/1989 AND 12/31/1990

12/31/1989 12/31/1990

Current Assets $252,000 $239,500

Current Liabilities (52,000) (111,000)

Net Working Capital $200,000 $ 128,500

======= =======

Decrease in Net Working Capital $ (71,500)

=======

FIGURE IV

STATEMENT OF CHANGES

IN NET WORKING CAPITAL

DURING 1990

Sources of Net Working Capital

Net Income $80,000

Add: Depreciation 27,500

Deduct: Gain on Land (20,000)

From Operations $ 87,500

Cash from Sale of Land 30,000

Issuance of Bonds Payable (for land) 100,000

Issuance of Common Stocks 70,000

Long-Term Debt 5,000

Total Sources of Net Working Capital $292,500

Applications of Net Working Capital

Purchase of Land (form bonds) $100,000

Purchase of Equipment 189,000

Payment of Long-Term Debt 40,000

Cash Dividend 35,000

Total Application of Net Working Capital $(364,000)

Decrease in Net Working Capital $ (71,500)

========

APPLICATION OF NET WORKING CAPITAL APPROACH:

If we use the net working capital in determining the growing capital, we get $128,520, as shown in exhibit I.

EXHIBIT I

THE CONCEPT OF NET WORKING CAPITAL

Net Working Capital at 1/1/1990 $200,000

Plus Sources: $ 87,500

Cash from Sale of Land $30,000

Cash form Issuance of Stocks $70,000

Cash form Long-Term Debt for Operations $ 5,000 $ 192,500

Less Application:

Purchase of Fixed Assets for Cash $ 165,000

Purchase of Fixed Assets for Short-Term Debt $ 24,000

Payment of Long-Term Debt $ 40,000

Payment of Cash Dividend $ 35,000 (264,000)

Net Working Capital at 12/31/1990 $ 128,500

Note that the net working capital is equal to current assets ($239,500) less current liabilities ($111,000).

But this amount does not represent the debt-free growing capital since the e n t i t y used long-term debt to finance the year's current assets. Also, the entity financed f i x e d assets through short-term borrowing. In other words, there are long-term debts against current assets.

B - GROWING CAPITAL:

Even though long-term debt is not related to the elements of current assets, we can compute the growing capital at the end of the year as shown in exhibit II.

EXHIBIT II

THE CONCEPT OF GROWING CAPITAL

Debt-Free Growing Capital at 1/1/1990 $200,000

Plus Owned Resources:

Growing Capital from Operations $ 87,500

Cash from Sale of land 30,000

Cash from Issuance of Capital Stocks 70,000 187,500

Less Applications of Owned Wealth:

Purchase of Fixed Assets for Cash $165,000

Payment of Long-Term Debts 40,000

Payment for Cash Dividend 35,000 (240,000)

$ 147,500

The difference between the growing capital and the net working capital of $19,000 ($147,500-=$128,500) is due to two reasons:

1. The net working capital includes cash for $5,000 obtained through long-term debt to finance the company's operations. This is not an element of growing capital.

2. A short-term debt of $24,000 was deducted form current assets in computing net working capital even though it was used to finance long-term assets. This is not a use of growing capital.

To avoid these differences, we should be careful when using the net working capital approach to determine the growing capital. Adjustments made to account for the mingling of the fund's sources and applications are necessary. To be specific, in order to determine the growing capital, add to the end-of-the-year net working capital short-term debts used to a) finance fixed assets, b) pay off long-term debt, or c) reduce capital stock, and then subtract long-term debts used to finance short-term assets.

C - APPLICATIONS OF THE EQUITY APPROACH (SAUDI SYSTEM):

The computation of the Zakatable amount according to the Saudi system is shown in exhibit III, using data form the financial statements presented earlier.

EXHIBIT III

ZAKATABLE AMOUNT ACCORDING TO THE SAUDI SYSTEM

Paid-in Capital at 1/1/1990 $100,000

Reserves (appropriated retained earnings) 72,000

Retained Earnings (12/31/1990) 3,000 Net Income (current year) 80,000 Income to Be Distributed

(deposited in a special account and

included in current liabilities) -0

$255,000

Less:

Net Long-Term Debt-Free Assets (12/31/1990) (175,000)

Zakatable Trade Assets for 1990 (Saudi System) $ 80,000

Note that in exhibit III the net long-term debt-free assets on 12/31/1990 ($175,000) are limited to the sum of paid-in capital, reserves, and retained earnings ($177,000) as shown in exhibit IV. Note also in exhibit III that the Zakatable amount on trade assets for the year 1990 equals the net income for the year. This is not a coincidence, for the Saudi system requires the Zakatable amount to be at least equal to the realized growth during the year. This is accomplished by applying the condition of limiting the net long-term debt-free assets to the sum of paid-in capital at the beginning of the year ($175,000). Without this condition, the Zakatable amount would have been $77,500 ($80,000 net income less $2,500 used to finance the purchase of long-term assets during the year). This is less than the realized growth, a result which is not consistent with the theological concept.

EXHIBIT IV

NET LONG-TERM ASSETS ON 12/31/1990 (SAUDI SYSTEM)

Long-Term Assets 1/1/1990 $200,000

Purchase of Land for Bonds $ 100,000

Purchase of Equipment for Cash 165,000 Purchase of Equipment for Short-Term

Liabilities 24,000

Cost of Land Sold for Cash (10,000)

Annual Depreciation (27,500) 251,500

$451,500

Less Debts on Fixed Asset:

Long-Term Liabilities 1/1/1990 $ 190,000

Bonds Payable 100,000

Short-Term Liabilities 24,000

Long-Term Liabilities Paid during 1990 (40,000 (274,000)

Net Long-Term Assets on 12/31/1990 $ 177,500

From the above, this company used all of its beginning-of-the-year growing capital (subject to growing), in addition to other sources, to finance the purchase for fixed assets and to pay off part of its long-term liabilities. The growing capital at the end of the year therefor includes part of the net income and increases in the owner's equity during the year that did not meet the passage-of-one-year condition and, accordingly, not all of the wealth is subject to Zakah. This is shown in exhibit V.

EXHIBIT V

TRADE ASSETS SUBJECT TO GROWING

Capital subject to Growing and Debt

Free 1/1/1990 $200,000

Cash from Sale of Land 30,000

Growing Capital $230,000 Less Applications

Purchase of Fixed Assets for Cash $165,000

Payment of Long-Term Debts 40,000

Payment of Cash Dividend 35,000 (240,000) Excess of Applications over Growing

Capital $(10,000)

Exhibit V shows that the purchase of fixed assets (retentive assets) and the payment of long-term debts exhausted all of the capital subject to growing at the beginning of the year as well as the cash increase due to the sale of fixed assets (land). Since there are no other sources of funds, it is assumed that the deficit resulted from an excess of application over the sources of growing capital and was subsequently financed (covered) by the income (growth) during the year. This is shown in exhibit VI.

EXHIBIT VI

Net Income (growth) $ 87,500

Less Excess of Applications over Available Trade Assets (10,000)

Net Growth at End of Year $ 77,500

Plus Increase in Owner's Equity 70,000

Growing Capital at 12/31/1990 147,500

According to the Saudi system, the Zakatable amount was determined to be $80,000, which represents the year’s net income. But in the earlier section, the growing capital was determined to be $147,500. The difference ($67,500) represents the net increase in the paid in capital during the year ($70,000) less long-term debt to finance the purchase of long-term assets ($2,500), as shown in exhibit VII.

EXHIBIT VII

Growing Capital at 12/31/1990 $147,000 Less Net Increase in Capital Stock:

Issuance of Capital Stocks $ 70,000 - Financing of Fixed Assets

or Paying off Debts (2,500) (67,000)

Zakatable Amount According to Saudi System $ 80,000

As mentioned earlier, the increase in cash that resulted from additional paid-in capital during the year is removed (subtracted from growing capital at the end of the year) since it does not meet the passage-of-one-year condition. However, the increase in cash that resulted from the sale of non-current assets during the year is not removed (added to growing capital at the beginning of the year) since it is considered to have passed the one-year condition. Also, the cash used to purchase or finance fixed assets and to pay off liabilities is deducted from the growing capital. In other words, the Zakatable amount equal the growing capital at the end of the year less the net increase of paid-in capital accumulated during the year.

APPENDIX - II

(A) The Fatawa delivered by the Islamic Jurisprudence Academy in Jeddah (Islamic Conference Organization)

1. Zakah on debts (Decree No. 1 Session 2)

After the Academy surveyed the different studies submitted about "Zakah on Debts" and after detailed discussion on the subject, the following has been decided:

a) There is no Qur'anic verse or a Prophet's Hadith regarding the subject.

b) The Companions and their followers hold different points of view on how to give Zakah on debts.

c) Therefore, Juristic Schools hold different opinions on the same subject.

d) These different opinions are based on the controversial point whether Zakah is due on money expected to be settled or not. There are two viewpoints in this regard:

Zakah is due on the lender annually if the borrower is rich and can settle his debts.

Zakah is due on the lender following the lapse of a year after he receives the debt if the borrower is insolvent or used to procrastinate.

2. Zakah on buildings and non-arable leased land (Decree No. 2 Session: 2)

After the Academy surveyed the different studies submitted about "Zakah on buildings and non-arable leased land" and after detailed discussion on the subject, the following has been decided:

1) There is no Qur'anic verse or a Prophet's Hadith which points that Zakah is due on buildings and non-arable leased land.

2) There is no Qur'anic verse or a Prophet's Hadith which points that Zakah is immediately due on the revenues of buildings and non-arable leased land.

Therefore, the Academy decides the following:

1) Zakah is not due on the value of buildings and non-arable leased land.

2) Zakah is due on their revenues following the lapse of a year after receipt. The rest of Zakah payment conditions should be taken into consideration.

3. Zakah on company shares (Decree No. 3 Session: 3)

On perusing research written about Zakah on company shares, the Council of the Academy decided the following:

First: Zakah is obligatory on company shares. The company should pay Zakah on behalf of the shareholders if the company bylaws so stipulate; if its general assembly issued a decree to this effect, the company is legally obliged to pay Zakah or if the shareholder authorized the company to pay such Zakah.

Second: The company administration should pay Zakah on shares just like an individual person pays Zakah on his own money. This means that the company will consider the money of all shareholders as the money possessed by a single person. Zakah will be paid accordingly, taking into consideration the criteria of Zakah payment such as the allotted Nisab, the amount to be paid, type of funds as well as any other conditions related to the payment of Zakah. The shares on which Zakah is not due are public treasury shares, charitable endowment shares, charitable authority shares and non-Muslim-owned shares.

Third: If the company did not pay Zakah for one reason or another, the shareholder must pay Zakah on his held shares. If he managed to examine the accounts of the company and know the amount of Zakah due on his shares, supposing that the company would pay Zakah in the same manner mentioned above, he would have to pay Zakah on this basis. If he does not have knowledge of the company accounts and is a shareholder of the company with the aim of making use of the annual revenue from the shares, he will pay Zakah on his shares as if they were invested items.

According to the decree of the Islamic Jurisprudence Academy in its second session regarding Zakah on buildings and non-arable leased land, the shareholder will pay Zakah on the revenues of his shares and not on the value of the shares themselves. The amount payable is a quarter of the tithe after the lapse of a year in which the shareholder receives revenue from his shares. If the shareholder purchases such shares with the purpose of entering into commercial transactions, he would pay Zakah on them as if they were commercial goods. If a year lapsed with such shares in his possession, he would pay Zakah on their market value. If he can ascertain the market value, he will pay Zakah on the value of the shares as estimated by experienced people. He has to pay a quarter of the tithe of their value as well as on the profit, if these shares made a profit.

Fourth: If a shareholder sold his shares during the year, he would add their sale price to his money and pay Zakah on both when a year lapses. The buyer will pay Zakah on the shares in the same manner mentioned above.

4. Channels of Distributing Zakah

(a) Investing Zakah money in profitable projects:

On perusing the researches submitted on "Investing Zakah money in profitable projects while the deserving person does not possess them" and listening to the opinions of experts and members, the following has been decided:

It is permissible to invest Zakah money in profitable projects possessed by Zakah deserving recipients. These projects may be supervised by the legal authority in charge of levying and distributing Zakah, provided that the dire needs of Zakah recipients are fulfilled and there are sufficient guarantees that there will be no losses.

(b) Giving Zakah to the Islamic Solidarity Fund:

After perusing the memo submitted to the third session of the Academy regarding giving Zakah to the Islamic Solidarity Fund, the following points are recommended:

According to the Resolutions issued by the Second Islamic Summit Conference which call for establishing this Fund and financing it by the state members, and as long as some countries did not pay their regular voluntary annuity, and as a means of helping the Islamic Solidarity Fund to perform its charitable aim, the Academy calls the Islamic countries and organizations and well-to-do Muslims to support this Fund so that it may assume its role in helping the Islamic nation.

The following has been decided:

1. It is not permissible to give Zakah to the Islamic Solidarity Fund because this will prevent the original recipients mentioned in the Glorious Qur'an from obtaining their right.

2. The Islamic Solidarity Fund could be an agent for individuals and organizations in giving out Zakah according to the following conditions:

a. The conditions of legal authorization should be met whether by the Fund, individuals or organizations.

b. The Fund should modify its bylaws by adding the amendments which will enable it to carry out such tasks.

c. The Islamic Fund should allocate a special account for Zakah money so that it will not be mixed with resources spent in other non-Zakah channels such as public conveniences.

d. The Fund is not allowed to spend Zakah money on administrative fees and employees' salaries which do not belong to Zakah channels.

e. Those who pay Zakah have the right to determine any of the eight channels for giving out their Zakah money and the Fund should stick to their choice.

f. The Fund should distribute Zakah money to its recipients as soon as possible within a year as a maximum.

(B) Decrees issued by the Islamic Jurisprudence Academy in Makkah (Islamic World League) First Decree - Eleventh Session

Zakah on the rent of buildings.

In its eleventh session held in Makkah, the Islamic Jurisprudence Academy of the Islamic World League discussed Zakah on the rent of buildings and the majority of its members decided the following:

1) No Zakah is due either on the value of the building prepared for accommodation or on its rent.

2) Zakah is due on the value of the building bought for trade purposes and its value is to be evaluated one year after buying it.

3) Zakah is due on the rent of buildings prepared for rent only.

4) Zakah on rent should be given one year after the lessor receives the rent.

5) Zakah due either on the rent of building or on the building itself (if bought for trade purposes) is 2.5%.

1. The Fatawa delivered by the Islamic Researches Academy in Cairo

Regarding Zakah, the Second Conference of the Islamic Researches Academy decided the following:

First: Taxes levied by the state do not replace the payment of Zakah.

Second: As for metal coins, banknote, cash money and commercial goods, they are evaluated according to their value in gold. If any of them reaches the allotted Nisab (20 Mithqals of gold), Zakah is due in such case. Gold is to be evaluated by financial experts.

Third: As for invested money about which no Qur'anic verse or a Prophet's Hadith was mentioned, Zakah is to be calculated as follows:

1. No Zakah is due on buildings, factories, ships, airplanes ... etc. but it is due on their net profits if they reach the allotted Nisab and a year lapses while they are in one's possession.

2. If they have not reached the allotted Nisab and their holder has other money, Zakah is due on the grand total of both if it reaches the allotted Nisab and a year lapses with such money in his possession.

3. The rate to be given as Zakah is 2.5% of the net profits.

4. In companies founded by a number of partners, such rules do not apply to the grand total of the Company's profits but each partner should pay Zakah due on his own profits.

Fourth: Zakah is due on mature people as well as those under age. In the latter case, their guardians will give Zakah on behalf of them.

Fifth: Zakah is a basis for achieving social solidarity in the Islamic countries. Such fact should be utilized when displaying the facts and fundamentals of this true religion: Islam. Zakah money should be used in liberating any Islamic occupied territories.

Sixth: The method of levying and distributing Zakah is followed according to the conditions of each country.

Seventh: Regarding charity, the Conference would like to point out the following facts:

a- Islam calls its followers to spend money in the cause of Allah and prohibits them to be miserly or tight-fisted.

b- Islam warns its followers from asking for charity or accepting it except in cases of necessity.

c- Islam calls for treating non-Muslims fairly, helping them in case of need and taking care of every individual in the Muslim community.

(C) The Fatawa delivered by the First Zakah Conference (held in Kuwait Rajab 29, 1404 A.H. / April 3, 1984 A.D.)

(i) Zakah on the company’s capital

Zakah is due on joint stock companies in the following cases:

1) If a law is passed and it obliges the companies to give Zakah.

2) If the main system of the company includes an article which stipulates giving Zakah on its capital.

3) If the general assembly of the company issues a decree in this regard.

4) If the share-holders agree that the company should give Zakah on their behalf.

It is rather better for the company to give Zakah on its capital. If it does not pay, the committee recommends that the company should calculate the amount of Zakah due on its capital and issue an addendum to its balance sheet which states the amount of Zakah due on each share.

(ii) Zakah on shares

If a Company pays Zakah on its shares, a shareholder is not required to pay Zakah on his shares once again. If it does not, the shareholder must pay Zakah.

First: Zakah due on companies' shares

If the company pays Zakah, it will calculate its amount as an ordinary person would do. Zakah will be calculated according to the nature and type of possessions. If the company does not pay Zakah, a shareholder must pay Zakah due on his shares by following any of these two methods:

If one buys his shares for trade purposes, Zakah is due at a rate of 2.5% of their market value as followed when calculating Zakah due on commercial goods.

If one buys shares in order to make use of their annual revenues, Zakah is calculated as follows:

a) If one can know from the company the amount of Zakah due on his shares, Zakah is to be given at a rate of 2.5%.

b) If he cannot know, there are two different opinions:

1) The majority of scholars hold that the shareholder should add the revenues of his shares to the rest of his possessions and give Zakah at a rate of 2.5% on all his money.

2) Some other scholars hold that he should give 10% of the total revenues after receipt as followed in calculating Zakah on crops and fruits.

Second: Zakah on exploited items

Exploited items refer to factories, buildings, cars and machines intended for rent and not for trade. The Fatwa Committee holds that no Zakah is due on these items, but it is due on their revenues. There are different opinions on how to give Zakah on such revenues. The majority of members hold that these revenues are to be added to the other items possessed by their owners such as money and goods. A rate of 2.5% will be paid as Zakah on them.

On the other hand, some members hold that Zakah is due on the net revenues which exceed the owner's basic needs after deducting costs and rate of consumption. Rate of Zakah will be 10% as followed in calculating Zakah on crops and fruits.

Third: Zakah on wages and salaries

Such money is the revenues of a man's work like workers' wages, employees' salaries and doctors and engineers' remuneration etc. Most members of the conference hold that no Zakah is due on such wages upon receiving them. One should add such wages to his own money and pay Zakah on them all if they reach the allotted Nisab and after they remain in one's possession for a complete year. If he receives any wages during the year, Zakah is to be paid at the end of it. Such year starts from the very day on which one's money has reached the allotted Nisab. In such case, the rate of Zakah is 2.5% annually. Some of the conference members hold that Zakah is to be paid on such wages upon receipt if they reach the allotted Nisab after fulfilling one's basic needs and no debt is entailed on him. If one pays Zakah on his wages upon receipt, he is not obliged to pay it once again upon the completion of a year. It is also permissible to calculate Zakah due on one's wages and give it along with his other kinds of property.

Fourth: Zakah on usurious deposits, securities and ill-gotten money

As for usurious securities and deposits, Zakah is due on their original values with a rate of 2.5%. No Zakah is due on the usurious interests because they are ill-gotten money that a Muslim should avoid. Such money should be spent in charitable channels and for Muslims' public interests except for building mosques or printing Qur'anic texts. As for looted or stolen money, no Zakah is due on it, but it should be returned to its real owner.

Fifth: The lunar calendar

The lunar calendar should be taken into consideration when calculating Zakah money. The Fatwa Committee recommends that individuals, companies and financial institutions should adopt the lunar calendar as a basis for preparing the balance sheet, or at least that they should prepare a special Zakah balance sheet according to the lunar calendar. If there is difficulty in this matter and the balance sheet was prepared according to the solar calendar, the difference between the two calendars should be taken into account. As the solar calendar is little longer than the lunar one, rate of Zakah will be approximately 2.575%.

Sixth: Investment debt and Zakah

If a debtor uses debt in trade purposes, it is not to be calculated as part of money on which Zakah is due. If it is used in buying houses or machines for possession, the committee pays the Jurists' attention that the issue should be carefully studied. That is because there is a legal opinion that debt is a reason for not paying Zakah on its equivalent value. Thus, many people, companies and organizations will not give Zakah under this pretext although they achieve good profits.

The committee holds the opinion adopted by jurists who believe that if the debt is postponed, it is not an excuse for not paying Zakah. Yet, the whole affair needs further study.

The committee recommends that next conferences resume their study of the issues that may arise in this regard which have not been studied by this conference.

Finally, the committee calls for paying attention to the importance of Zakah and its rules in all economic and social applications.

(D) The Fatawa delivered by the Third Conference of the Islamic Bank held in Dubai, Safar 9, 1406 A.H. / September 23, 1985 A.D.

It is not allowed to save Zakah monies in usurious banks. An independent fund should be set up for Zakah monies, where Zakah will be levied and deposited in an Islamic Bank. After levying Zakah, it should immediately be distributed to the beneficiaries. No authority, whether public or private, is allowed to invest Zakah money unless its beneficiaries later allow such authority to invest it.

(E) The Fatawa delivered by the First Symposium of Zakah Contemporary Issues (Held in Cairo Rabi` Al-Awwal 14, 1409 A.H. / October 25, 1988 A.D.)

Fatawa and Recommendations

1. Amount of Zakah due on commercial goods

There is no difference between Zakah due on money and commercial goods as far as Nisab and the amount of Zakah are concerned. This is the opinion held by the majority of scholars. It is not true that this leads to equality in dealing with both the investor and money collector because Zakah is due on both at the very same rate. Investment aims at increasing the capital and hence Zakah can be paid on the revenues while the capital remains untouched.

Whoever does not find an opportunity for investing his money should pay Zakah on the capital. Prophetic Hadiths urged the guardian to invest the orphan's money in trade so that it will not be consumed in giving out Zakah.

Zakah is not due on the investor's money which turns into fixed assets. In most cases, money represents the capital of projects invested for attaining profits.

2. Industrial projects

After perusing the Fatawa delivered by the First Zakah Conference (clause 6), it turned out that industrial projects could be compared to cultivated land from the perspective that both are fixed assets which achieve income as a result of work. Therefore, Zakah is due on the output products at a rate of 5%. It is also possible to consider the permanent working capital (circulating assets) just like commercial goods. Hence, Zakah is due on both the original value as well as the attained profits at a rate of 2.5%. No Zakah is due on the fixed assets.

This subject needs further discussion in the next symposium.

3. Transference of Zakah money to other areas

According to decree No. 5 issued by the Second Conference of Islamic Research Academy, Zakah is a basis for social solidarity in all Islamic countries. The Prophet (peace be upon him) and the Rightly-Guided Caliphs used to distribute Zakah to its recipients in the area where Zakah is originally levied. The surplus is to be taken to other areas except in cases of starvation, disasters and abject poverty. In such cases, Zakah will be distributed to the more needy people. This rule applies either to the individual or the society. It is permissible for a person to distribute Zakah to his needy relatives if they live in another area.

4. Relief from debts due on Zakah recipient

If an insolvent borrower fails to settle up his debts to his lender who later acquitted him from paying them back, such debts will not be regarded as Zakah even if the borrower is a Zakah recipient. This is the opinion held by most scholars.
This rule applies to the following cases as well:

a) If the lender pays Zakah to the borrower who returns it as settlement of his debts without a prior consent, Zakah is valid.

b) If the lender pays Zakah to the borrower provided that the latter will pay it back instead of his debts or if both agree on this matter, Zakah is not valid. This is the opinion held by the majority of scholars.

c) If the borrower asks his lender to give him Zakah so that he could settle up his debt, and the borrower did so, Zakah is valid. Yet, the borrower is not obliged to pay back the very same amount as settlement of his debt.

d) If the lender said to the borrower: "Settle up your debt and I will give you Zakah." and the borrower did, Zakah is valid and the lender is not obliged to pay back the very same amount (of the debt) to the borrower.

5- Money given as advance Zakah

It is permissible that one should consider money he gives in advance before time of Zakah is due as Zakah if the appropriate conditions are met such as the possession of the allotted Nisab, the person who receives such money should be a Zakah recipient and that Zakah should be due on the person who gives such money. This is the opinion held by all scholars except for the Maliki Jurists. If one of the above-mentioned conditions is not met, money given will be considered as voluntary charity. It is not permissible to get it back after the Zakah recipient receives it unless it is given by the government or a Zakah organization. In such case, it is permissible to get it back after proving that the given money is more than the Zakah due unless it is distributed to its recipients.

6- The obligatory nature of Zakah and the role of governments in Zakah collection and distribution

a) The Fatwa Committee calls the Islamic governments to work hard towards implementing Shari`ah rules in all fields of life including the foundation of a special organization for collecting Zakah and distributing it to its legal channels provided that such organizations should have a separate balance sheet. In non-Islamic countries, there should be societies which direct their efforts to Zakah collection and distribution.

b) The committee calls the Islamic governments to issue the required legislative decrees so that Zakah organizations will be established and supervised by religious scholars and efficient employees.

c) The committee calls the Islamic governments to add to the taxation laws new clauses which deduct the amount of Zakah regardless of the amount of taxes legally allotted.

d) The committee calls the Islamic governments which apply Zakah rules to impose a social solidarity tax on non-Muslim citizens equal to Zakah. Such tax should be one of the resources of achieving social solidarity which covers all citizens who live in the Islamic country.

7. Zakah and fulfilling the basic needs of the poor

a) The term "basic needs" refers to the necessities required for achieving sufficiency and social solidarity according to the prevalent customs.

b) Zakah should provide the poor Muslim with his basic needs such as food, accommodation and clothes as well as the rest of his and his family's requirements without extravagance or parsimony.

c) Distributors of Zakah, whether individuals or organizations, should make investigations on Zakah recipients in a way that does not hurt their feelings to make certain that they deserve it. It is not required to charge Zakah recipients to swear that they deserve Zakah unless there is doubt that they may be lying.

8. Zakah on housing and postponed investment loans

According to clause 10 issued by the First Zakah Conference regarding Zakah due on investment debts, and according to the opinion adopted in this conference which states that: "If the debt is postponed, it does not affect the obligatory nature of Zakah", the subject still needs further study. In this symposium, the following opinion is adopted:

As for housing loans which finance a fixed asset upon which no Zakah is due and which are settled on long-term installments, their value is to be deducted from the required annual installment if the debtor does not have other money to settle such debts.

As for the loans which finance the circulating working capital, they are to be deducted from the possessions upon which Zakah is due. The subject still needs a further detailed study.

9- Zakah on companies

The symposium discussed two researches submitted about this subject and below is its decrees:

a) The symposium recommends that the International Zakah Legal Authority in Kuwait should found a committee for discussing Zakah on companies. The members of this committee should include professional accountants, academic specialists in the field of accounting, Jurists and researchers interested in Zakah affairs and Islamic economy. The task allotted to this committee is studying the practical affairs related to calculating the possessions upon which Zakah is due as well as the accounting principles, rules and customs approved in preparing the company's financial data. The committee should submit the appropriate researches to be discussed in the next symposiums.

b) According to clause 9 issued by the First Zakah Conference, the symposium asserts that the lunar calendar is the basis for calculating Zakah, and this point should be taken into consideration when calculating Zakah due on the companies which prepare their financial data according to the solar calendar.

10. Zakah on commercial goods

Zakah on commercial goods should be given in cash after evaluating such goods and calculating the amount of Zakah due on them, because cash money is more useful to the poor who need to fulfill their basic needs. Even though, it is permissible to give goods as Zakah in case of recession or shortage of liquid money. The poor may make use of these goods as well. This is the opinion held by the members of the symposium in the light of Juristic viewpoints and the current circumstances.

Goods are to be evaluated according to their market value on the very day when Zakah is due. The sold goods are evaluated according to their wholesale price whether sold in retail or wholesale.

(F) The Fatawa delivered by the Second Symposium on Zakah Contemporary Issues (Held in Kuwait at Dhul-Qa`dah 11, 1409 A.H. / June 25, 1989 A.D.)

1. Using Zakah in paying blood money (the channel of the debtors)

If a man commits unintentional homicide and his family or the Muslims' Public Treasury fails to settle up blood money due on him, it is permissible to use Zakah money in achieving this purpose. It is also allowed to pay such Zakah money to the family of the murdered person directly. As for blood money in case of intentional homicide, it is not permissible to use Zakah money in settling it up.

2. Zakah on ill-gotten money

After the members of the symposium had discussed the various researches submitted in this regard, they held that a lot of data and details were still needed. Therefore, the symposium did not deliver any Fatwa until the subject would be discussed in detail.

3. Zakah on investment and housing debts

According to the tenth recommendation issued by the First Zakah Conference and the ninth recommendation of the First Symposium on Zakah Contemporary Issues which call for deducting the loans which finance the circulating capital while not deducting the housing debts or debts which finance fixed assets except for annual installments, the symposium members are of the following opinion:

i. All debts which finance a commercial transaction are to be deducted from Zakah possessions if the debtor does not have fixed assets which exceed his basic needs.

ii. Investment debts which finance industrial projects are to be deducted from Zakah possessions if the debtor does not have fixed assets which exceed his basic needs so that such assets may replace these debts. If such investment debts are postponed, the required annual installment will be deducted. If there are sufficient fixed assets, they should be considered as replacement of the debts. In such case, debts will not be deducted from Zakah possessions. If the fixed assets are not sufficient so as to replace the whole debt, the remaining part of it is to be deducted from Zakah possessions.

iii. As for postponed housing loans which are settled on long-term installments, the debtor is to pay Zakah on the remaining money actually in hand (if it reaches the allotted Nisab) after deducting the annual installment.

4. Giving Zakah in other places

The third recommendation of the First Symposium on Zakah Contemporary Issues states that Zakah should be originally paid to its recipients in the territory where it is levied. The surplus is to be transferred to any other territory. As an exception, it is permissible to transfer Zakah to the more needy or to one's relatives who live in another territory. The Symposium hereby sets out the details of Zakah transference as follows:

a) Zakah should be originally distributed to its recipients in the territory where it is levied. It is permissible to transfer Zakah to other territories as a means of achieving a legal target such as:

· Transferring Zakah money to missionary, educational and health establishments which deserve Zakah.

· Transferring Zakah money to places of starvation and disasters which may afflict the Muslims in any part of the world.

b) If Zakah is transferred in any other case, except for those afore-mentioned, Zakah is valid but the act of transference is disapproved.

c) The territory where Zakah should be distributed is one's town and its neighboring villages not farther than 82 km. (the distance at which a Muslim will shorten his prayer).

d) Zakatul Fitr is to be given where one lives.

e) Acts permissible in case of transferring Zakah money:

· Payment of Zakah in advance so that its recipients may obtain it before the end of the year. Zakatul Fitr is not to be given before the advent of Ramadan.

· Delay in Zakah payment because of the period spent in transference.

(G) The Fatawa delivered by the Third Symposium on Zakah Contemporary Issues (Held in Kuwait at Jumada Al-Akhirah 8, 1413 A.H. / December 2, 1992 A.D.)

1) Investment of Zakah funds

· It is permissible to invest Zakah funds according to the following conditions:

· If there are no urgent channels which require immediate payment of Zakah money.

· If Zakah money is invested in a legal manner.

· Necessary procedures should be taken so as to guarantee that the rules of Zakah still apply to the original invested money as well as to its profits.

· Liquidating invested assets if Zakah recipients need Zakah in cash.

· Making sure that such investments will be safe, lucrative and can be liquidated in time of need.

· The decision of investing Zakah funds should be taken by the government officials charged to levy and distribute Zakah. Such investments should be supervised by efficient experts.

2) The recipients' possession of Zakah money

a) This refers to paying a sum of money to the recipients or buying a means of production such as tools used in crafts and giving them to the Zakah recipients who are able to work. Possession, in this sense, is a condition of the validity of Zakah. This rule applies to four categories of Zakah recipients mentioned in the following Qur'anic verse:

"Alms are for the poor and the needy, and those employed to administer the (funds); for those whose hearts have been (recently) reconciled (to the truth).” [9:60]

b) It is permissible to use Zakah money in establishing productive projects to be owned and managed by Zakah recipients or their representatives.

c) It is permissible to use Zakah money in establishing service projects such as building schools, hospitals, orphanages and libraries according to the following conditions:-

· Only Zakah recipients should make use of these projects for free.

· The projects are to be possessed by Zakah recipients and managed by the government or its representatives.

· If the project is sold or liquidated, its price or revenues are considered as Zakah money.

3) The channel of those whose hearts have been (recently) reconciled (to the truth)

a) According to the majority of scholars, the rules pertaining to this channel do not change throughout the years.

b) The most important fields of Zakah payment related to this channel are:

· Using Zakah money in urging people to embrace Islam especially those who will act effectively towards the welfare of the Muslims.

· Urging rulers and kings to improve the conditions of the Islamic minorities and support them in non-Muslim countries.

· Urging talented Islamic intellectuals to support the Muslims' issues.

· Founding scientific and social establishments to sponsor Muslims who have just recently embraced Islam.

c) The following conditions are to be taken into consideration when dealing with this channel:-

· When dealing with this channel, the legal aims and practices should be taken into account so as to achieve the required targets.

· Giving Zakah according to this channel should not have a bad effect on the remaining channels.

· Accuracy and caution should be observed in order to avoid any legally unacceptable results, bad reactions from those whose hearts have been (recently) reconciled (to the truth) or any harm to Islam and Muslims.

d) The advanced modern methods are to be used and the more influential projects should be chosen in order to achieve the legally required targets.

(H) The Fatawa delivered by the Fourth Symposium on Zakah Contemporary Issues (Held in Bahrain Shawwal 17, 1414 A.H. / March 29, 1994 A.D.)

First: The channel of those employed to administer Zakah

1. This refers to the employees appointed or authorized by the Islamic governments or recognized authorities in order to levy and distribute Zakah, spread legal rules pertaining to Zakah, acknowledge money holders with names of Zakah recipients, transfer, maintain and invest Zakah money according to the conditions and restrictions stated in the first recommendation of the Third Symposium on Zakah Contemporary Issues. Modern Zakah organizations and committees are considered as a modern form of the old charity houses known in Islam. Therefore, employees in such organizations should meet the conditions required to administer Zakah.

2. Such employees are authorized by the government in performing the tasks allotted to them. Scholars stipulate that such employees should be Muslims, males, honest and familiar with the rules pertaining to Zakah. There are other helpful tasks which can be performed by others who do not meet these conditions.

3. Those employees deserve the remuneration determined by the authority which appoints them provided that such remuneration will not be more than their counterparts' even if they were not poor. All employees' remuneration and administrative expenses should not exceed one-eighth (12.5%) of Zakah money. Over-employment is not recommended in this regard. Some or all salaries should be drawn from the Public Treasury so as to direct Zakah money to other channels. Zakah employees are not allowed to accept any bribes or gifts.

4. The headquarters of Zakah organizations should be provided with the required furniture, equipment and tools. If it is not possible to allocate money from Public Treasury or donations for this purpose, it is permissible to make use of the employees' share of Zakah in achieving this purpose, provided that such furniture and equipment should have an immediate relation to levying and distributing Zakah.

5. Zakah committees should be controlled and supervised by the authority which forms them, for the Messenger of Allah (peace be upon him) used to check the accounts of Zakah employees. The Zakah employee is held responsible for any loss of Zakah money resulted from his negligence or misuse.

6. Zakah employees should follow Islamic morals and conduct when dealing with those who give Zakah and its recipients. They should be lenient towards them and invoke blessings on them. They should work hard towards spreading the rules of Zakah, its importance in the Muslim community and its role in achieving social solidarity.

Second: Zakah on ill-gotten money

1. Ill-gotten money refers to any sort of possessions which the Islamic Shari`ah prohibits owning it, either because it is harmful such as wine, illegally acquired such as looted money or illegally gained such as usury and bribe.

a- If one acquires money illegally, he should return it to its original owner or his inheritors however long period passed with such money already in hand. If one does not manage to know its real owner, he should spend it on charitable deeds on behalf of its owner.

b- If one receives money as remuneration of a prohibited work, he should spend it on charitable deeds but not return it to the payer.

c- Ill-gotten money is not to be returned to its real owner if he insists on illegal transactions such as dealing in usurious interest. Such money is to be spent on charitable deeds.

d- If it is difficult to return the very same money to its real owner, an equivalent sum of money should be returned instead. If its real owner is not known, such sum of money is to be spent on charitable deeds on behalf of its owner.

2. No Zakah is due on ill-gotten money and it should be eliminated.

3. No Zakah is due on illegally acquired money because it is not entirely owned by its present owner. If returned to its real owner, he should pay Zakah on it for one year even if it remained in the possession of another for years.

4. If the holder of ill-gotten money does not return such money to its real owner and pays Zakah on it, he is still sinful as far as he has such money because he has just paid a part of it while the rest is still in his hand. He is not acquitted unless he returns it to its real owner or gives it as charity.

Third: Zakah and Taxes

The symposium calls the Islamic governments to issue the required laws for implementing Zakah system according to the Islamic Shari`ah. For achieving this purpose, special organizations should be established and their financial resources and expenditures are to be recorded in special accounts. The symposium also calls for reconsidering nowadays financial systems so as to be re-modeled in conformity with the Shari`ah.

a) The balance sheet of the state should be financed by the revenues of the public possessions and other legal financial resources. If they are not sufficient, the Government may fairly impose taxes in order to meet its expenditures and submit help to Zakah recipients if Zakah money is not sufficient. It is not allowed to use Zakah money in meeting such expenditures.

b) Taxes may be imposed to achieve the interests of the Muslims which should be determined and estimated in the light of the financial Islamic system and the general rules and targets of Shari`ah.

c) Imposing taxes is permissible only if there is a real need.

d) Taxes should be collected and spent fairly. A specialized, efficient authority should control and supervise their collection and distribution.

e) Taxes do not replace Zakah because both were imposed by two different authorities and for extremely divergent targets. Besides, the amount and channels of both are entirely different. Therefore, the amounts of taxes are not to be deducted from obligatory Zakah money.

f) If a certain amount of taxes should be paid to the government during the year and it is not paid before the year is complete, it should be deducted from Zakah possession because it is a due right.

g) The symposium recommends that the Islamic governments should modify the taxation laws so as to deduct Zakah money from taxes.

(I) The Fatawa delivered by the Sixth Dallah Al-Barakah Symposium (Held in Algeria Sha`ban 5, 1410 A.H. / March 2, 1990 A.D.)

1. Zakah on Crops

Question: Dallah Al-Barakah undertakes many investment agricultural projects and spends large sums of money on reclaiming land. How can Dallah Al-Barakah deduct such fees? Is Zakah due on such projects at a rate of one tithe or half a tithe of the harvest according to the method of irrigation?

Answer: After detailed discussions, there are three points of view on this Fatwa:

1. Fees should be deducted and Zakah is due at a rate of a tithe or half a tithe (according to the method of irrigation).

2. Fees should not be deducted and Zakah is due at a rate of a tithe or half a tithe (according to the method of irrigation).

3. Deducting one third of the harvested output and giving Zakah on the rest of the harvest according to the method of irrigation.

The members of the Fatwa Committee hold that fees should be deducted before giving Zakah provided that such deduction does not exceed one third of the harvest. Then, one tithe or half a tithe of the harvest is to be given as Zakah according to the method of irrigation.

2. Zakah on livestock

Question: How is Zakah on livestock calculated bearing in mind the different purposes for raising them?

Answer: Participants in discussing Zakah on livestock according to the various purposes of raising them followed the legal opinion held by the majority of scholars. No Zakah is due on livestock raised for meat. Livestock is divided into two categories:

First category: Livestock raised for trade. Zakah is due on such category according to the rules followed in Zakah on goods.

Second category: Livestock raised for dairy products. Three opinions are discussed in this regard:

a- Estimating the raw materials used in manufacturing as well as the other tools used in packing and calculating Zakah accordingly with a rate of 2.5% taking into account that no Zakah is due on fixed assets.

b- Estimating the raw materials purchased after manufacture for the purpose of sale. Zakah will be calculated on the raw materials but not on the interim materials which are not main constituents in manufacture because no Zakah is levied on craftsmanship.

c- Giving a tithe of the manufactured output after deducting costs or giving out half of a tithe after deducting costs as followed in calculating Zakah on crops.

3. Zakah on bank depositors' money

Question: How to calculate Zakah on bank depositors' money?

Answer: It is recommended that the Islamic Banks should submit the required data so that depositors can know the exact amount of Zakah due on their deposits. Zakah is due on the money deposited as well as its profits. Islamic Banks should set out the type of projects, whether agricultural, industrial or commercial, in which such money was invested so that depositors can pay Zakah accordingly.

4. Zakah on projects under construction

Question: How to calculate Zakah on projects under construction?

Answer: No Zakah is due on an incomplete project unless it is finished and achieves revenues. Such revenues are to be added to the rest of one's money and Zakah becomes due on both. If the project is prepared for sale, no Zakah is due on it until it is finished. Yet, if parts of it are salable, Zakah is due on them. In all cases, Zakah is due on money allocated for the project plus one's other money. If the project is not finished and prepared for sale at its status quo, it is to be evaluated and Zakah becomes due on it just like the case in commercial goods.

5. Zakah on exploited rental items

Question: How to calculate Zakah on rented buildings whose ownership is to be transferred at the end of the rental period?

Answer: Zakah is due on the revenues of the rented buildings which will be sold at the end of the rental period. Such revenues should be added to one's other money and Zakah is to be given on them all. No Zakah is to be given out on buildings themselves because there is no intention in selling them except at the end of the rental period during which they are not considered as commercial goods.

ZAKAT-UL-MALL

THE ISLAMIC FINANCIAL RESPONSIBILITY

"Take alms (Zakah) from their wealth so their wealth may thereby be cleansed and purified". [9:103]

Knowing that Zakah is one of the pillars of Islam and that every Muslim is obligated to pay Zakah, and knowing that Zakat-ul-Mall Agency has been established for the collection and disbursement of Zakah after due consideration of All Eight categories ordained in the Holy Qur'an. I have calculated my Zakah according to the Islamic principals of calculation and hereby indicate the amount of my pledge of Zakah payable for the year

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Every Muslim obligated to pay Zakah is requested to complete this form and mail it along with the payment to P.O. Box 8307, Houston, Texas 77288-8307 for proper processing of your Zakah. You can write the check in the name of "ZAKAT-UL-MALL", or pay online at www.zakatulmal.org

Your payments to this fund are Tax Deductible for IRS purposes.

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