Islamic Finance: Some clarifications on certain aspects of zakat

Some readers have sought clarifications relating to certain aspects of zakat which appeared in the last two articles.

I provide below the necessary response in light of further research and consultation with Sharia scholars:

Why no zakat on gem stones?

A reader has stated that if no zakat is payable on stones, doesn't it provide an escape route for people by investing heavily in gem stones?

Interesting observation. However, please note that payment of zakat centres around one's genuine and honest intention. A Muslim is directly responsible to God for fulfilment of this assigned duty with sincerity and truthfulness.

Since God promises in the Holy Quran to reward sincere payment of zakat by an increase in wealth, it would be a pity if someone tried to find escape routes to reduce or eliminate the necessity for payment of zakat.

Ulemas say that if only people knew the unending benefits in this world and hereafter for paying zakat sincerely, the Muslim world would be free of poverty.

Can zakat be given to needy non-Muslims?

It is the condition of the fulfilment of zakat obligation that it must only be paid to needy Muslims. You may, however, help needy non-Muslims by offering them charity other than zakat.

Can zakat money be used to build a mosque?

No. Zakat money cannot be spent on constructing a mosque. However, as stated earlier, it can be applied to set up or help religious schools or students.

Zakat on the investment in shares:
Many readers have sought further clarifications on the subject.

Please note that if the shares are bought for trading purposes, due to volatility in their everyday market value, zakat is payable as explained last week, i.e. on the lower average market value of the portfolio calculated on the basis of opening and closing values of the shares in a zakat-year for the investor.

While doing so, the amount borrowed to buy shares will be deducted from the above to arrive at the net value on which zakat is payable.

If the shares are held for investment purposes, as per the opinion of the majority of scholars, zakat should be levied on the annual dividend and not as explained above. It is not required to pay zakat if the company declaring the dividend has taken out zakat on behalf of shareholders.

Zakat on land:
Responding to a reader's demand, I consulted with a reputable Sharia scholar to find out more about zakat payable on land holding. He confirmed that as per one school of thought, no zakat is payable on land holding until such time that it is sold. In that case, zakat at 2.5 per cent will be payable on the sale value and not on the profit made on sale.

However, as per the remaining three schools of thought, zakat should be paid at 2.5 per cent every year on the market value of land. Sharia scholars view that the Zakat can be paid either way.

Are businesses zakat-able?

Yes, trading concerns do incur zakat. However, their activities must not be Sharia-repugnant. Scholars have agreed that zakat on a business can be paid in either of the following ways:
a) Whatever a trader saves after covering his business expenses and taking care of his family needs, he should pay a minimum 2.5 per cent zakat on the net surplus.

b) Evaluate the cost price of the inventory-in-trade on the anniversary and pay a minimum 2.5 per cent on this amount.

What is the etiquette for paying zakat?

Zakat should be paid discreetly, with the intention of fulfilling a religious duty. There is a saying that if you pay zakat with your right hand, the left hand should not come to know. However, if somebody wants to publicise payment of zakat with the sincere intention of influencing the others in his circle, it is acceptable.

It may not be necessary to mention to the recipient that the payment is from zakat, if it is feared that it may hurt his ego, resulting in a refusal to accept the amount.

In this situation, it may be acceptable for the giver to term it as Qard Hasan (interest-free helping debt) and if the recipient returns it after some time, the giver can divert the funds to some other needy Muslim.

The author is the head risk management at Dubai Islamic Bank