ZAKAH SEMINAR RAMADAN 1437 – JUNE / JULY 2016

CONTENTS The Quran and Sunnah Distribution of Zakah Framework of Zakah and basis of calculation Types of assets and methodology of calculating Zakah Miscellaneous Illustrations Conclusion Questions

INTRODUCTION Everything in Islam starts with intention Essential Pillar of Islam Act of Zakah is an expression of gratitude Purpose of Zakah Means of spiritual purification To purify ones wealth Develops a relationship between the giver and the recipient Plays a role in Islamic economy

FROM THE QURAN AND SUNNAH The word Sadaqah (zakah) occurs 30 times and in 27 occasions it is linked with the word Salah. “Take Sadaqah from the Amwal (wealth) and cleanse them.” (Surah Taubah verse 103) The distribution of Zakah and the deserving categories are determined in Surah Taubah, verse 60. Verses that refer to specific types of assets on which zakah is leviable. – 9:34/6:141/2:267/6:141

FROM THE QURAN AND SUNNAH From the Sunnah of the Prophet (SAW) : The Sunnah of the Prophet (SAW) gives us the detailed specification of assets subject to Zakah, the exempt portion, and the applicable rates. Narrated by Ibn Abbas: “Inform them that Allah has obliged Sadaqah to be collected from the rich and rendered to the poor, and pay Zakah on your wealth.” - Sahih Bukhari Narrated by Abu Huraira: Allah’s apostle said: “No Zakah is obliged on a Muslim’s slaves and horses.” - Sahih Bukhari

BENEFICIARIES OF ZAKAH The poor The needy Administrators of Zakah Those whose hearts are being reconciled People in debt In the cause of Allah The wayfarer Emancipation of slaves

CATEGORIES TO WHOM ZAKAH CAN NOT BE PAID The rich Those capable but not willing to work Disbelievers and apostates who fight against Islam Children, parents and wives of the Zakah payers The family of the Prophet (S.A.W)

IMPOSITION OF ZAKAH Jurists agree that Zakah is compulsory on the surplus wealth of every Muslim who is sane and who owns the minimum nisaab Only applicable to Muslims Must take individual responsibility Be definitive of ownership of wealth

WHEN IS ZAKAH DUE Four conditions before Zakah becomes due … Nisaab Haul i.e. the passage of a year Ownership Growth

Objective of Zakah Calculating Zakah Distribution of Zakah Nisaab Nisaab refers to the minimum net amount (Zakah assets minus liabilities) of wealth a person must have before Zakah becomes obligatory. Haul Ownership Growth

NISAAB Dirham Silver Dinar Gold

NISAAB CALCULATION 612.36g of silver SILVER = R10.11 X 612.36g NISAAB = R6,190.96 As of 24 June 2016

Objective Calculating Zakah of Zakah Distribution of Zakah Nisaab Haul, refers to the period, usually an Islamic year, that one must posses the Nisaab amount. Therefore determine your commencement date to calculate the Islamic year. Haul Ownership Growth

UNDERSTANDING NISAAB / HAUL Assume Nisaab to be R5,000 1 Ram 1435 1 Ram 1436 STATUS PAY ON R20,000 R3,000 R5,000 A B D C No liability No liability Liable to pay R5,000 Liable to pay R20,000 SANZAF ZAKAH SEMINAR

Ownership must be absolute. Objective of Zakah Calculating Zakah Distribution of Zakah Nisaab One must have full ownership of the Zakatable asset before Zakah is due on it. Ownership must be absolute. Test – are you able to dispose of the asset freely; was the investment made voluntarily? Haul Ownership Growth

Objective Calculating Zakah of Zakah Distribution of Zakah An asset will only be subject to Zakah if it has the potential to grow or increase in value. Therefore capital assets (*property, plant and fixtures) and assets for private use are not subject to Zakah. *differences of opinion exist Nisaab Haul Ownership Growth

METHOD OF CALCULATION Abu ‘Ubayd reports from Maymun ibn Mihran: “When Zakah is due, calculate the amount of money (on hand), add to it the value of the goods and the amount of debts on customers that you expect to be paid, make a sum of the total, deduct whatever debts you owe to others, and pay Zakah on the net amount.” Al-Hasan al-Basri reports similarly except he does not mention deduction owed to others!

2.5% RATE APPLICABLE Narrated Ali ibn Abu Talib: Al-Harith al-A'war reported from Ali that Zuhayr said: I think, the Prophet said: "Pay a fortieth. A dirham is payable on every forty, but you are not liable for payment until you have accumulated two hundred dirhams. When you have two hundred dirhams, five dirhams are payable, and that proportion is applicable to larger amounts. - Sahih Bukhari

TYPES OF ASSETS AND THE METHOD OF CALCULATING ZAKAH ON IT Money Listed Shares and Unit Trusts Policies Pension, Provident Fund and Retirement Annuities Gold and Silver Business Assets Stock Debtors

ZAKAH ON MONEY Cash: All modern types of currencies that represent a measure of acceptable value are Zakatable. In the case of foreign currency a calculation must be done to determine if the equivalent value in local currency will suffice. Wherever practical, exclude the interest accrued. Bank Accounts: Irrespective of the terms and conditions and/or purpose with which the bank account was opened, the balance in your favour is subject to Zakah.  Wherever practical exclude the interest accrued.

ZAKAH ON LISTED SHARES & UNIT TRUSTS Listed shares (or similar assets eg. Unit Trusts) are as good as cash in the hands of the owner thereof and are thus subject to Zakah at the market value. Technically, Zakah should be paid on the assets of the company that are subject to Zakah, (e.g. inventory, cash, etc.). However, as it is not practical or easy to identify these assets, Zakah is paid on the market value of the share as quoted on the stock exchange, etc.

ZAKAH ON POLICIES Most conventional Policies are impermissible, i.e. they are not Shariah compliant. However, the amounts receivable are sometimes subject to Zakah. If the policy has a surrender or termination concession, then such (surrender or termination) value is subject to Zakah each year. For non-Shariah compliant funds: Pay Zakah on the lesser between the premiums paid and the surrender or termination value each year. For Shariah compliant funds: Pay Zakah on the surrender or termination value each year.

ZAKAH ON PENSION / PROVIDENT FUNDS & RETIREMENT ANNUATIES Pension / Provident funds and RA’s are similar to the extent that they are a form of savings for the future. However, they differ that while pension and provident funds are generally a condition of employment, RA’s are taken up voluntarily. The compulsory VS voluntary nature of how the item came to be makes pension and provident funds not subject to Zakah while RA’s are subject to Zakah on their current value.

ZAKAH ON GOLD AND SILVER Only the Hanafi Madhab obliges Zakah on all gold, whether it is acquired for personal use, re-sale, investment, capital or if it is used as a tool of trade. The Shafi, Hambali and Maaliki Madhabs on the other hand view gold and silver jewellery belonging to women and used for personal adornment as exempt from Zakah. Zakah is payable on the value of the weight of gold and silver, irrespective of its form.

ZAKAH ON BUSINESS ASSETS Zakah is paid only on those business assets that are liquid or circulating e.g. cash, stock and debtors. Buildings, fixtures, equipment and vehicles: These items are not acquired for resale No Zakah is levied on investment properties*. *differences of opinion exists

ZAKAH ON STOCK Trade goods are those items that are acquired or purchased with the intention of reselling them. Valuation of trade goods: It is agreed that the most practical way of pricing trade goods for Zakah is for the payer to use the lower of its cost or net realisable value.

Trade Debtors / Loan Debtors (cash loans) ZAKAH ON DEBTORS Trade Debtors / Loan Debtors (cash loans) Zakah is payable on the amounts owing each year if the debtor is sound and able to pay the debt. However, if the debtor is in financial hardship or if he deliberately delays payment then Zakah is only payable on the debt upon receipt thereof, in the year of receipt, i.e. once.

LIABILITIES* Liabilities or monies owed by you are sometimes deductible from the total value of assets subject to Zakah before calculating ones Zakah. How to treat liabilities for Zakah purposes: If one is calculating Zakah before payment of ones normal/regular monthly expenses, then such normal/regular monthly expenses may be deducted from cash on hand and Zakah will be calculated on the balance after deductions. Do not deduct the full amount due on long- term liabilities, for example on home-loans or vehicles. However one may deduct the current instalment due as per above. Merchants may deduct the full amounts due to their suppliers before calculating Zakah. * Various Madhabs offer different methods on how to treat liabilities, from not allowing any deductions to deducting all liabilities. Please consult an Aalim

MISCELLANEOUS Zakah on: Wealth held in private companies, CC’s, partnerships Wealth held in Trust – inter vivos/testamentary Wealth of children Wealth in an estate being wound up Empowerment / Incentive Scheme Assets

MISCELLANEOUS Payment of Zakah in kind Zakah payment in advance / deferred Unpaid Zakah in respect of prior years Unpaid Zakah due to incorrect calculations Special rules apply to agricultural products, minerals and sea products

ILLUSTRATION OF CALCULATION ASSETS Residential Property(MV) R1,000,000 Bank Balance R 50,000 Unit Trust R 300,000 Car R 50,000 Jewelry R 10,000 Gold Coins R 20,000 Total R1,430,000 LIABILITIES Credit Card R 5,000 Bond R 170,000 Total R 175,000

ILLUSTRATION OF CALCULATION ASSETS Residential Property(MV) R1,000,000 BANK BALANCE R 50,000 UNIT TRUST R 300,000 Car R 50,000 Jewellery R 10,000 GOLD COINS R 20,000 Pension Fund R 800,000 Total R2,230,000 LIABILITIES CREDIT CARD R 5,000 Bond R 170,000 Total R 175,000 Zakah Payable R9,125 (2,5% X (50,000 + 300,000 + 20,000 – 5,000))

ILLUSTRATION OF CALCULATION – RENTAL PROPERTY INCOME Rent Received R 300,000 EXPENSES Rates R 30,000 Interest R 100,000 Electricity R 50,000 Repairs & Maintenance R 20,000 Net Income R 100,000 Net salary Income R 350,000 Total Income R 450,000 ASSETS Cost of Property R2,000,000 DEBTORS – TENANTS R 80,000 BANK BALANCE R 300,000 Total R2,380,000 LIABILITIES CREDITORS (RATES&ELECT) R 40,000 Bond R 1,100,000 Total R 1,140,000 Zakah Payable R8,500 (2,5% X (80,000 + 300,000 – 40,000))

ILLUSTRATION OF CALCULATION – BUSINESS ASSETS Buildings R 1,000,000 Fixtures & Fittings R 1,000,000 Plant R 500,000 Motor vehicles R 200,000 Stock R 1,350,000 Debtors R 1,100,000 Cash R 1,150,000 Total R 6,300,000 LIABILITIES Trade Creditors R 1,250,000 Taxes (VAT, PAYE) R 80,000 HP Debt (long term debt) R 1,400,000 Total R 2,730,000

ILLUSTRATION OF CALCULATION – BUSINESS ASSETS Buildings R 1,000,000 Fixtures & Fittings R 1,000,000 Plant R 500,000 Motor vehicles R 200,000 STOCK R 1,350,000 DEBTORS R 1,100,000 CASH R 1,150,000 Total R 6,300,000 LIABILITIES TRADE CREDITORS R 1,250,000 TAXES (VAT, PAYE) R 80,000 HP Debt (long term bebt) R 1,400,000 Total R 2,730,000 Zakah Payable R56,750 (2,5% X (1,350,000 + 1,100,000 + 1,150,000 – 1,250,000 – 80,000))

CONCLUSION 1,7 Billion Muslims worldwide Zakah – Unique system Can be an effective tool in economic, social and political processes In SA estimate of Zakah collectable is R1BN - R1,5BN Trend is towards a developmental approach Your Zakah calculation About SANZAF

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ABOUT SANZAF SANZAF is a leading Zakah institution in Southern African region that is existence for 42 years It operates from 31 offices nationally and employs 110 staff For 2014/2015 distributed and expended R112, 5 million (audited) For 2015/2016 expected to have distributed and expended R135 million Cost to income ratio 2014/2015 we have 16,5% (audited) It observes strict corporate governance practices Programmes are focused on providing development and relief to those in need with at least 50% of the budget allocated to developmental focus Has obtained international recognition for its management of Zakah

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