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Understanding the Zakâh on Commercial Goods

Published: 27/08/2011 08:24:00 AM GMT
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As a retailer, I wish to understand how Zakâh is paid on commercial goods. I understand that, every year, I have to pay Zakâh on my entire inventory as well on all the money that I earn, even if that money or some of that inventory was not in my possession for a full year. Why is it different than for an employee’s savings? If I were earning a salary, I would only pay on the savings that I have kept for a year, not on all the money that I possess. Why is there a difference?

Answered by

Sheikh `Abd Allah al-Rîmî

The Zakâh that is paid on commercial goods is similar to that which is paid on monetary savings in many ways:

1. It is paid at the rate of 2.5% of the total value.

2. It is paid after the completion of a year.

3. It has the same minimum value (nisâb) that must be retained for the duration of the year for Zakâh to become obligatory upon the person. This value is equivalent to the monetary value of 85 grams of pure gold.

There is one very important difference. The profit that is earned from buying and selling commercial goods is considered to be part and parcel of the value of the goods. This means that profits – unlike wages, salaries, and commissions - do not have to be retained for a full year from the time of their receipt. Instead, Zakâh is due upon those profits a year from when the goods that were sold first came into the seller’s possession.

Likewise, if the seller reinvests the revenue from his sales into stock, the new stock is considered to be a continuation of the old stock. The new stock does not have to remain in the seller’s possession for a year before Zakâh is levied on it, because it is merely the continuation of the old stock that was sold. A retailer constantly cycles his wealth between stock and money. He sells his goods for cash, then reinvests the cash in goods. His wealth merely changes form from cash to goods to cash again. It remains in his possession in one form or another. Therefore, the Zakâh is paid annually on the entire value of his salable goods and cash.

Therefore, every year, the owner of the goods must take an inventory of his total stock and determine its current market value. He must add to this value whatever money that he has in cash from the sale of his merchandise. He must then pay the Zakâh on all of this.

He pays Zakâh on his business’s merchandise and profits. He does not pay Zakâh on the value of the other property of the business, like buildings, facilities, machinery, office furniture and other items, even if they are purchased from the company’s profits. He only pays Zakâh on the money and the trade goods of his business.

And Allah knows best.

Source: Islam Today

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