1. PRINCIPLES OF BUSINESS MANAGEMENT
Zakat in Business
MGA1023
PRINCIPLES OF BUSINESS MANAGEMENT
Prepared by:
Cik Suhaila Abdul Hamid
Dr Zurina Shafii

2. Zakat from the perspective of the Islamic law
An obligation for Muslims to fulfil
The 3rd from the 5 pillars in Islam
Its importance is no different from the other obligations
Mentioned in the Holy Al-Quran vis-à-vis with prayers in 30 verses
The hadith also emphasized on the importance of paying zakat
Always perceived as an act of worship that has important effects in the society

3. The history of zakat payments
Prior to Hijrah, zakat is only compulsory to those wealthy people who are close with the Prophet s.a.w.
At that time, the obligation to pay zakat is based only on their awareness, willingness, discretion
An organized system of zakat (for instance having the conditions for nisab, rate and haul ) was only applied after the 2nd year of Hijrah.

4. Definitions of Zakat Literally Theologically Legally
cleansing or purifying of something from dirt or filth
Praise, growth and increase
Theologically
Spiritual purification resulting from paying zakat
Legally
Transfer of ownership of specific wealth to specific individual (s) under specific conditions

5. The main aims of zakat
Our worship to Allah for all His bounties to mankind
Al-Baqarah: 267 “Oh ye believe! Give of the good things which ye have (honourably earned). And of the fruits of the earth which we have produced for you..”
Assist the poor and the needy
Al-Dzariyat: 19 “and their wealth and possessions (was remembered) the right of the (needy)..”
Act as a mechanism to distribute wealth

6. …continued Purify one’s heart and self from being stingy
Al-Tawbah: 103 “Of their goods take alms. That so thou mightest purify and sanctify them..”

7. Types of zakat Two main types of zakat:
Zakat fitr (due from the starting of Ramadhan and ends before the eid’ fitr prayer)
Zakat on mal (wealth)
Traditional types of wealth subject to zakat
Agricultural produce, reared animals, business, gold and silver
New types of wealth subject to zakat
Various forms of wealth based on the consensus of Islamic scholars and jurists e.g. employment income, professional income

8. Beneficiaries of zakat
8 categories of beneficiaries:-
The poor (masakin)
The needy (fuqara’)
Amil (individuals who have the authority and responsible to collect zakat)
Mualaf (people who convert to become Muslims)
Ar-riqab (to free the captives)*
Ibnu sabil (the wayfarer)
Gharimin (those in debt)
Fisabillillah (deeds accomplished in the cause of Allah s.w.t)

9. ….continued Issue: are there 8 or 7 beneficiaries? Discussion
some states in Malaysia have only 7 beneficiaries since nowadays there are no more slaves (captives)
However, there are other states which still maintain the number of beneficiaries of 8 people.
The reason is because it is stated in the Holy Al-Quran that there are 8 beneficiaries of zakat
Due to that, ar-riqab is implied as zakat for those who would like to free themselves from ignorance for instance zakat paid to people who would like to further their studies

10. Conditions for becoming an Amil
Muslim
Pious person
Mukallaf
A freedom man (not a slave)
A fair and just person
Does not come from the descendants of the Holy Prophet s.a.w
Trustworthy
Is not a blind person
Is not a deaf person
Male

11. Methods to determine the sources of zakat
Qiyas
Wealth
Al-Nama Binafsih
Al-Mal al-Nami
Favour the poor and the needy

12. Qiyas
A method that will be used by the Islamic jurists and scholars in determining the shariah practice if the subject /case is not mentioned in the Holy Al-Quran, Hadith or consensus (ijmak).
Qiyas is a practice to imply a subject with an existing shariah treatment.
The use of Qiyas in zakat is encouraged and it has been widely practised by the Islamic jurists. For instance, employment income is subject to zakat because it is similar to gold and silver. Therefore, the rate and the haul are equivalent to the rate and haul of zakat on gold and silver.

13. Wealth taken from several hadith.
For instance, as narrated by Mu’az bin Jabal, the holy Prophet s.a.w had instructed his amil to inform the Yemen people that zakat must be paid by the wealthy people to be distributed to the poor and the needy.
Due to this, there is an opinion that says zakat is payable on all wealth, irrespective of the physical form of the wealth.

14. Al-Nama Binafsih
This is a method to zakat wealth based on the concept of “productive wealth expansion”.
Those wealth or property which could in nature expand or grow by themselves for instance the agricultural produce such as paddy will fall under this category of wealth.
There is no haul condition to be fulfilled for this type of wealth. Zakat is payable once the wealth is gained and the quantity is enough to meet the nisab.
Imam Nawawi and some Islamic scholars such as Ibn Abbas, Ibn Mas’ud and Muawiyah for instance suggest that zakat on employment should follow the method of Al-Nama Binafsih.
Thus, according to them zakat on employment income is payable on the day it is received provided that it meets the nisab
The zakat is imposed based on the method it is gained and not the type of wealth (even though the wealth is received in the form of money)

15. Al-Mal al- Nami
This is another method to zakat wealth based on the concept of “productive wealth expansion”.
However, it is imposed on wealth which is gained from property or wealth which could not grow by itself for instance like business wealth.
Therefore, zakat is only payable when it meets the haul and the nisab.
For instance zakat on business income will only become payable if it meets the haul and nisab

16. Favour to the poor and needy
This principle is being used by the scholars if there are two reasons from two different schools of thought to pay zakat on the same wealth at the same time.
Therefore, the approach is to choose the method that will favour the poor and the needy.
For instance, when there is taraddud which means argument due to similarity or ambiguity between two wealth such as should the rate of zakat for money be based on qiyas on gold or qiyas on silver?

17. Cont…
The jurists conclude that it is better to base on silver since the value is higher and there is not disagreement on the nisab of silver that subject to zakat
Reared animals for instance could fall under either zakat on reared animals ( al-sa’imah) or zakat on business income (al-tijarah).
In this case, normally the jurists will choose zakat on business income rather than zakat on reared animals because it favours more the poor and the needy.

18. Zakat in business Hadith from Rasulullah s.a.w as narrated by Abu Daud
“ …indeed, Rasulullah s.a.w asked us to pay zakat from the property that we prepare to sell”
All kind of businesses owned by Muslims are subject to zakat.

19. Conditions to fulfill to pay zakat on business
The conditions that must be fulfilled to be subject to zakat :-
Muslim
A freedom person
The wealth must be from halal sources
Those activities prohibited against Islam cannot be included in zakat calculation

20. Cont.. Meet the nisab at the end of haul Meet the haul
The nisab is 2.5% or equivalent to 85 grams of gold
Meet the haul
Must be from productive property
E.g cash, shares, bond, ending inventory, fixed assets (movable or immovable), net trade receivable
Full ownership

21. Cont.. The business sources including donation are subject to zakat
Exist the intention to be in business
The intention
The transaction
The business property is not withdrawn for personal use

22. Basic items in a business
Fixed assets
Not subject to zakat
Income accrued from productive fixed asset is subject to zakat

23. Basic items in a business (cont..)
current assets
Based on the value of assets provided in the Balance sheet or assessment on the inventory.
Zakat is based on the equivalent value of the assets
Zakat is imposed on accounts receivable if it is assured that the debtor will pay back
Zakat will only be imposed in the year when the debt is collected

24. Basic items in a business (cont..)
Intangible assets
E.g. Shares, patent, goodwill, bond, certificate of investment are considered equivalent to fixed assets if they are not traded but held in the purpose to gain dividend.
If the company invested in has already paid zakat, thus the income is no longer subject to zakat

25. Basic items in a business (cont..)
Long term liability
Long term liabillity to finance/ run the business is subject to zakat
Capital and Shareholders’ fund
E.g. Paid up capital, premium accounts, accrued profit are subject to zakat

26. Types of calculating zakat on business
Growth model
Owner’s equity + Long term liability – fixed assets – intangible assets +/- adjustments
Working capital model
Current assets – current liability +/- adjustments

27. Adjustments to be made to the calculation of zakat
Deduct
income which are not subject to zakat such as prohibited sources
amount are not wholly owned such as deposits for utilities
Creditors
Sources that zakat has already been paid
Current assets must be productive, thus bad debts, obselete stock, depreciation are deducted

28. Adjustments to be made to the calculation of zakat (cont..)
Charity fund such as tabung khairat, education fund
Charity fund which has the concept of rolling fund is not subject to zakat on the principal amount only.
Ending inventory
Those liabilities related to the business operation e.g. trade creditors, payables.

29. Adjustments to be made to the calculation of zakat (cont..)
Add to current assets
All gift, donations paid by the company
Add to current liability
Not related to business operation e.g. restructuring of debt
Dividend payable
Overdraft
Financial lease

30. References
Basic readings: Zakat calculation based on working capital model
Further readings:
Bahari & Hamat (2004)“Rethinking zakat on employment income”, unpublished paper presented in 6th Asian Inter-university seminar on social development, 14th – 16th May Available on the net: <

31. Tutorial Questions