Zakaat In Business – There are two Scenaraios related to this
There is an Oil Supplier, and a Oil Retailer. I am the middle man in between. The Oil Supplier has fixed a price for the Oil to the Retailer. But this is just the Oil and does not include the packaging. I arrange for packaging (Bottles and labelling) and also place the order from the Oil Retailer to the Oil Supplier
I source bottles and labels from various companies. I pay for the raw products and send them off to the Oil Supplier so that he can put the oil in the packaging. The Oil Supplier will then fill the bottles and apply labels – then send off to the Oil Retailer.
The Oil Supplier bills me for the oil – I bill the Oil retailer at the exact same price – no profit is made here.
( Do I need to pay Zakaat – I am just facilitating the deal due to me supplying the bottles and labels?)
As For the Bottles and Labels packaging – I make a small profit on this and sell it as a separate cost to the Oil Retailer.
When is Zakaat payable on the above – do I pay it at the time of purchasing the raw products? Or is Zakaat to be calculated at the end of the year on the profits from the sales (and what balance of cash is left over)?
How do I calculate Zakaat on this? Will this be based on the cost of the packaging or the price that I sell it at?
So example the the raw product cost is 10.00 and I sell it on for 10.50 Do I calculate Zakaat based on the cost, the sold price or the profit of (0.50)?
In the second scenario about the Oil Supplier and Oil Retailer I paid upfront for another different set of Bottles and Labels packaging. As For the Bottles and Labels packaging – I make a small profit on this and sell it as a separate cost to the Oil Retailer. I had agreed with the Oil Retailer that they would be charged to his account over time whenever he placed an order for the Oil. Although I had paid for it up front – I am not the owner of the bottles and packaging – the Oil Retailer is. He just owes me the money for the packaging (which is gradually deducted when an order is placed).
Do I pay Zakaat on the raw products (bottle and labels) when I purchased them -even though the Oil Retailer has not paid me?
Do I indirectly own the bottles until the debt is paid?
IF there is any stock of bottles and labels left over at the end of the year – do i pay additional zakaat on these?
Question 1 &2
In order to determine the zakat liability we need to first understand the contractual relationship between the three parties.
In relation to the sale of the oil, if you are acting as an agent on behalf of the retailer then the purchase is taking place between the retailer and the supplier in which case there is no zakat liability on you for the oil.
If however you are purchasing the oil from the supplier and there is a separate agreement between you and the retailer stating that they are purchasing the oil off you and not the supplier, then this will be considered two independent contracts. If this is the case then please write to us stating the details of the arrangement between you and the retailer, when payments are made by the retailer and the arrangement between you and the supplier. Such information will be essential to determine the validity of the contracts from an Islamic perspective and the liability of zakat.
As for the bottles and labels, if you are purchasing them yourself and selling them onto the retailer, then they will be considered trade stock. Hence, on your zakat anniversary any bottles or labels which have been purchased by you and have not yet been passed onto the retailer, will be zakatable at the market price. This will be an average price that the bottles and labels will go for in the market. If on your zakat anniversary all products have been passed on to the retailer then you will not have to pay zakat on them as they have now left your ownership.
Zakat becomes liable on all zakatable assets present on one’s zakat anniversary. You will only take the assets which you have in your ownership on this date into consideration. I have explained at the bottom how to work out the zakat anniversary.
As mentioned above products will be zakatable at the market price. This will be an average price that the bottles and labels will go for in the market and would usually be similar to the sale price, unless it is being sold for exceptionally higher than its market price.
In scenario two, again if you are working as an agent on behalf of the retailer and are making a small commission on the bottles and labels then you will not have to pay zakat on any of the stock as they belong to the retailer. However, if you are purchasing them yourself and then selling them on to the retailer as an independent arrangement then any stock you have on your zakat anniversary will be zakatable.
This would depend on the contractual arrangement as discussed in question 4
You only pay on whatever stock you own on your zakat anniversary.
How to work out zakat anniversary.
Before working out the zakat anniversary it is important to understand the following two points:
1. The main zakatable assets are cash, gold, silver and trade stock.
2. A person only has to pay zakat if the value of their zakatable assets reach a certain threshold. This is known as the nisab.
When a person’s zakatable assets reach the zakat threshold for the first time they must make a note of that Islamic date. If at the end of one Islamic year the individual’s zakatable assets are still above the threshold then the last day of the year will become the zakat anniversary. This will be the case even if the zakatable assets fluctuated above and below the nisab throughout the year, as long as the value didn’t reach zero and by the end of year it was above the nisab again.
A person’s zakatable assets reached the threshold on the 15th of Sha’ban for the first time. Throughout the year the value fluctuated above and below the threshold but did not go down to zero. On the 14th of sha’ban the following year the value of the zakatable assets were above the threshold. The 14 of sha’ban will now become their zakat anniversary.
As this is their zakat anniversary, whatever zakatable assets they have at the end of 14th of Sha’ban will be zakatable. Even if they received a large sum of money the day before, the entire amount present on the zakat anniversary will be zakatable. If they spent some money before the 14th, the amount spent will not be zakatable. Only whatever amount is present on the zakat anniversary will be zakatable.
If during the year the value of the zakatable assets reached zero, then that date will be cancelled. Similarly, if at the end of the lunar year the value of the assets did not reach the nisab that date will be cancelled. There has to be a complete year whereby the value of the zakatable assets at the start and end of the year are above the threshold, and the value did not drop down to zero at any point in the year.
Ifta Research Fellow
Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel