Concepts THINGS TO PONDER about ZAKAT PRACTICE OF ZAKAT IN EARLY ISLAM

 One of Islam’s five pillars (3) 1. Z is SOCIO-FINANCIAL WORSHIP compared to other 4 pillars which are 1. Initiated by the Prophet Muhammad SAW
 Means “increase, growth, purification & blessings” PURE WORSHIP 2. The Caliph Abu Bakr = first institute statutory z system
a. Growth/ Increase 2. Can be done by PROXY (by others/ ikut harta bukan umur) 3. 2nd & 3rd caliphs Umar bin Al-Khattab & Usman bin Affan = continued Abu
Increase in prosperity in world & religious merit in the 3. Z mentioned 30 times in AQ – 27 are associated w PRAYERS Bakr’s codification of z
hereafter 4. PAYABLE regardless an adult/minor, sane/insane 4. Uthman modifies z collection protocol by decreeing only “apparent”
b. Purity (m’bersihkan) from sins a. Right to poor on the WEALTH not on the owner wealth was taxable (had effect of limiting z to mostly being paid on
AQ 9:104 “take from their property in order to purify agricultural land & produce)
them” LEGAL MAXIMS (peraturan)
AQ 9:103 “Of their goods, take alms, so that u might 1. No duplication in Z calculation DIFFERENCES BTW ZAKAT & TAXATION
purify & sanctify them” a. Div received from subs co
 General/ Technical Meaning: b. Z on loan is liable in the creditor
a. A compulsory levy imposed on the Muslims 2. Not burden payer & deprive the rights of poor (should be balance)
b. To take surplus money/ wealth from comparatively 3. Paid where Z is located/ generated (ikut tmpt kerja)
well-to-do members of the Muslim society 4. Zakatable
c. Give it to destitute & needed a. Asset for personal use & service
b. Growing wealth (rent/share)
PURPOSE & SIGNIFICANCE 5. Not Zakatable = under certain limits (jewelry used for women’s
1. Spiritually (purifies & cleanses one from greed, selfishness & ornaments)
arrogance) 6. Prepayment of zakat is allowable but delay w/o valid reason is sinful
2. Economically (enhance economic prosperity by transferring 7. Not purify unlawfully earned wealth.
surplus wealth to the poor)
3. Socially (stable economy = no criminals) ROLE OF ISLAMIC STATE & INSTITUTION OF ZAKAT
4. Maududi 1. Z is Legal institution that is supported by law enforcement power of INNER DIMENSIONS OF ZAKAT
a. Ensure decent living for ppl & fulfill their basic needs is the state (based on practice of Prophet SAW) 1. Testing the degree of love for Allah
in the nature of al-amru bil maaruf we nahy an al- a. Enforcement by state based on a. Worldly goods are an object of love in everybody’s eyes,
munkar (enjoy good & forbidding evel) i. Abu Bakr Al-Siddiq being the means by which they enjoy the benefits of this
5. Surah al-Maarij ii. Umar al-Khattab world
a. Verse 25: basic right for the poor in the wealth of the b. Ibn Qudamah: “if z collected by gov w use of force = b. Tested only by separating the lover from other things he loves
affluent obligation of paying z is fulfilled” 2. The elimination of miserliness
6. Surah Al-Insan 2. Role of Islamic state to administer both Z Collection & Z Distribution a. AQ 59:9 “& whosever is saved from his own covetousness,
a. Verse 8: Allah SWT promises w distinction those who 3. Legal penalty who refused to pay such as they who will be the successful”
“feed for the love of God the indigent, orphan & the b. Habit of miserliness is only eliminated by making oneself
captive (slave) ZAKAT INSTITUTIONS IN MSIA (corporation) - FORM accustomed to spend money
7. Increase purchasing power = lead higher demand for goods 1. Z Enactment 1955 (Z Negeri Kedah) 3. Expression of gratitude
8. As wealth-distribution mechanism 2. State of Administration of Islamic Law Enactment a. Gratitude for benefits received, for the servant is indebted to
a. To help close the gap btw rich & poor a. Majlis Agama Islam Negeri (distributes Z to rightful Allah for personal & material bounties
9. Establish more prosperous society beneficiaries – PPZMAIWP
3. State of Administration of other Law Enactment
a. Lembaga Z Selangor – under virtue Trustee (Corp) Act 1952
4. Collection & distribution of Z is executed by MAIN through its own
unit/ dpt of baitumal/ Z centres
CHAPTER 1: INTRODUCTION TO ZAKAT
Conditions of Zakat being Obligatory (6) WEALTH MUST BE ABOVE ONE’S BASIC NEEDS CRITERIA USED FOR ZAKAT DISTRIBUTION
1. Complete ownership 1. Exclude house on loves in, clothes one wears, tools used to earn  When funds are plenty & deservants in all categories, distribution must
2. Wealth must reach a minimum limit (nisab) living, one’s transportation & house finishings over all of them
3. Passage of a lunar year (haul) 2. Applies to= to pay a debt that owner needs it to prevent himself from  Need not be equal (based on actual needs not personal opinion)
4. Wealth must be a type on which zakah is imposed being jail & humiliated  The poor & needy are the most important (satisfying their need is main
5. Wealth must be capable of growth objective)
6. Wealth must above one’s basic needs PRINCIPLES OF ZAKAT ACCOUNTING  Not permissible to spend zakah on army while tremendous need exists
1. Governed by a group of Accounting rules, extracted from sources of for food & shelter among poor & needy
(1) COMPLETE OWNERSHIP Islamic Shari’ah
1. Wealth must be in the possession of the owner a. Determine Z base
2. Benefit to him (right to use, purchase & dispose) b. Calculating the Due amt of Z
3. Able to dispose as he wills c. Preparing Z stmt & reports
4. No one else’s right must be attached to it d. Distributing due Z amongst its Duers/ beneficiaries

(2 )WEALTH MUST REACH MINIMUM LIMIT (NISAB) ZAKAT ACCOUNTING RULES

1. No zakah is due on wealth until its reaches nisab  Calculated according to lunar year (counting start when amt money
2. Each category has its own nisab attain the Nisab)
3. Gold : 20 mithqals (=85g of 24-karat gold) a. Except zakat on agricultute, fruits, mineral assets & rikaz-
4. Silver : 200 dirhams (= 595g pure silver) metal
Condition is a matter of consensus, except w regard to agricultural  Nisab :minimum amt of wealth liable to zakat (ensure zakatable
produce wealth is in excess of normal requirement of owner)
 Haul :Wealth must be owned for a period of a full year in possession
(3) PASSAGE OF A LUNAR YEAR (HAUL) before it becomes liable to zakat
1. Once nisab reach on wealth, 12 lunar mths must pass  Zakat should ne according to current value at time of paying Zakat
2. Period is completed, owner of wealth must pay z on all the (not as historical value/cost/market which is less)
wealth he currently has in his possession
ZAKAT BENEFICIARIES
(4) WEALTH MUST BE A TYPE ON WHICH ZAKAT IS IMPOSED  Poor
1. Silver & Gold (or coins/ as substitutes as media exchange=money)  Needy
2. Minerals & buried treasure (diamond)  Workers in zakah administration (amil)
3. Trade merchandise (harta dagangan)  Those whose hearts are reconciled (mualaf)
4. Grain & fruits (agriculture)  Freeing slave (drug addict/ prostitute)
5. Grazing livestock (fodder-fed livestock)  Those under liabilities
 In the way of God (fisabilillah)
(5) WEALTH MUST BE CAPABLE OF GROWTH  Wayfares (musafir)
1. No z upon a Muslim on his slave/ his horse
a. The wealth has been diverted from growth to personal
use
2. Eg:
a. Biological reproduction/ trade (gold,silver & currencies
– capable of growth by investing in business)
CHAPTER 2: ZAKAT SYSTEM
Introduction ZAKAT ON LIVESTOCK/ ANIMAL WEALTH How to pay Zakat on livestock
 AQ does not specify the types of zakatable wealth/ rate at 1. When met the requirements for nisab & haul = zakatable 1. Minimum no of __ for z is __ tails, which must be paid. On 121-
which zakat is to be paid 2. Animal: 200xx, zakat is __
 AQ discusses different kinds of zakatable assets a. Good health 2. Zakat is based on idea that must be collected from same product
a. At-Taubah (34) : gold & silver b. Not crippled category as it is due
b. Al-An’aam (141) : crops & fruits c. Not used working in paddy fields/ transport goods 3. Hanafi jurists : the equivalent value can be paid from wealth other
c. Al-Baqarah (267) : income from trade & businesses 3. Accept damage animal as zakat payment is not fair to poor & other deserving recipients than same goods
d. Al-Baqarah (267) : mineral 4. Nisab – 40 animals at least 12 mths old 4. Prophet : as a general benefit as much as that made it easier for z to
 Prophet SAW: give
a. Not bind zakat to assets acquired for personal use Conditions on livestock given as Zakat 5. Accepting z from same kind of goods possessed by the giver of z
b. Imposing zakat on growing & producing asset 1. Free from defects & damages (x ill, defective, old, pregnant) when the benefit of ppl lay elsewhere
2. Specification of animal (fe/male) – paid for particular sex depending on no in herd
CONDITIONS OF ZAKATABALITY 3. Age requirement – must be complied w benefit of zakat’s receiver ZAKAT ON AGRICULTURE PRODUCE
1. Islam (ind/group) 1. Not required the passage of year
2. Free 2. Item should be a major food item
a) Not slave (slave =/ possession) 3. In Msia = staple food (eat everyday) that fills the state that has
b) Free to possess any possession met the nisab
3. Complete Ownership 4. Due at time of harvesting/ collection (after crop terus bayar
a) Owning tittle wealth & benefits w/o restriction cannot delay) -should be done on dry product
b) Partnership - if combined amount both of one owner 5. Min nisab = 5 wasq (kg)/ 653kg
have wealth above must be zakatable even owners have 6. Payable by producer not land owner
wealth under nisab 7. No zakat on agriculture land
4. Completion of one year (haul) 8. Rate
a) Passed on the ownership of nisab & extracted minerals a. 10% : watered naturally
b) Exceptions 12 mths: employment income, prof’s b. 5% : machine/purchased water
earning, crops, fruits & honey c. 7.5% : cocktail method (campur tanah)
c) Be paid after year on the same item 9. Cost of farming are deductible
5. Threshold/ Minimum zakatable value (nisab) 10. Eg: (profit harvest sold - wages) x 10%-natural
a) Reach nisab = liable to pay z
b) Monetary wealth used nisab of gold 85g as proxy ZAKAT ON MINERAL & MARINE WEALTH
c) School of jurisdiction except Hanafi : nisab stay 1 yr 1. Minerals (gold, silver, copper)
d) Agriculture & minerals: not limited to one time 2. Marine wealth (come out of earth -bottom river,sea,ocean)
extraction as long as reach nisab Conditions for Zakat on livestock 3. Not require haul (Not paid on annual basis, due after
6. Growing assets 1. The minimum for zakatability (nisab) completion of production sorting, purification/ cleaning &
a) Cash in hand/bank 2. Lapse of full Hijrah year (haul) preparation for sale)
b) Fin instrument/ securities (share/inv finished goods) 3. Grazed livestock 4. All minerals originating from earth = zakatable
c) Raw mat & WIP = exempted (not ready to sold) a. Fed from plants of earth & permissible grass =zakatable 5. Nisab = 85g
d) Fixed industrial asset (PPE) = exempted (not b. product) b. Fed from cultivated crop (tanam sendiri) = x zakatable 6. No nisab & rate applied should be 20% of any quantity
e) Unless.. Revenue from Fixed Asset (rental) 4. Not working animals – counted as basic needs of man & kept for benefit (milk) regardless of amount
CHAPTER 3: TRADITIONAL WEALTH
ZAKAT ON GOLD & JEWELRY Characteristics ZAKAT FITRAH
1. Zakatable = nisab & haul fulfilled 1. Nisab (2.5% of total saving each year) 1. Contirbution of specific amount of staple food/ equivalent amt paid in
2. Nisab = 20 dinars/ 85g 2. Paasage of year (annual obligation that exists at beginning & end of year) Ramadhan
3. Not apply to women’s jewelry (pearl, diamond, stones & metal) 3. Free from debt (personal debts/ past due zakat) 2. Flat amount on each person
4. Mixture of metals = liable zakat if more than half of gold & silver 4. Excess above basic needs (nisab counted if money exceeds basic needs 3. No nisab & haul
5. Gold plated jewelry = not zakatable owners 4. To purify the fasting Muslims from all minor mistakes they have committed
6. Zakatable = gold used for collateral w full ownership
a. (Weight gold x current MV gold) – total credit received – Method
cost keep gold x 2.5% 1. 2.5% from lowest consolidated bal of money
7. Legal for someone else to pay on behalf w permission a. Lowest balance unknown
b. All return added to both/ some lowest bal & lowest bal
Method of Assessment c. Does not own more than one country’s currency
1. Not intended for usage d. Not active in portfolio mgt
a. Gold bars/jewelry kept w/o intention to use = zakatable e. Eg: lowest bal in year x 2.5%
b. Nisab = 85g, Haul = 1 year 2. 2.5% from end bal at Haul dates
c. 2.5% of total weight of gold in gold bars & jewelry a. Actively transferring money intra acc
d. Total Zakatable = Weight of gold x current mv gold (g) x 2.5% b. Possesses more than one country currency
2. Intended for use (used for living) c. Actively managing liquid asset portfolio
a. Zakatable = exceeded Urf
b. Calculated based on 2.5% value exceeded amount ZAKAT ON TRADING STOCK
c. Total Zakatable = Weight of gold exceeded x current mv gold 1. Urud at-tijaraah (commodity obtained for resale/profit)
(g) x 2.5% 2. Merchandise for private use & not for trade/ sale = not zakatable (Fixed
asset & personal asset for use)
3. Trade wealth
ZAKAT ON SILVER (pandora)calcu a. Goods & inv for sale
1. Main form (bar, coinc, home appliance from silver & silver jewelry) b. Money in hand/bank
2. Nisab = 200 dirham/ 595g c. Debts & loans have been extended to agents (exc acc payable)
3. 2.5% of total weight silver from silver bars/ jewelry 4. Commercial weath
4. Total zakatable = weight silver (more than 595g) x current MV x 2.5% a. Raw material & WIP – exempted (not ready for sold)
5. Zakat is obligatory on current market value
ZAKAT ON MONEY 6. Nisab based on nisab for gold (85g) – paid in money not in kind
1. Nisab based on gold & silver 7. Methods: Net working capital approach & net growing capital approach
2. Money calculated based on lowest bal in saving acc (unless more than
one)
3. Saving acc in Tabung Haji excluded
4. Not included debt due at that time
5. No other type of zakat was paid for same zakatable money in same
year
CHAPTER 3: TRADITIONAL WEALTH
Introduction d. Any types of animal rearing (mother) -not zakatable, anak je
1. Quran does not define types of zakatable wealth nor does it provide 5. After deduction of taxes, wages, debt & maintenance
the rate for zakat to be paid 6. Not subject to Haul
2. Zakatable assets: (based on same illah – reason of ruling) 7. Nisab: 2.5%
a. Gold & Silver
b. Crops & Fruits ZAKAT ON PERSONAL WEALTH
c. Trade/ Other business enterprise 1. Eg:
d. What drawn beneath the earth i. Shares
3. Prophet: zakat on growing & producing assets ii. Unit trust
4. Modern scholar’s Ijtihad: iii. Equity investments
a. Zakat on earned income (mal al-mustafad) -income 2. Payable on shares on an individual but company declare pay, owner are
b. Zakat on non-employment income (mal al mustaghallat) - exempted from paying zakat (no duplication)
exploited asset (produce income) 3. Types shareholders:
c. Zakat on personal wealth (fin securities, shares) i. Person who purchase share as investment & want receive
dividends (pay at book value)
ZAKAT ON EARNED INCOME ii. Person who purchase share for trading (pay at market value)
1. Derived from jobs perfomed under the instruction of employers/ self- b. Ruling of zakat on shares & investment is equal to the ruling on the traded
employment in any permissible activities goods, regardless of long term holding/ active trading
2. Earned income = income received from crops & fruits when harvested c. Shares in private companies not included in personal wealth
3. Employment income
a. Salaries, wages, allowances & bonuses Categories Capital Market
b. Gratuities & gain from ESOS 1. Equity (shares, unit trust, REITs. ETF)
c. Other income received from employer a. Potential capital growth & long term risk investments
4. Self-employment & professional services 2. Bond & Debenture
a. Professional consultation fees a. Fixed income securities issued to lenders of long term
b. Commission & residual income loans, w maturity date
c. Royalties & honorarium b. Conventional = not zakatable (ada interest)
d. Income from seasonal project/ services 3. Deratives (options & futures)
e. Occasional/ one-off cash inflow (refinancing) a. Financial instruments used to manage one’s exposure to
5. Not subject to haul today’s volatile market
6. Nisab: 2.5% basis of yearly gross income (whole year is added tgt) b. Eg: commodities, interest rate, indices & stock
7. Debts & minimum standard of living are deductible 4. Structured product
a. Investment product that obtains value by reference to
ZAKAT ON UNEARNED INCOME – EXPLOITED/ PRODUCTIVE ASSETS price/ value
1. Exploited assets = asset used for growth not for trade b. Eg: market indices, equities, interest rate, commodities,
2. Wealth used to produce exchangeable G&S that are sold for profit w/o foreign exchange
exhausting the exploited assets
3. Unzakatable but generate revenue from asset = zakatable
4. Eg:
a. livestock not zakatable but all products by livestock are
zakatable
b. Rental income
c. Income from agriculture produce not zakatable
CHAPTER 4: MODERN WEALTH