Conditions Necessitating Zakat on Merchandise

1- Its value must have attained the Nisab; and the Nisab is estimated from the value of gold or silver.
2- Lapse of one year on it.
3- It should be for the sole purpose of business, i.e. to earn a living from it. The Messenger of Allah ﷺ said: “Actions are judged according to intentions.” [ Agreed Upon]
If one changes his intention from selling to employing it for personal use, the year being counted is stopped. If he reverts to his intention of business, a new year is started afresh. If he does this in order to escape Zakah, the year being counted is not disrupted.

For example: If he buys land in the month of Muharram with the intention of transacting business with it and in the month of Sha’ban he changes his intention to that of building on it for the purpose of living there, the year being counted is thus stopped. Then during the month of Shawwal, he reverts his intention to business, he must therefore start counting a new year from the month of Shawwal. But if he does this to escape the payment of Zakah; the year being counted in this case is not disrupted.

How Zakah on Merchandise is Paid

After a complete year has elapsed, the trader takes stock of the merchandise for sale and its cost, according to its current market price. Subsequently he pays Zakah from this – either from the goods directly or from its monetary value, as the need of the poor dictates.

How does a Trader Calculate Zakat on Commercial Goods?

1- He evaluates the merchandise with him according to its present worth.
2- He adds whatever currency he has to this, whether this is for business or otherwise.
3- He adds whatever money he has loaned and has been guaranteed of its settlement.
4- He subtracts from this sum the amount he owes.
5- He then pays Zakat on whatever is left and this is one-fourth of a tenth or 2.5%.

– Compulsory Zakah is (the value of commercial goods + currencies + expected/ guaranteed returns on monies loaned – the money which the trader owes) x payable Zakah of 2.5%.
– In order to calculate Zakah on trade, the assets upon which Zakah is payable are inventoried and estimated on the day their Zakah is due, by using the statement of the financial position
–  the budget – regardless of the presence of profit or loss in the profit and loss account.
– Materials used for packaging are not estimated alone if they were not bought for the sole intention of being sold individually. If, however, they were used to sell trade goods, then they should be estimated if they increase the value of those goods, such as special bags (packaging’s that are used to store the trade goods in etc.). But if they do not increase the value, as for instance plain paper bags, then they are not included in the evaluation.
– The evaluation for each trader – whether a wholesaler or a retailer – is according to the price with which he can usually purchase the goods at the end of the Hawl (i.e. one Hijri year; 1 year Hijri = 354.5 days) i.e. the replacement value, which is different from the sale price (the market value), the historical cost (cost at the time of purchase) and the book value.[ Refer to: Recommendations and decisions of the Seventh Symposium on Contemporary Zakah Issues 1417 Hijri -1997 Gregorian]
– If prices change between the day Zakah is due and the day it is paid, the price considered shall be that of the day it is due, whether the price has increased or decreased.
– Zakat of transferred goods before taking possession of them is the responsibility of its owner. Ownership of the purchased goods is realized according to how or where they are received. These purchased goods which are on their way, if purchased, for example, on the basis of delivery at the port of the seller, it enters into the buyer’s ownership once it is delivered to the shipper. But if it was purchased on the basis of delivery in the port of the buyer, it enters into ownership upon reaching the port of arrival.
– If the traded money includes different currencies, such as gold or silver, it should be estimated to decide on the amount that must be paid in the currency in which the merchant trades to evaluate his trade goods according to the prices prevailing on the day the Zakah is due.
– The Zakah on trade goods that the buyer pays for in advance, but does not take immediate possession of, is not obligatory for the buyer before taking possession of them, but it is still due from the seller.

Zakah of Raw Materials and Supplementary Materials that are Used in Industry.

1- For raw materials – unprocessed commodities- intended to be included in the composition of the manufactured material, such as iron in the automotive industry, and oils in the manufacturing of soap, its Zakah is estimated according to its value by which it can be purchase at the end of the year. This also applies to animals and the like, and grains and plants intended to be manufactured.
2- For supplementary materials which are not included in the composition of the manufactured material – such as fuel in industries – no Zakah is due, as for fixed assets.
3- Zakah of non-manufactured goods and unfinished goods: Zakah on non- manufactured goods and unfinished goods is like that of the Zakah on trade goods according to its value in its current state at the end of the Hawl (i.e. one Hijri year)

Existence of another reason for Zakah beside the trade goods ..

If another reason for Zakah exists with trade goods, such as plants, the Zakah paid on it is the same as that of trade goods.[ Qada’ya Fiqhiyyah Mu’asirah [Contemporary Matters of Islamic Jurisprudence] by Dr. Salaah As-Saawii, page 54 and onwards.]

Zakah on capital

Zakah is only payable on the circulating capital that is set aside for buying and selling with the intention of making a profit. As for fixed assets, these are not included in the calculations and Zakah is not paid on them. Examples of fixed assets are shelves and refrigerators in which goods are stored, vehicles for transport, equipments for lifting loads, etc.

Types of Monies Upon which Zakat is Not Obligatory

– Products of the sea, such as pearls, coral and fish, are not subject to Zakah unless they become trade goods.
– Goods intended for rent, such as real estate, cars and others, are not subject to Zakah. Zakah is due on the rent if it reaches the minimum Nisab and a Hawl has passed.
– Objects that are for personal use, such as one’s car and home, are also not subject to Zakah.

Possession of Nisab

– Is it stipulated to possess the Nisab for the whole year from the beginning to the end. ? Is it enough to just attain the Nisab at both the beginning and the end of the year, or is consideration given to the end of the year alone?
– What is important is for the property to attain the Nisab both at the beginning and end of the year; because of the hardship that is encountered in calculating it for each month of the year. So the start of a year is considered the time when the wealth attains the Nisab, while the end of the year is considered the time for payment. The easiest course for a Muslim to take is to fix a particular time, say Ramadan etc., in which he evaluates his properties and pays Zakah therein.