The following is an explaination on zakaah as it applies to business. In short, it’s 2.5% of marketable items.
Narrated Samurah ibn Jundub: The Mesenger of Allah used to order us to pay the sadaqah (zakaah) on what (goods) we prepared for trade. [Abu Dawud 9⁄1557]1
“Goods from what we prepared for trade” means business inventory. So if someone owns a clothing store full of leather jackets, they pay zakaah on all the jackets not sold after a year.
Which begs the question–what is business? Here, we define business as “an exchange of value with the intention of profit”. That’s what business is.
So if someone’s rich uncle dies (inna lillahi wa inna ilayhi rajioon), then those 500 leather jackets he passes on is not zakaahable. They don’t have to pay zakaah on that, until the day they decide “hey, let’s sell this stuff off!”
In Surah Baqarah, Allah (سبحانه وتعالى) says:
Translation: O you who believe! Give of the good things which you have (honourably) earned, and of the fruits of the earth which We have produced for you … [Surah Baqarah, verse 267]2
Keywords here are “anfiquw” (give) and “maa kasabtu” (what you earned) and what comes out of the land. “What you earned” means from your business, and “what comes out of the land” means crops–for farmers. So this verse covers both produce (rice, wheat, etc.) and business transactions.
There are two conditions on business items before they are zakaahable:
- Ownership through an exchange contract: the items must be owned through an exchange contract. This excludes things like getting items through inheritance, and things like gifts (unilateral contracts). One reason we didn’t say “owned through buying and selling”, is because it can be an exchange–“my taxi driver will work 12 hours for you, and you’ll give us 200 pizzas.”
- Intention to sell: You might have a whole lot of products–maybe you bought an entire box of awesome ‘itters (perfumes) that you could technically sell, but instead, give them away as gifts. In that case, you don’t pay zakaah on those items–even if you keep them for a long time!
When paying zakaah, the amount paid (2.5%) is calculated not on the price the items were purchased for, but on the current average market price. Those 500 leather jackets moldering in a warehouse since last year? You pay zakaah on the current market price for them.
One final point: zakaah on cattle is paid in cattle. Zakaah on food is paid in food. What about business zakaah? The answer is, it’s paid in gold and silver (or in cash). You can’t give 2.5% of your leather jackets as sadaqah!
(While you’re calculting your business zakaah on your marketable commodities like leather jackets, don’t forget to include zakaah on liquid cash you may have lying around, as well as reclaimable debts you expect will be paid back (including money you’ve made that hasn’t reached you yet), and subtract mature debts of a year or more–it’s like you don’t own that money.)
Wallahu ta’ala ‘alim. Just a reminder inshaAllah that this covers zakaah from a Shafi’ee madhab position. May Allah increase us in our knowledge and understanding of the pillars of Islam, ameen!
(1) “Partial Translation of Sunan Abu-Dawud, Book 9: Zakat (Kitab Al-Zakat).” USC-MSA Compendium of Muslim Texts. USC-MSA. 8 July 2006 <http://www.usc.edu/dept/MSA/fundamentals/hadithsunnah/abudawud/009.sat.html#009.1557>.
(2) Khan, Muhsin, trans. “Quranic Realm.” Islamic Network. 12 May 2006 <http://quran.islamicnetwork.com/>.