Alms and Charity: Virtues of Zakat: Part 14

POSSESSIONS ARE SUBJECT TO ZAKAT: Part 3

HOW IS ZAKAT GIVEN ON UNMOVABLE ASSETS?

The system of zakat, promulgated by Islam, not just for moveable assets but to cover all areas of possible investment, is an absolute social solution. By unmovable assets, we mean all types of real estate that a person owns (e.g. houses, land, hotels, factory buildings etc). It proficiently sets forth the necessity in paying alms for unmovable assets encompassing billions of dollars worth of commercial ventures. According to the Hanafi School, zakat must be given from the revenues of assets, other than those which are basic necessities, like houses, businesses, apartments, and so on. The Maliki School, conversely, maintains that the zakat should be extracted out of the asset itself, a verdict in concordance with the decision of the Majalla Committee, despite the differing opinion of Hanafi scholars. The Majalla Committee reached this conclusion considering, sympathetically, the benefits to Muslims in general, and by taking into account the masalih al-mursal principle of Islamic Law—that is, the existence of one or another enormous advantage which is inherent in deciding upon a certain verdict. From a contemporary perspective, this verdict seems quite appropriate, as the preponderant pretext for investing in unmovable assets, these days is for “commercial use.” Thus, inevitably, the commercial holdings must themselves be subject to zakat.

We can perhaps clarify the issue further by looking at it from two separate perspectives. Unmovable assets are generally either agricultural/commercial land or real estate. If it is agricultural land, then it is evident; depending on the nature of the effort required to maintain it, a one-tenth or one-twentieth ratio of ushr from the product is paid while the asset itself does not become subject to zakat. However, if the land in question is not being used for agricultural purposes, or if there is no crop growing for more than three years, the rights of use need to be handed over to somebody else who will make agricultural use of it, as it is evident that the current land-holder is, in fact, not in need of the land. If, on the other hand, the land-holder then claims that the land had been bought to fulfill commercial purposes, he would be obliged to pay its zakat using the standard 2.5% ration—for example, $2500 on land worth $100,000.

The case for real estate is not much different. A person owning additional houses apart from the one in which he lives in must follow suit. As indicated by the Majalla Committee, the zakat on the building must be calculated based on its current value. Suggesting otherwise,  for instance, that zakat ought to be calculated based on the estate’s rent instead, or only, would be tantamount to impeding on the rights of alms recipients. For instance, although amounts will surely differ from one place to another, let’s assume the total rent per annum on a $100,000 house to be approximately $6000. Paying zakat from the rent results in a calculation of $150 only, in contrast to the $2500 worth of zakat extracted from the house itself.

Scrutinizing the issue from another viewpoint, it becomes blatantly clear that virtually no one, in the current world, buys a second house simply to benefit from its rent; rather, real estate is perceived as an investment that reaps both current and future revenues. Therefore, it is only natural that real estate investments be treated as commercial commodities.

According to these preceding factors, and in harmony with the spirit of zakat, it is undoubtedly more appropriate to follow the Maliki School and the Majalla Committee on this issue. As well as being in harmony with Islamic ideals, this verdict also secures better benefits for the poor. Bearing in mind that the needs of the poor, destitute, students and the Muslim public, in general, are taken care of with the money acquired through zakat, nobody has the prerogative to hinder or impede such a socially beneficial system. And, most importantly, God will bestow a multitude of rewards on those, according to their intentions, who sacrifice their wealth throughout all times of need.

HOW IS ZAKAT GIVEN ON COMMERCIAL MERCHANDISE?

The Qur’an describes the process of giving zakat of commercial commodities as an obligation for believers. A verse relating to this articulates, “O you who believe! Spend of the good things which you have earned, and of that which We have brought out of the earth for you” (Baqara 2:267). Samurrah ibn Jundab, one of the Companions of the Noble Messenger, has also clearly testified in support of the prophetic command of zakat being required on commercial merchandise.5

All items subject to trade, such as tools, machinery, food items, clothing, animals, jewelry, land, and real estate, effectively, are regarded as commercial merchandise and thus are directly subject to zakat. For an item or a property to be classified as commercial merchandise, however, it must necessarily be kept with the intention of acquiring revenue or profit from it; and in addition, it must be offered in trade. Critically, therefore, a person holding the intention of making commercial use of possessions obtained through donations, wills, or inheritance must include those possessions when calculating his overall zakat, since according to the  Hanafi Scholar Abu Yusuf, they have effectively become commercial merchandise owing to personal intention. Looking at it from this perspective, the rent acquired from a car, house or land must also be deemed as a commercial commodity.

As for the nisab on commercial commodities, they have been identified as 85 grams of gold or 595 grams of silver. Regardless of possible fluctuations throughout the year, the nisab must be equivalent to the above amounts both at the start and end of the year. Importantly, these items subject to zakat are evaluated at the end of the year, each according to their market value, irrespective of prior fluctuations. The apparent end-of-the-year value is taken into consideration, as opposed to the selling price or other customary standards, given that the sale has actually not taken place.

The stipulation of “an elapse of a year” just mentioned as a necessary requirement for such possessions to become subject to zakat does not become invalid if or when, throughout the year, certain items are exchanged with other items of the same or different nature or value. For instance, if a trader sold the construction steel he owned at the start of the year and bought carpets instead, which he then again sold and entered into the brick industry, he is still obliged with zakat given that his overall possessions exceed the nisab.

Livestock or other animals which are fed for commercial purposes are also considered as commercial merchandise and subject to 2.5% zakat. These possessions themselves can be presented as zakat; or, the 2.5% value on these possessions may be calculated and given in cash.

In summary, in light of this information, a trader would calculate, in cash value, his entire commercial possessions, and then offer a 2.5% zakat of the calculated aggregate, including the money lent and the money expected from unpaid sales, excluding his debts.