Transcript Zakat in Business

Zakat in Business
MGA1023
PRINCIPLES OF BUSINESS
MANAGEMENT
Prepared by:
Cik Suhaila Abdul Hamid
Dr Zurina Shafii
Zakat from the perspective of the
Islamic law
An obligation for Muslims to fulfil
The 3rd from the 5 pillars in Islam
Its importance is no different from the other
obligations
Mentioned in the Holy Al-Quran vis-à-vis with prayers
in 30 verses
The hadith also emphasized on the importance of
paying zakat
Always perceived as an act of worship that has
important effects in the society
The history of zakat payments
Prior to Hijrah, zakat is only compulsory to
those wealthy people who are close with the
Prophet s.a.w.
At that time, the obligation to pay zakat is based
only on their awareness, willingness, discretion
An organized system of zakat (for instance
having the conditions for nisab, rate and haul )
was only applied after the 2nd year of Hijrah.
Definitions of Zakat
Literally
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cleansing or purifying of something from dirt or
filth
Praise, growth and increase
Theologically
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Spiritual purification resulting from paying zakat
Legally
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Transfer of ownership of specific wealth to specific
individual (s) under specific conditions
The main aims of zakat
Our worship to Allah for all His bounties to
mankind
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Al-Baqarah: 267 “Oh ye believe! Give of the good
things which ye have (honourably earned). And of
the fruits of the earth which we have produced for
you..”
Assist the poor and the needy
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Al-Dzariyat: 19 “and their wealth and possessions
(was remembered) the right of the (needy)..”
Act as a mechanism to distribute wealth
…continued
Purify one’s heart and self from being stingy
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Al-Tawbah: 103 “Of their goods take alms. That so
thou mightest purify and sanctify them..”
Types of zakat
Two main types of zakat:
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Zakat fitr (due from the starting of Ramadhan and
ends before the eid’ fitr prayer)
Zakat on mal (wealth)
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Traditional types of wealth subject to zakat
Agricultural produce, reared animals, business, gold and
silver
New types of wealth subject to zakat
Various forms of wealth based on the consensus of Islamic
scholars and jurists e.g. employment income, professional
income
Beneficiaries of zakat
8 categories of beneficiaries:
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The poor (masakin)
The needy (fuqara’)
Amil (individuals who have the authority and
responsible to collect zakat)
Mualaf (people who convert to become Muslims)
Ar-riqab (to free the captives)*
Ibnu sabil (the wayfarer)
Gharimin (those in debt)
Fisabillillah (deeds accomplished in the cause of
Allah s.w.t)
….continued
Issue: are there 8 or 7 beneficiaries?
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Discussion
some states in Malaysia have only 7 beneficiaries since
nowadays there are no more slaves (captives)
However, there are other states which still maintain the
number of beneficiaries of 8 people.
The reason is because it is stated in the Holy Al-Quran
that there are 8 beneficiaries of zakat
Due to that, ar-riqab is implied as zakat for those who
would like to free themselves from ignorance for instance
zakat paid to people who would like to further their
studies
Conditions for becoming an
Amil
Muslim
Pious person
Mukallaf
A freedom man (not a slave)
A fair and just person
Does not come from the descendants of the Holy
Prophet s.a.w
Trustworthy
Is not a blind person
Is not a deaf person
Male
Methods to determine the sources
of zakat
Qiyas
Wealth
Al-Nama Binafsih
Al-Mal al-Nami
Favour the poor and the needy
Qiyas
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A method that will be used by the Islamic jurists and
scholars in determining the shariah practice if the
subject /case is not mentioned in the Holy AlQuran, Hadith or consensus (ijmak).
Qiyas is a practice to imply a subject with an existing
shariah treatment.
The use of Qiyas in zakat is encouraged and it has
been widely practised by the Islamic jurists. For
instance, employment income is subject to zakat
because it is similar to gold and silver. Therefore, the
rate and the haul are equivalent to the rate and haul
of zakat on gold and silver.
Wealth
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taken from several hadith.
For instance, as narrated by Mu’az bin Jabal, the holy
Prophet s.a.w had instructed his amil to inform the
Yemen people that zakat must be paid by the wealthy
people to be distributed to the poor and the needy.
Due to this, there is an opinion that says zakat is
payable on all wealth, irrespective of the physical
form of the wealth.
Al-Nama Binafsih
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This is a method to zakat wealth based on the concept of
“productive wealth expansion”.
Those wealth or property which could in nature expand or grow by
themselves for instance the agricultural produce such as paddy will
fall under this category of wealth.
There is no haul condition to be fulfilled for this type of wealth.
Zakat is payable once the wealth is gained and the quantity is
enough to meet the nisab.
Imam Nawawi and some Islamic scholars such as Ibn Abbas, Ibn
Mas’ud and Muawiyah for instance suggest that zakat on
employment should follow the method of Al-Nama Binafsih.
Thus, according to them zakat on employment income is payable
on the day it is received provided that it meets the nisab
The zakat is imposed based on the method it is gained and not
the type of wealth (even though the wealth is received in the
form of money)
Al-Mal al- Nami
This is another method to zakat wealth based on the
concept of “productive wealth expansion”.
However, it is imposed on wealth which is gained from
property or wealth which could not grow by itself for
instance like business wealth.
Therefore, zakat is only payable when it meets the haul
and the nisab.
For instance zakat on business income will only
become payable if it meets the haul and nisab
Favour to the poor and needy
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This principle is being used by the scholars if there
are two reasons from two different schools of
thought to pay zakat on the same wealth at the same
time.
Therefore, the approach is to choose the method
that will favour the poor and the needy.
For instance, when there is taraddud which means
argument due to similarity or ambiguity between two
wealth such as should the rate of zakat for money be
based on qiyas on gold or qiyas on silver?
Cont…
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The jurists conclude that it is better to base on silver
since the value is higher and there is not disagreement
on the nisab of silver that subject to zakat
Reared animals for instance could fall under either zakat
on reared animals ( al-sa’imah) or zakat on business
income (al-tijarah).
In this case, normally the jurists will choose zakat on
business income rather than zakat on reared animals
because it favours more the poor and the needy.
Zakat in business
Hadith from Rasulullah s.a.w as narrated
by Abu Daud
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“ …indeed, Rasulullah s.a.w asked us to pay
zakat from the property that we prepare to
sell”
All kind of businesses owned by Muslims
are subject to zakat.
Conditions to fulfill to pay zakat on
business
The conditions that must be fulfilled to be
subject to zakat :• Muslim
• A freedom person
• The wealth must be from halal sources
Those activities prohibited against Islam
cannot be included in zakat calculation
Cont..
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Meet the nisab at the end of haul
The nisab is 2.5% or equivalent to 85 grams of
gold
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Meet the haul
Must be from productive property
E.g cash, shares, bond, ending inventory, fixed
assets (movable or immovable), net trade
receivable
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Full ownership
Cont..
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The business sources including donation are
subject to zakat
Exist the intention to be in business
The intention
The transaction
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The business property is not withdrawn for
personal use
Basic items in a business
•
Fixed assets
Not subject to zakat
Income accrued from productive fixed
asset is subject to zakat
Basic items in a business (cont..)
•
current assets
• Based on the value of assets provided in
the Balance sheet or assessment on the
inventory.
• Zakat is based on the equivalent value of
the assets
• Zakat is imposed on accounts receivable if
it is assured that the debtor will pay back
 Zakat will only be imposed in the year
when the debt is collected
Basic items in a business (cont..)
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Intangible assets
E.g. Shares, patent, goodwill, bond,
certificate of investment are considered
equivalent to fixed assets if they are not
traded but held in the purpose to gain
dividend.
If the company invested in has already
paid zakat, thus the income is no longer
subject to zakat
Basic items in a business (cont..)
Long term liability
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Long term liabillity to finance/ run the
business is subject to zakat
Capital and Shareholders’ fund
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E.g. Paid up capital, premium accounts,
accrued profit are subject to zakat
Types of calculating zakat on
business
Growth model
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Owner’s equity + Long term liability – fixed
assets – intangible assets +/- adjustments
Working capital model
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Current assets – current liability +/adjustments
Adjustments to be made to the
calculation of zakat
Deduct
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income which are not subject to zakat such as
prohibited sources
amount are not wholly owned such as
deposits for utilities
Creditors
Sources that zakat has already been paid
Current assets must be productive, thus bad
debts, obselete stock, depreciation are
deducted
Adjustments to be made to the
calculation of zakat (cont..)
•
Charity fund such
education fund
as
tabung
khairat,
Charity fund which has the concept of rolling fund
is not subject to zakat on the principal amount only.
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Ending inventory
Those liabilities related to the business
operation e.g. trade creditors, payables.
Adjustments to be made to the
calculation of zakat (cont..)
Add to current assets
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All gift, donations paid by the company
Add to current liability
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Not related to business
restructuring of debt
Dividend payable
Overdraft
Financial lease
operation
e.g.
References
Basic readings:
http://www.muis.gov.sg/cms/uploadedFiles/Corp
orateGOV/Zakat/zakat_on_business_formula.pd
f. Zakat calculation based on working capital
model
Further readings:
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Bahari & Hamat (2004)“Rethinking zakat on
employment income”, unpublished paper presented in
6th Asian Inter-university seminar on social
development, 14th – 16th May 2004. Available on the
net:
<http://www.geocities.com/idmpresources/04ASEANZ
akariaZahri.pdf>
Tutorial Questions