Series of Answers by the Eminent Scholar Ata Bin Khalil Abu Al-Rashtah, Amir of Hizb ut-Tahrir, to Questions from Visitors to his Facebook Page "Fiqhi"
Answer to a Question
Zakat on Trading Goods (Merchandise)
To: Yasser Khudair
Question:
Does it mean that the Zakat on trading goods is based on the value of the goods offered for sale—the selling price from the Zakat payer to his customers—not the purchase price paid by the merchant?
For example, if I bought mobile phones for 10,000 and I sell them for 15,000, is the Zakat calculated from the value of 15,000?
Is my understanding correct?
Answer:
It states in the book Funds in the Khilafah State (Al-Amwal) regarding the Zakat of Trading Goods (Urud at-Tijarah):
[Trading goods are everything other than cash that is used for trading—buying and selling with the intention of making a profit. This includes foodstuffs, clothing, furniture, manufactured goods, animals, minerals, land, buildings, and other things that are bought and sold.
Zakat is obligatory on goods used for trade, and there is no disagreement among the Sahaba on this. On the authority of Samurah 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 Zakat from that which we prepared for sale." (Narrated by Abu Dawood)
And on the authority of Abu Dharr from the Prophet ﷺ who said:
وَفِي الْبَزِّ صَدَقَتُهُ
"And on al-bazz (garments/cloths) there is Zakat." (Narrated by Al-Daraqutni and Al-Bayhaqi). Al-Bazz refers to the clothes and fabrics used for trade.
Abu Ubaid narrated 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: 'Appraise them, then pay their Zakat.'"
And from Abdul Rahman bin Abdul Qari, who said: "I was in charge of the Treasury (Bayt al-Mal) during the time of Umar bin al-Khattab. When the distribution (ata) was sent out, he would collect the wealth of the merchants, then calculate it—both what was present and what was absent—then take the Zakat from the present wealth for both the present and the absent." (Narrated by Abu Ubaid).
He also narrated from Ibn Umar, who said: "Whatever slaves or garments are intended for trade, Zakat is due upon them." The obligation of Zakat on trade has been narrated from Umar, his son (Ibn Umar), Ibn Abbas, the seven jurists, Al-Hasan, Jabir, Tawus, Al-Nakha'i, Al-Thawri, Al-Awza'i, Al-Shafi'i, Ahmad, Abu Ubaid, the people of opinion (Ashab ar-Ra'y), Abu Hanifa, and others.
Zakat is due on trading goods if their value reaches the nisab (minimum threshold) of gold or silver and a haul (one lunar year) has passed over them.
If a merchant starts his trade with an amount less than the nisab, and at the end of the year the wealth reaches the nisab, no Zakat is due upon him because the nisab has not completed a full year. Zakat becomes obligatory on this nisab after a full year has passed over it.
If a merchant starts his trade with wealth exceeding the nisab—for example, if he started his trade with one thousand dinars, and at the end of the year his trade grew and profited, reaching a value of three thousand dinars—he must pay Zakat on the three thousand dinars, not the one thousand he started with. This is because the growth follows the principal amount. The haul of the profit resulting from it is the same as the haul of the principal. This is similar to kids (offspring of goats) and lambs (offspring of sheep); they are counted with them and Zakat is paid on them because their haul is the haul of their mothers. Likewise, the profit of wealth; its haul is the same as the haul of the principal wealth from which it was gained.
When the year ends, the merchant appraises his trading goods, whether they are items upon which Zakat is due on their physical selves—like camels, cattle, and sheep—or items upon which Zakat is not due on their physical selves—like clothes, manufactured goods, or land and buildings. He appraises all of them as one valuation in gold or silver and pays 2.5% (rub' al-ushr) of the total if it reaches the nisab of gold or silver. He pays what is due in the circulating currency. It is also permissible for him to pay the Zakat from the goods themselves if that is easier for him. For instance, if someone trades in sheep, cattle, or clothes, and the value of the Zakat due upon him is the price of a sheep, a cow, or a garment, he may pay cash for it, or he may give a sheep, a cow, or a garment—whichever he chooses.
Zakat on trading goods that are themselves subject to Zakat (like camels, cattle, and sheep) is paid as Zakat on trading goods, not as Zakat on livestock, because the intention behind owning them is trade, not possession (qinya)...]
Thus, the trade is appraised at the beginning; if it is a nisab or more, this is considered the start of the haul. At the end of the year, it is appraised again, and Zakat is paid according to the valuation at the time Zakat becomes due. As mentioned above, the profit is added when calculating the value of the trade even if a full year hasn't passed over the profit itself, because the haul of the profit is the haul of the capital.
This means that the appraisal of the trade occurs at the beginning of the nisab, and then again at the end of the haul from the beginning of the nisab—that is, when Zakat becomes obligatory.
I hope this is sufficient, and Allah knows best and is most wise.
Your brother, Ata Bin Khalil Abu Al-Rashtah
28 Sha'ban 1444 AH Corresponding to 20/03/2023 CE