(Series of Answers by the Eminent Scholar Ata Bin Khalil Abu Al-Rashtah, Amir of Hizb ut-Tahrir, to the Questions of the Visitors to his Facebook Page "Fiqhi")
Answer to a Question
Zakat on Trade Goods
To Mohamed Abou Youssef
Question:
Assalamu Alaikum Wa Rahmatullahi Wa Barakatuh. Our noble Sheikh, I have some pressing questions regarding Zakat on trade goods. After calculating the net trade assets subject to Zakat, I need to value the zakatable assets. My question is regarding the closing stock—the goods purchased for sale that were not sold by the end of the lunar year (hawl). At what price should these goods be valued: at cost price or market price? That is, at the selling price or the purchase price? If we say at the purchase price, it is clear. But if we say at the selling price, should they be valued at the retail or wholesale price? Furthermore, if the goods are deposited with a third party (an agent), should they be valued at the price in the country of the Zakat payer or the country where the goods are located? Regarding stagnant goods (al-kasi-dah)—goods that have remained unsold for years—is Zakat due on them, especially if they have lost their market and replacement value? I apologize for the length of the question. Baraka Allahu Fikum.
Answer:
Wa Alaikum Assalam Wa Rahmatullahi Wa Barakatuh,
Trade goods ('urud at-tijarah) refer to everything other than cash that is acquired for the purpose of trading—buying and selling for profit. This includes foodstuffs, clothing, furniture, manufactured items, animals, minerals, land, buildings, and other items that are bought and sold.
Trade goods are subject to Zakat. On the authority of Samura bin Jundub, who said:
أَمَّا بَعْدُ، فَإِنَّ رَسُولَ اللَّهِ ﷺ كَانَ يَأْمُرُنَا أَنْ نُخْرِجَ الصَّدَقَةَ مِنَ الَّذِي نُعِدُّ لِلْبَيْعِ
"As for what follows: The Messenger of Allah ﷺ used to command us to pay the Sadaqah (Zakat) from that which we prepared for sale." (Reported by Abu Dawood)
And on the authority of Abu Dharr, from the Prophet ﷺ, who said:
وَفِي الْبَزِّ صَدَقَتُهُ
"And for cloth (held for trade), there is its Zakat." (Reported by Al-Daraqutni and Al-Bayhaqi). Al-Baz refers to the clothes and fabrics used for trade.
Abu Ubaid reported from Abu 'Amrah bin Hamas, from his father, who said: "Umar bin al-Khattab passed by me and said: 'O Hamas, pay the Zakat on your wealth.' I said: 'I have no wealth except for quivers and leather.' He said:
قَوِّمْهَا قِيمَةً، ثُمَّ أَدِّ زَكَاتَهَا
'Appraise them for their value, then pay their Zakat.'"
And from Abdul Rahman bin Abdul Qari, who said: "I was in charge of the public treasury (Bayt al-Mal) during the time of Umar bin al-Khattab. When the distribution ('ata) was issued, he would collect the wealth of the merchants, then calculate it—both the present and the absent wealth—and then take the Zakat from the present wealth for both the present and the absent wealth." (Reported by Abu Ubaid)
- Ahmad reported in his Musnad from Malik bin Aws bin al-Hadathan al-Nasri, from Abu Dharr, who said: I heard the Messenger of Allah ﷺ saying:
فِي الْإِبِلِ صَدَقَتُهَا، وَفِي الْغَنَمِ صَدَقَتُهَا، وَفِي الْبَقَرِ صَدَقَتُهَا، وَفِي الْبَزِّ صَدَقَتُهُ
"For camels, there is their Zakat; for sheep, there is their Zakat; for cows, there is their Zakat; and for cloth (for trade), there is its Zakat."
Al-Nawawi stated in Al-Majmu' Sharh al-Muhadhdhab: "(Zakat is obligatory on trade goods because of what Abu Dharr (ra) narrated... and because trade is sought for the growth of wealth, so Zakat is attached to it like pastured livestock... His saying 'and for cloth (al-baz) there is its Zakat' is with a fatha on the 'B' and a 'Z'... the old and new texts of Shafi'i (ra) are consistent on the obligation of Zakat on trade... and the famous position of the companions (of the school) is the agreement that the Madhhab of Shafi'i (ra) is its obligation...)."
Ibn Qudamah said in Al-Mughni: "(Zakat is obligatory on the value of trade goods according to the majority of the people of knowledge. Ibn al-Mundhir said: The people of knowledge have reached a consensus that Zakat is due on goods intended for trade when a hawl has passed... and for us is what Abu Dawood narrated... from Samura bin Jundub... 'The Messenger of Allah ﷺ used to command us to pay the Zakat from that which we prepared for sale'... and there is no dispute that it is not obligatory on the items themselves, but it is established that it is obligatory on their value...)."
Al-Bayhaqi reported in Al-Sunan al-Kubra: "(...I heard the Messenger of Allah ﷺ say: 'For camels, there is their Zakat; for sheep, there is their Zakat; for cows, there is their Zakat; and for cloth, there is its Zakat.')"
Zakat is obligatory on trade goods if their value reaches the nisab (threshold) of gold or the nisab of silver, and a hawl (lunar year) has passed over it.
If a merchant starts his trade with wealth less than the nisab, and at the end of the year the wealth reaches the nisab, no Zakat is due on him at that time because the nisab has not been held for a full year. He must pay Zakat on this nisab only after a full year has passed upon reaching it.
However, if the merchant starts his trade with wealth exceeding the nisab—for example, if he starts with one thousand dinars—and by the end of the year his trade has grown and profited, reaching a value of three thousand dinars, he must pay Zakat on the full three thousand dinars, not just the one thousand he started with. This is because the growth follows the principal. The hawl for the profit generated from the wealth is the same as the hawl of the principal. This is similar to the offspring of goats or sheep; they are counted and Zakat is paid on them with the mothers, as their hawl is that of their mothers. Likewise, the profit of wealth has the same hawl as the principal wealth.
When the hawl expires, the merchant appraises his trade goods—whether they are items that are normally subject to Zakat in their own right (like camels, cows, and sheep) or items not subject to Zakat in their own right (like clothes, manufactured goods, land, or buildings). He appraises them all together in gold or silver and pays a quarter of the tenth (2.5%) if they reach the nisab. He pays what is due in the circulating currency. It is also permissible to pay the Zakat from the goods themselves if that is easier for him. For example, if someone trades in sheep, cows, or clothes, and the value of Zakat due is equivalent to the price of a sheep, cow, or garment, he may choose to pay in cash or by giving the sheep, cow, or garment.
Trade goods that are normally subject to Zakat in their own right (like camels, cows, and sheep) are taxed as trade goods, not as livestock, because the intention behind owning them is trade, not possession (al-qin'yah).
Based on this Shari'ah reality, the answer to your question is as follows:
A- Trade goods are appraised at their market price—meaning their selling value—at the time Zakat is due. This is because this is the real value of these goods. They are not appraised at the purchase price, as it may be less or more than the market price which expresses the true value of the commodity. Therefore, the market price is the standard.
B- If the seller is a wholesaler, he appraises his goods at the wholesale price. If he sells at retail, he appraises them at the retail price. If he mixes both wholesale and retail, he takes the ratio between the two and applies it. If he sells half the goods at wholesale and the other half at retail, he estimates half at wholesale and half at retail, and so on. This is because this is the closest true representation of the value of the goods.
C- Goods are appraised at the market price in the country where they are located, not in the country of the merchant, because the market price in the location of the goods is closer to their real value.
D- All goods are appraised when intending to pay Zakat, whether they are stagnant (kasi-dah) or not, because goods are essentially wealth. Stagnant goods are appraised at their market value when the Zakat becomes due, and in this case, their value will naturally be lower than their value before they became stagnant. This is done every year because they are essentially cash in the form of goods, so Zakat is due on them every year just as it is due on cash.
E- The Zakat paid for trade goods is typically in cash, but it is permissible to pay from the goods themselves. For instance, if the Zakat due is 2000 and the price of one unit of the commodity is 500, the payer can give 4 units of the commodity as Zakat. This can be a suitable solution for stagnant goods, where the Zakat is paid from the goods rather than cash, thereby considering the interest of the Zakat payer.
This is what I prefer in this matter, and Allah is All-Knowing and All-Wise.
Your brother, Ata Bin Khalil Abu Al-Rashtah
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