Zakat on Trade

Zakat on Trade

The majority of scholars among the companions, the followers, the generation after them, and the jurists who came subsequently held that zakat on merchandise is compulsory. Abu Dawud and al-Baihaqi relate that Samurah ibn Jundub reported: “The Prophet used to command us to pay sadaqah from [the goods] we had for sale.” Ad-Daraqutni and al-Baihaqi relate that Abu Zharr reported the Prophet saying: “There is sadaqah on camels, sheep, cows, and house furniture.” Ash-Shaf’i, Ahmad, Abu ‘Ubaid, ad-Daraqutni, al-Baihaqi, and ‘Abd ur-Razzaq relate that Abu ‘Amr ibn Hammas reported from his father that he said: “I used to sell leather and containers. Once, ‘Umar ibn al-Khattab passed by me and said: ‘Pay the sadaqah due on your property.’ I said: ‘O Commander of the Faithful, it is just leather.’ He replied: ‘Evaluate it and then pay its due sadaqah.’ “

Commenting on its credentials, Ibn Quadmah says in al-Mughni that this is a kind of story that is well known and indisputable. This might be a consensus of opinion.

On the other hand, the Zahiriyyah maintains that merchandise is not subject to zakat. They differ, says Ibn Rushd, because of their use of analogical reasoning to the obligation of zakat and because of their disagreement on the authenticity of Samurah’s and Abu Zharr’s reports.

However, the majority of jurists view merchandise as a property that increases in value. Hence, by analogy, it is similar to the three categories upon which zakat must be paid: plantations, cattle, and gold and silver.

It is stated in al-Mandr: “Most scholars agree that zakat is obligatory on merchandise even though there is no clear-cut ruling in the Qur’an or the Sunnah on this issue. However, there are a number of reports that corroborate each other with regard to the evidence provided by [their] texts. Their rationale is that since merchandise is a form of cash, there is no difference between it and dinars or dirhams in terms of which it is valued. This means that the form of the nisab can alternate between the value in the form of cash and that which is valued in the form of merchandise. If zakat had not been obligatory on merchandise, the rich–or most of them –would have converted their cash into merchandise for trading purposes, making sure that the nisab of gold and silver is never possessed by them for a year.”

The main consideration here is that by levying zakat on the rich, Allah wants to help the poor and to promote the welfare of the people in general. For the rich, its benefit lies in cleansing their persons of stinginess–both in money and feelings. For the poor, its benefit lies in easing their circumstances. Zakat thus eliminates the causes of corruption which results from the increase of money in a few hands. It is this wisdom which the Qur’an refers to when it deals with the distribution of booty: “… that it becomes not a commodity between the rich among you” [refer Al-Quran, surah al-Hashr, verse 7]. Therefore, it is not reasonable to exempt businessmen from their societal obligations when they possess most of the nation’s wealth.

When Goods can be Judged as Trading Goods
The author of al-Mughm states: “Merchandise can only be considered as trading goods for two reasons:

First Reason
The actual possession of merchandise is acquired by an act such as a commercial transaction, marriage, divorce demanded by the wife (khul’), acceptance of a gift, bequest, booty, and other lawful acquisition. This is because that which is not subject to zakat cannot be considered as so subsequent to its possession on the basis of niyyah (intention) only, as, for example, in the case of fasting. It does not make any difference whether a person came to possess such items by buying them or not because his possession is by an act similar to inheritance.

Second Reason
The goods are intended, at the time of possession, for trade. These are considered non-trade goods even though the person intends to use them later for trade.

However, if he possesses these goods through inheritance and intends them for trade, they are not considered as trade goods because the determining factor in such cases is the status of acquisition, not the temporary state of trade. The mere intention will not provide a valid reason to change its status. For example, if a person intends to travel without embarking upon it, then the mere expression of his intention will not constitute the act of traveling. Likewise, if a person bought merchandise for trade and then intended it for possession, it would be considered as such, and zakat will not be paid on it.

How is Zakat on Trade Money to be Paid
One who possesses merchandise with a nisab for a year should pay zakat on it, the amount of which is a quarter of a tenth of its value (2.5%). This should be done by a businessman every year. However, the period of a year does not come into effect unless his inventory constitutes a nisab.

Assuming a businessman possesses merchandise short of a nisab and part of a year has passed, his inventory subsequently increases through an unusual rise in value (because of supply and demand or through price fluctuation) so that it constitutes a nisab; or he sold merchandise for the price of a nisab; or during the course of the year, he comes to possess other merchandise which, together with his previous amount, completes a nisab; then, the hawl (for the purpose of zakat) starts at that time, and the time elapsed is not taken into consideration. This is the view of the Hanafiyyah (madhab), ath-Thauri, ash-Shaf’i, Ishaq, Abu ‘Ubaid, Abu Thaur, and Ibn al-Munzhir. According to Abu Hanifah, if the merchandise in possession constitutes a nisab at the beginning of the year and also at the end, zakat will still be applicable even though the nisab might have decreased within that time. The reason is that it is difficult to ascertain its completeness in the intervening period.

The Hanbaliyyah (madhab) holds that if the merchandise decreases during the course of the year and increases again until it constitutes a nisab, the (requisite) period of a year starts all over again because it has been interrupted in its course by the decrease.

Taken with slight modifications from Fiqh-us-Sunnah by As-Sayyid Sabiq

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