Chapter 2 - Zakat System in zakat accounting.ppt

Zakat System in zakat accounting

1. TOPIC 2:
ZAKAT SYSTEM

2. LEARNING OUTCOME
2
By the end of the topic, student should be
able to:
Discuss the conditions of zakat
obligations.
Explicate the basic principles of zakat
system

3. 1) Conditions of Zakat obligations
2) Principles of Zakat accounting
3) Mal (Wealth) liable to Zakat
4) Limits of exemption (Nisab)
5) The yearly term (Haul)
6) Zakat beneficiaries
CONTENTS

4. In legislating zakat, Islam has placed conditions
which must be fulfilled before zakat becomes
obligatory. The conditions were prescribed to
enable the owner of wealth to give zakat
voluntarily, while at the same time taking into
consideration the rights of the poor.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

5. 5
1.Complete ownership
2.Wealth must reach a minimum limit (nisab)
3.Passage of a lunar year (haul)
4.Wealth must be of a type on which zakah is
imposed
5.Wealth must be capable of growth
6.Wealth must be above one’s basic needs
CONDITIONS OF ZAKAT BEING
OBLIGATORY

6. 1. Complete ownership
The wealth must be in the possession of the owner.
Its benefits must be going to him.
He must be able to dispose of it as he wills.
No one else’s right must be attached to it.
Therefore, no zakat is due upon public wealth that does
not have a particular owner; for e.g. the wealth of the
state, which represents the Ummah.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

7. 2. Wealth must reach a minimum limit (nisab)
No zakah is due on wealth until it reaches the nisab;
and each category of wealth has its own nisab. The
nisab of gold is 20 mithqals (= 85 grams of 24-karat
gold). The nisab of silver is 200 dirhams (= 595 grams
of pure silver).
This condition is a matter of consensus, except with
regard to agricultural produce.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

8. 3. Passage of a lunar year (haul)
It means that once the nisab is reached on the wealth, twelve
lunar months must pass. When that period is completed, the
owner of the wealth must pay zakah on all the wealth he
currently has in his possession.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

9. 4. Wealth must be of a type on which zakat is imposed
There are five categories:
Silver and gold, whether in the form of coins or any other
form, as well as substitutes as media of exchange, i.e., paper
currencies;
Minerals and buried treasure;
Trade merchandise;
Grain and fruits;
Grazing livestock, according to the majority view, but also
fodder-fed livestock, according to the Maliki School.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

10. 5. Wealth must be capable of growth
This is based on the Hadith:
There is no zakah upon a Muslim on his slave or his horse.
Sahih al-Bukhari, 2:532
This is because the wealth has been diverted from growth to personal use.
Being capable of growth can mean growth in the literal sense, such as
biological reproduction or trade; or it could mean in a more abstract sense,
as in the case of gold, silver and currencies. The latter are capable of
growth by investing them in business.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

11. 6. Wealth must be above one’s basic needs
This exclude the house one lives in, the clothes one wears,
the tools used to earn a living, one’s transportation and
house furnishings. The same applies to wealth that is put
aside to pay a debt; the owner needs it to prevent himself
from being jailed and humiliated.
CONDITIONS OF ZAKAT BEING
OBLIGATORY

12. Muslim Scholars have summarized ZAKAT RULES as
follow:
Zakat is a fardhu from Allah (mandatory/obligatory).
Zakat is a financial worship.
Zakat is a believe.
Zakat is compulsory to Muslims.
Zakat is due to an assigned receivers/beneficiaries.
ZAKAT RULES

13. ZAKAT RULES
Majority of jurists believe intention is a prerequisite for performing zakah,
since it is a rite of worship, and all rites of worship demand intention.
Intention for zakah payment must exist on the part of the payer, whether
he pays his own zakah or that of persons under his guardianship.
Al Awza'i disagrees with the majority and does not consider intention a
prerequisite for performing zakah. He says, "Intention is not a necessary
requirement because zakah is a form of debt and there is no such condition
when debts are paid.

14. It means the calculation, reviewing and announcing of
Zakat on money/wealth. It is governed by a group of
Accounting rules, extracted from the sources of Islamic
Shari’ah.
They are as follow:
- Determining the Zakat Base .
- Calculating the Due amount of Zakat .
- Preparing Zakat Statements and Reports .
- Distributing Due Zakat amongst its duers/beneficiaries.
PRINCIPLES OF ZAKAT

15. ZAKAT ACCOUNTING RULE
Zakat is calculated according to the lunar year. Counting starts when the
amount of money attains the Nisab (the minimum amount on which Zakat
should be paid). This includes all kinds of Zakat except Zakat on
agriculture, fruits, mineral assets and Rikaz (metals found in the earth).
Nisab is the minimum amount of wealth liable to zakat. The primary
purpose of nisab is to ensure the zakatable wealth is in excess of normal
requirement of the owner.
Haul requirement is where wealth must be owned for a period of a full year
in the possession before it becomes liable to zakat.
PRINCIPLES OF ZAKAT

16. 16
ZAKAT ACCOUNTING RULE
Each Zakat year is an independent one, and Zakat on
a given amount of money should not be more than
once in the same year. Duality should be avoided. The
Prophet (Peace be upon him) said: “No duality in
Zakat giving”.
PRINCIPLES OF ZAKAT

17. Actual or assumed growth of an amount of money is a condition for
any Zakat is to be given from this money. Therefore, Zakat is not due
on fixed assets or things for personal use. This is because the condition
of actual or assumed growth would not be met.
Zakat is due on money which is abounding (more than basic needs).
No Zakat is due for little amounts of money. The amount of money
should reach the Nisab. This guarantees that only those who have the
capacity of paying will be obliged to pay.
For every kind of money or activity there is a rule for calculation Zakat
which is due on it. Some are calculated in relation to the total amount
and others are calculated in relation to the net amount ( Property).
PRINCIPLES OF ZAKAT

18. 18
It is permissible to group cash money of wealth to cash
money available from offers of commerce and other gained
cash money, so that for all these monies there would be
one Nisab and one Zakat Year.
Evaluating cash money of wealth and cash money from
offers of commerce to define the due Zakat should be
according to the current value at the time of paying Zakat.
They should not be evaluated according to the historic
value, cost or market, whichever is less.
PRINCIPLES OF ZAKAT

19. SPECIFIC QUR’ANIC VERSES AND HADITH
“ AND THEY HAVE BEEN ORDERED… TO ESTABLISH REGULAR
PRAYERS AND TO PAY ZAKAT…”

(S AL-BAYINAH 98:5)
“…AND ESTABLISH REGULAR PRAYERS AND GIVE ZAKAT AND LOAN
UNTO GOD A GOODLY LOAN”.

(S AL-MUZAMIL 73:20)
(S AL ZARIYAT 51:19), (S AL-MAARIJ 70: 24, 25), (S AL-ISRAA 17: 26), S
AL-ANAAM 6: 141), (S AL-TAUBAH 9: 60)
(S AL-TAUBAH 9: 103), (S AL-TAUBAH 9: 104).
SPECIFIC QUR’ANIC VERSES
AND HADITH

20. 20
From the above verses, it becomes clear that:
1) Zakat is a prescribed “tax” on the wealth of the Muslim.
2) It is the right of Allah on the wealth.
3) It is a specified and determined “tax”.
4) It is to be spent in specified avenues.
SPECIFIC QUR’ANIC VERSES
AND HADITH

21. “Related to the authority of Ibn “Abbas: The Prophet (PBUH) sent Mu’az to Yemen and
told him, “You are going to people of a Divine Book. First of all invite them to worship
Allah (alone) and when they come to know Allah, inform them that Allah has enjoined on
them five prayers in every day and night and when they start offering these prayers,
inform them that Allah has enjoined on them Zakat which is to be taken from the rich
among them and given to the poor among them. And if they obey you in that, take Zakat
from them and do not take the best of their possessions”.
(al-Bukhari and Muslim)
“Related on the authority of ‘Umar, the Prophet (PBUH) said,”I have been ordered (by
Allah) to fight the people till they say that there is no God but Allah, that Muhammad is
His Apostle, and till they perform prayers, and give Zakat. If they do, they save their lives
and fortunes from me except on trepassing the law, and their reckoning is to Allah”.

(al-Bukhari and Muslim)
SPECIFIC QUR’ANIC VERSES
AND HADITH

22. About Gold and Silver - S al-Taubah 9: 35)
About Plants - S 6:141)
About Earned Incomes and Minerals - S al-Baqarah 2: 267)
Zakah is levied on assets, such as gold, silver and livestock, on
income, such as agricultural produce, and on persons in the form
of fast-breaking zakah i.e. zakat fitrah.
WEALTH SUBJECT TO ZAKAT FROM
AL-QUR’AN

23. Classical Jurisprudence category
Wealth subjected to zakat obligations has been identified under two
categories:
i.Assets, such as livestock and trade assets, are subject to zakat and are
annually obligated on the principal and its increments.
ii.Assets, which may be materially fixed (such as land) or non-fixed (such as
bees) are subject to zakat and are obligated only on the growth or increase
once the harvest is obtained.
MAL (WEALTH) LIABLE TO
ZAKAT

24. Modern wealth
Other group of scholars stated that:
-Wealth that is subjected to Zakat is comprehensive
-Wealth is not restricted to those mentioned explicitly by al-Qur’an and
Sunnah
-This is due to generality of some of the texts in al-Qur’an and Sunnah
S al-Baqarah 2: 267 wealth in general
S al-Ma’arij : 24
S al-Baqarah 2: 267 (wealth in excess of needs)
Hadith – when Muaz was sent to Yemen
MAL (WEALTH) LIABLE TO
ZAKAT

25. 25
Modern wealth will be zakatable if they share the same ‘ilah
(reasons of ruling) with the classical zakatable wealth.
Earned income (zakat al-mal al-mustafaad) i.e. revenue from
non-zakatable assets (zakat al-mal al-mustaghallaat)
Contemporary liquid investment assets are also zakatable
because they shared the same ‘ilah with traded goods
(‘uruud al-tijaarah) and monetary characteristics of gold and
silver.
MAL (WEALTH) LIABLE TO
ZAKAT

26. On the authority of al-Khudri, the Prophet (PBUH) said ”There is no Zakat
on less then five camels, and there is no Zakat on less then five Awaq (of
silver) and there is no Zakat on less then five Awsuq (measure of grains)”.
Issues:
•How much is exactly five “awsuq”
•Would the amount be applicable to all grains and seeds irrespective of
their categories and value: pine seeds and sesame; barley and corn
: silver, gold, platinum and tin
•Would there be any consideration to the value of five camels vis-à-vis five
Awaq of silver?
LIMITS OF EXEMPTION (NISAB)

27. •Zakat is calculated according to the lunar year.
•Counting starts when the amount of money
attains the Nisab (the minimum amount on
which Zakat should be paid).
•This includes all kinds of Zakat except Zakat on
agriculture, fruits, mineral assets and Rikaz
(metals found in the earth).
THE YEARLY TERM (HAUL)

28. 1.Poor and needy
2. Workers in zakah administration
3. Those whose hearts are being reconciled
4. Freeing slaves
5. Those under liabilities
6. In the way of God
7. Wayfarers
ZAKAT BENEFICIARIES

29. 1.When funds are plenty and there are deservants in all
categories, distribution must cover all of them.
2.Distribution among the categories need not be equal, i.e.
each group need not receive exactly one-eight of total
proceeds, since the criteria is need. Zakah may all be given
to certain categories when this is necessary. Preference
must be based on actual needs and public interest and not
on personal opinions or prejudice.
3.The poor and the needy are the most important category
of all. Satisfying their needs is the main objective of zakah,
as repeatedly mentioned in saying of the Prophet.

30. 30
4.It is not permissible to spend zakah on the army while tremendous
need exists for food and shelter among the poor and needy.
However, there may be exceptionally urgent needs for diverting
funds from the poor and needy in response to emergencies in other
categories, such as defense.
5.The suggestion of al Shafi'i about zakah workers should be applied so
that their share does not exceed one-eighth of total proceeds, in order
to preserve the major part of zakah for fulfilling its objectives.
6.When zakah proceeds are small, as when an individual payer
distributes his small amount of zakah, all of it may be spent on one
deservant, since dividing such a small amount diminishes its
usefulness, and would not enrich zakah recipients, as urged by the
Shafi'i school.