Do we have to pay Zakat on stock?
In the name of Allah, Most Compassionate, Most Merciful,
As a principle, it should be known that Zakat in obligatory (fard) on five items:
1) Gold and silver.
2) Cash (money)
3) Merchandise & stock (i.e. items for resale)
4) Agricultural products
5) Animals and livestock
Item number (3) signifies that Zakat is also obligatory on business wealth and stock. (Urudh/mal al-Tijarat). The jurists (fuqaha) have categorically stipulated the obligation of paying Zakat on merchandise, and there is a consensus on this position among the scholars of the Ahl al-Sunnah wa al-Jama’ah.
Sayyiduna Samura ibn Jundub (Allah be pleased with him) narrates that ‘the Messenger of Allah (Allah bless him & give him peace) used to command us to pay Zakat of those items that were for sale.’ (Sunan Abu Dawud, no. 1557)
It is stated in al-Fatawa al-Hindiyya:
‘Zakat is obligatory on merchandise whatever form it may be in, when its value reaches the fixed Nisab (Zakat-payable amount).’ (al-Fatawa al-Hindiyya, 1/179). The same has (more or less) been mentioned in other Fiqh reference books.
However, there are certain rules and regulations concerning stock & merchandise. The following is an extract from my soon to be published work (Insha Allah) ‘Simplified Rules of Zakat’:
‘1. Goods that are purchased with the intention of re-sale are referred to as ‘merchandise’. If one purchased a piece of land, car, house or a property with the intention of reselling it, then Zakat will be obligatory on its current market value.
For example, if Ahmad purchased a house with the intention that, when the opportunity arises I will sell it and accumulate profit. In this case, Zakat will be obligatory on the current market value of the property.
However, if he purchased the property keeping his options open, without making a clear and firm intention. For example, he thought to himself that, if the opportunity arises I will sell it, or give it on rent, or if there is a need, I will reside in it myself, then Zakat will not be obligatory.
Moreover, if he had the intention of personal use but later changed his mind and put it up for sale, even then Zakat will not be obligatory until he actually sells the property and receives the money. The reason for this is that at the time of purchase there was no intention of re-sale. Merely changing the intention (after purchase) will have no affect on the ruling.
2. Zakat is obligatory on the current market value of merchandise. Many people with regards to this make a grave error by calculating Zakat on the buying price of goods. This is incorrect, as Zakat is obligatory on the current market value. For example, if one has a bookshop, then Zakat will be obligatory on the market value of all the stock (books).
However, when calculating Zakat on merchandise, one can keep in mind the total value of all the goods. For example, I have a textile factory in which goods are prepared. Now, I have a wholesale price, a retail price, and a price for selling all my goods at once. When I calculate Zakat, it is permissible that I calculate it according to the third price, which is the value of the goods when selling them all at once, although it is preferable and advisable to calculate Zakat on the normal wholesale price. 1
3. It is also important to remember that, the market value of goods, which one will take into account, will be of the day of calculating Zakat. For example, Imran purchased an item for ‘100 and on the day of calculating Zakat, its value was ‘150. Now, he will have to take out Zakat from ‘150 and not from ‘100.
4. There is no Zakat on furniture, which is kept in the factories and shops for personal use (i.e. chairs, tables, etc.). Machines, which are used in factories or in printing presses etc., are not classed as merchandise, thus Zakat is not necessary. Similarly, there is no Zakat on the building or on the cars used for businesses.
However, if the furniture or machines etc’ were purchased for selling, then, due to it being an article of trade, Zakat will be obligatory.
5. Zakat will also be obligatory on the goods that are manufactured in factories and mills. It will also be obligatory on goods that are under process of being prepared or are in the form of raw material.
6. If one possesses gold, silver and merchandise, and individually they are not equal to the value of Nisab, then one will have to add them together. If the total value equals or exceeds the value of Nisab, then Zakat will be obligatory.
7. If one has various different types of merchandise, then the total value of all the goods must be calculated.
8. If a person has invested his money in a business thus became the owner of a proportionate share in the business, then he will have to pay Zakat on the market value of that share. (Simplified Rules of Zakat, p. 14-16)
And Allah knows best
Answered By: Shaykh Faraz Rabbani