COMPUTATION OF ZAKAT
The commandment relating to Zakat in the Qur’an is mentioned in the 60th verse of chapter 9. The translation of the verse is as under:
“The Sadaqāt (prescribed alms) are (meant) only to be given to the poor, the needy, to those employed to collect them, to those whose hearts are to be won, in the cause of the slaves and those encumbered with debt, in the way of Allah and to a wayfarer; this is an obligation prescribed by Allah; Allah is All-Knowing, Wise.”
Interestingly, this particular verse does not mention the word “Zakat” although this word has been used in several other verses of the Qur’an. The word used here is “sadaqat” which the translator above has described in brackets as “prescribed alms.” The word means ‘truths’ and it applies to all good deeds, including giving alms. Truthfulness in giving alms would require that the source of wealth, the intent of giving, the manner of distribution and the object of the charity, all should be pure. Any impurity in any of these will defeat the purpose and would not be the Zakat, as such. Thus, for example, income generated from unlawful sources like theft, tax evasion, defrauds and the like cannot be given in charity as Zakat.
The above-mentioned commandment for Zakat specifies eight purposes for which this charity can be utilised. It includes help to the poor and needy, providing relief for an indebted person, freeing slaves, winning hearts, serving the needs of the wayfarer, payments to collectors of Zakat and expenses in the path of Allah.
By using two distinct categories of the poor and the needy, the Qur’an highlights two stages of human needs. Some persons have no source of income and are forced to beg. They should be helped. However, some people have an insufficient source of income and they prefer to suffer as than open their mouths and seek help. Society has to take care of its dignified members in need in a dignified manner. Zakat should be used for this purpose.
Freeing the slaves by purchasing them from their owners is one of the purposes of Zakat. On the face of it, this may appear to be a redundant item today. However, bonded labours do exist in the present world also and Zakat can be used to ease them out.
Meeting the expenses of Zakat collectors is a meaningful item. It indicates that primarily collection of Zakat and its utilisation should be done in a congressional manner. It is a state function in an Islamic society. It is always preferable to get Zakat collected in an institution and disbursed to the needy therefrom. And for this reason, the Qur’an has provided for meeting the expenses of Zakat collectors from the Zakat fund. In absence of any single institution, wherein everyone has faith, Zakat is distributed to the needy and the needful purposes severally.
NISAB of Zakat
Nisab is the minimum level of wealth that a Muslim possesses continuously for one lunar calendar year which makes him liable for payment of Zakat. Any Muslim who owns wealth equal to or more than nisab is obliged to pay Zakat.
The wealth on which Zakat is payable and their respective nisab may be categorised as under:
Precious metals (Gold and silver). Its nisab is 7.5 tola (84.875 grams) of pure gold or 52.5 tolas (595 grams) of pure silver;
Liquid Assets like cash in hand, bank balances, share-stocks, stock of saleable commercial goods (in the case of a business) and receivables from the market (reduced by current liabilities). Its nisab is the cash equivalent of 52.5 tolas (595 grams) of pure silver;
Agriculture produces. Its nisab is 5 wasaqs (approximately 653 kilograms);
Livestock. Its nisab is on headcount - It is set at 5 camels, 30 cows and 40 goats; and
Minerals and windfall income in the form of treasure. There is no nisab for this as Zakat will be on whatever is unearthed.
It may be noted that the term Zakat is not generally used for agricultural produce, and the preferable term, in this case, is Ushr.
RATES of Zakat
Zakat on precious metal and liquid assets is 2.5 per cent. Zakat/Ushr on agricultural produce is 10 per cent where output is from un-irrigated lands, watered mostly by rain and natural springs. If the product is from irrigated land, the Zakat rate is 5 per cent, providing the benefit of the cost of irrigation/watering.
Zakat on livestock is based on a table where the age of the animal is also considered. For ease of understanding, it may be noted that Zakat for 40 sheep/goats will be one sheep/goat; that for cows/bulls will be one cow/bull of at least one year’s age and for 5 camels it is one sheep/goat.
Zakat on minerals and treasures is at the rate of 20 per cent.
SALIENT FEATURES of the system of Zakat
Zakat is an annual event, except in the case of agricultural produce which becomes due after each crop. And that is one of the reasons that a separate term, Ushr, is used for Zakat in this case of agriculture. Similarly, Zakat on minerals and treasures becomes due to the incidence of income. Other forms of Zakat are due only after a person possesses continuously twelve months of lunar calendar wealth in the form of a particular level of gold or silver or its cash equivalent. The day he becomes liable for payment of Zakat shall be the date for all his future computations of Zakat. After that requirement of possessing something for twelve months is not relevant. His Zakat will be based every consequent year on the position of wealth on the date he first became liable.
For those who are conversant with accounting terminologies, it may be stated that Zakat is a balance sheet item as it depends on the financial state of affairs of a person on the date of computation. In other words, it is not related to income and expenditure accounts or profit and loss accounts as the events of the past twelve months do not matter while computing Zakat at the end of the lunar year. Once a person becomes Zakat-payer (sahib-e-nisab) in a year, based on his holding of wealth up to nisab for twelve consecutive lunar months, the position of wealth on the date of computation alone will remain relevant. In the balance sheet, Zakat is computed based on net working capital, which is the difference between current assets and current liabilities. Hence, fixed assets, goodwill, capital and reserves, and the other items of a balance sheet will have no bearing on the computation of Zakat.
There is one marked difference in the current method of accounting and the system in the computation of Zakat. In contemporary accounting practices, the stock is valued at the lower of the current market price and cost. However, for Zakat, the stock is valued at the current market/replacement price.
Interestingly, except for zakat on livestock where it is due on headcounts, all other rates of zakat are in decimal numerals; 2.5%, 5%, 10%, & 20%. It makes both comprehension and computation easier.
Zakat, inter alia, serves three purposes: One for the person paying Zakat; One for the person receiving it; and One for the society/economy as a whole. For the payer of Zakat it is meant for the purification of his self and wealth as one pays Zakat only because of his commitment to faith and in obedience to Allah. The concept is that while paying off 2.5% one purifies the rest 97.5% of his annual savings, otherwise the whole 100% becomes impure. For the person at the receiving end, it leads to serving his financial needs and alleviation of poverty. For society at large, this is a system of circulation of money/wealth in an economy which goes far in helping the economy to consolidate. The circulation of wealth in an economy is a primary approach of Islam. The Qur’an specifically commands for this saying, “so that it (Wealth) will not be in a perpetual distribution among the rich from among you” (Al-Qur’an 59:7). Provisions relating to Zakat is one of the methods by which Islam ensures circulation of money/wealth.