Is there zakah on trade goods? And how is it paid?

The questioner : , O Shaykh, regarding the zakah of trade. If a person has a company and wants to pay zakah, as for the fixed assets, we know that there is no zakah on them. But as for the existing merchandise, how is it paid out? I mean, is it paid out based on the cost of this merchandise or the selling price? What is the method?

The Shaykh : Pardon me, I got confused by the wording. Because you said there is no zakah on it, and then you asked about how to pay out the zakah. How, I mean?

The questioner : The fixed assets, which I mean, for example, buildings or machines, there is no zakah on them. The zakah is on the produced merchandise, so this is what is subject to zakah. So if you have stored merchandise, how do you pay it out, I mean its value? Is it by cost or by selling price?

The Shaykh : Now I understand you. I mean, I understood the term "fixed assets" in the jurisprudential expression!
My answer is that trade goods do not have the zakah that necessitates asking this question. This is according to the stronger opinion among the scholars' opinions, and that which the scriptural evidence indicates. Many scholars say that zakah is obligatory on trade goods. Those who say this obligation require the owner of the trade and goods to appraise them at the end of every year, estimate their value, and then pay out two and a half percent from every hundred, as if they were currency. This is the method of payment for those who say zakah is obligatory on trade goods.
As for what we adopt, it is that there is no zakah on trade goods of this type. Rather, there is an absolute zakah; that is, the owner of these goods pays out from them what his soul is generous with, without determining the quantity of trade he has and without appraising it at the end. Rather, he pays out from it what his soul is pleased with. This is an application of the general texts that command spending and purifying souls through zakah and the like. As for this codification and this classification—which is that it is necessary to appraise trade goods at the end of every year, and then pay out two and a half from the hundred—this is an opinion and independent legal reasoning for which there is no evidence from the Book and the Sunnah.

The questioner : Excuse me, O Shaykh.

The Shaykh : And I think. Yes, but I think I gave you the answer to your question.

The questioner : The difficulty for us, if you pay zakah, is in appraising the merchandise. Because the merchandise, I mean, some people say it is appraised by cost. The intended meaning of cost is the price of the merchandise and what was spent on it until it reached the warehouses. As for the selling price, the profit price is added to it.

The questioner : It is necessary.

The Shaykh : So on which is it estimated, on the cost or on the sale? Because the merchandise may be spoiled and may not be sold. And, for example, we may not be able to... it stays with me for years not being sold. So I am paying the selling price that I have not yet obtained. Is this the difficulty?

The Shaykh : This question is actually directed to those who say zakah is obligatory, not to someone like me. But if I give you a fatwa, I would be speaking on behalf of others, because I do not adopt it. They say, regardless of the profit that will be added to the cost, as you will say; I mean, what did this merchandise cost? You calculate its total, two and a half percent, you look at it. As for the profit that will come to you, and you may not profit, that is a matter for the future and you are not obligated by it. But the Shari'ah and the evidence, which are stronger than the evidence of those who say zakah is obligatory on this method we mentioned earlier, and the easier for those obligated is to pay out what your soul is pleased with from the merchandise itself.
Please, who wants to speak?

The questioner : On the same topic, O Shaykh. I mean, now, due to scientific advancement and life being different from the situation of people in the past, it has become a matter of budgets. Every company makes a budget and inventories its merchandise and financial conditions at the end of every year. So I think, I mean—Allah knows best—it may be that the first opinion, which is paying out zakah based on two and a half percent, is suitable now. The reason is that matters have become clear for traders, I mean. So what is your opinion, O Shaykh?

The Shaykh : It—may Allah bless you—is not a matter of logic and intellect. The matter is a matter of religious worship. It is not permissible for a Muslim to reject it because of its difficulty, nor to legislate it because of its ease. Rather, it is submission to the religious ruling; whether it agrees with one's desires or contradicts them. And obedience and worship are not established except on this basis.
It is agreed upon among scholars that there is no zakah on vegetables. Now, the logic you mentioned earlier applies to vegetables. So is it said that zakah is obligatory on them? It is not said; because as long as the Lawgiver has not made it obligatory, it is not permissible for us to make obligatory something the Lawgiver did not make obligatory, just as the opposite is not permissible; which is that we drop something the Lawgiver made obligatory. Then those who said regarding the percentage we mentioned, two and a half percent, said it in the early centuries where these precise calculations you referred to earlier did not exist. Because the answer is clear that a person calculates according to his ability in the early time, I mean, where these calculating machines do not exist. This does not drop the obligation if it were established. But the true, fundamental answer is that it has not been established that codified zakah is on all wealth, but only on some. So in the hadith of Mu'adh ibn Jabal, when the Prophet (peace and blessings be upon him) sent him to Yemen, he said to him: , in lentils, in barley, in such and such other things. He said: Do not take. And many people imagine that this restriction on the wealths on which zakah is obligatory involves injustice to the poor. And I believe that if the matter were so, we would not be obligated to apply our intellects; because the Shari'ah is from Allah and not from us. But I believe the opposite is correct; because trade goods, when zakah is not obligatory on them...
If we want to picture now two traders, or in the correct sense, two rich men, one of whom has hoarded his wealth and does not employ it, and the other has employed it in trade; both pay out the zakah they see as obligatory on them. There is no disagreement among Muslims that there is zakah of two and a half percent on hoarded wealth. This is a matter of consensus.
The second, the trader, has the disagreement we mentioned earlier. But let us assume that he pays out the zakah, and the second hypothesis, which adopts an opinion like ours, does not pay out the zakah. Now we compare between the trader who does not pay out the zakah and the rich man who hoarded his wealth. Which of the two men is more beneficial economically for the poor and the needy?

Those present : The one who invested his wealth.

The Shaykh : Yes?

The questioner : The one who invested his wealth.

Another questioner : The one who employed his wealth.

The Shaykh : The one who employed his wealth. Well done.

The questioner : The one who is more beneficial to society.

The Shaykh : Yes.

The questioner : The one who hoarded his wealth.

Another questioner : No, the one who employed it.

The Shaykh : No, the opposite.

The questioner : Because he will pay out two and a half from his zakah.

The Shaykh : May Allah bless you. The one who hoarded his wealth will pay out two and a half from the hundred.

The questioner : No, he will not pay out anything.

The Shaykh : May Allah bless you. Why did we raise this question? Because the matter requires some deliberation. That one does not pay out anything, but he put his wealth in the market, so he employed hundreds of individuals. So in this regard, he is more beneficial to people, to the poor and the needy, than that one who pays out two and a half percent of his hoarded wealth. This is from one side. And from another side, the wealth that is taken with the sweat of the brow and the labor of the hand is more lawful, more pure, and more blessed than taking from that one who takes it as charity. Therefore, we have two hadiths that fit the occasion. The first hadith: . So this poor man, when he takes two and a half percent from the rich man, he takes it in humiliation and in neediness. As for that one who takes it from—as we said—the sweat of the brow and the earnings of the hand, he takes it with dignity of self and with a right. This is the first hadith.
The second hadith: The verse . Part of the wisdom behind zakah being a purification is that the Wise Lawgiver, in honoring the family of the Messenger and his household, forbade them from taking charity, and He explained this by saying: .
So, if we imagine these two men: one is a rich man who hoarded his wealth and paid his zakah, and the other is a rich man who put his wealth into the market, then without a doubt, from an economic standpoint, the latter is more beneficial than the former. Therefore, we should not say: "No, this is injustice and oppression against the poor and the needy." It is not so. This is what appears to us, and Allah knows best. In reality, we might call this philosophy, because it is logical and rational speech, and it is possible that a philosopher more philosophical than me could come along and ruin it for me. But if we engage in philosophy, we do so, so to speak, only after relying on the texts of the Shari'ah. As you heard, the texts of the Shari'ah do not take charity except from such and such. And the general text in which the Messenger (peace be upon him) addressed the greatest society, which is at 'Arafah as is well known, is his saying (peace be upon him): .
So, the original state of wealth is inviolability, just as it is for blood. It is not permissible to rule with the killing of a Muslim soul except with a Shari'ah proof, and it is not permissible to take wealth from a person except with a Shari'ah proof. And this proof does not exist in the Shari'ah.
Yes.