Sunday, August 19, 2012

Zakat On Stocks And Shares

Question:
I have a zakat question on stocks and shares. There are two type of
Shares, listed which vary daily with market forces and non-listed
which have fixed price, is zakat payable on the total value of each or
is the non-listed exemptedfrom zakat?
Answer:
In the name of Allah, Most Compassionate, Most Merciful,
To begin with, it should always be remembered that paying Zakat on
stock and merchandise is obligatory (wajib). The jurists (fuqaha) have
categorically stipulated the obligation of paying Zakat on
merchandise, and there is a consensus on this position amongst the
scholars ofthe 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 and give him peace) used to
command us to pay Zakat on those items that were for sale.� (Sunan Abu
Dawud, no: 1557)
Thus, based on this, if one has shares in a particular company, paying
Zakat on those shares will be obligatory. In the case of shares being
purchased with theintention of capital gain, Zakat will be obligatory
on the face/market value of the shares.
For example, I purchased some shares at the rate of 5 Dollars with the
intention of selling them when their value increases.Now, at the time
of paying Zakat,the value of the share became 10 Dollars, thus Zakat
will be obligatory on the current value which is 10 Dollars and not 5
Dollars. The reason is that the share itself has become an articleof
trade, for it was purchased with the intention of re-sale, andZakat is
obligatory on the current market value of goods and merchandise.
However, if shares were purchased with the intention of receiving the
annual dividend, then one is allowed to subtract the value of those
items which are exempted from Zakat, i.e. machinery, land, furniture,
cars, etc... This information (on the percentage of non�Zakat-able
assets) can be obtained from thecompany�s annual report.
This will be clearer with an example. Suppose I purchased some shares
of a particular firm worth 100 Dollars. Now, 10% of the company�s
assets are in the form of raw material, 10% in theform of cash, 10%
are produced goods and 10% of the assets aregoods which are under
process of being manufactured, totaling 40%. On the other hand,
machinery, land, furniture, and cars (for use and not sale) total 60%.
In this case, Zakat will be obligatory on only 40% of the shares, i.e.
40 Dollars.
The reason being that the share in this case does not become an
article of trade in of itself; rather one has purchased the share with
the intention of receiving a share of the company�s annual profits.
Hence, one is considered having ownership in the company�s assets to
the value of his share. Thus, it will be permitted not to pay Zakat on
those items that are exempt from Zakat, such as machinery, furniture,
and building.
If one is unable to obtain the details from the company, then one
should pay Zakat on the current market value of the whole share.
In light of the above, it becomes clear that Zakat is payable on all
types of shares. If non-listed shares mean those that are purchased
with the intention of gaining the annual dividend, then Zakat will
have to be paid inthe manner outlined above.
And Allah knows best

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