36.0 CHAPTER ZAKAT ON TRADABLE COMMODITIES
“Chapter: Zakat on Tradable Commodities’ ‘: The fourth type of wealth upon which zakat is wajib is the tradable commodity. It is called ‘urudh in Arabic which literally means “display”. However, in the context it refers to al-sila’tu (commodity). It is called ‘urudh because it is displayed during the transaction and it is said, “We call it such because it is displayed and then it disappears.” (See al-Dar al-Naqi (340/1).) Zakat is wajib upon it based upon the ayah: {And from their properties was [given] the right of the [needy] petitioner and the deprived.} (Al-Dhariyat: 19) And the ayah: {And those within whose wealth is a known right, for the petitioner and the deprived.} (Al-Maʿarij 24-25)
Tradable commodities are considered to be income. Hence, the Prophet commanded that zakat be paid on commodities that are traded.
The majority of scholars consider zakat to be wajib on tradable goods. In fact, some scholars consider it an ijma’. (See al-Ijma by Ibn al-Mundhir (p. 45).)
If, by way of his actions, he possesses it with the intention of doing trade with it, he must pay zakat on its value if the nisab is attained. If he inherits it or possesses it without the intention to trade with it and later changes his intention to do so, then the intention is not concurrent.
We now study the conditions which make zakat mandatory on tradable commodities. They are:
First: “If, by way of his actions, he possesses it”: “His actions” refers to performing trade, buying and selling or labor of which he is paid for. Therefore, possessing it without any action on his part, like a gift or inheritance is excluded in this condition.
Second: “With the intention of doing trade with it”: That is to have an intention to sell the commodity. However, if he possesses it through his actions without an intention to sell the commodity but rather it was for his personal use, then zakat need not be paid on it. This is because personal use is not trade.
Third: The commodity or the value in monetary terms from its sale should be in his possession for a year.
“He must pay zakat on its value”: He must pay one-fortieth of the total value of the commodity as zakat provided that the commodity has reached the nisab of gold or silver.
“If he inherits it or possesses it without the intention to trade with it and later changed his intention to do so, then the intention is not concurrent”: If he had possessed the commodity for personal use then he changed his mind and decided to sell it, then there are two opinions regarding when he should pay zakat:
First: The fiscal year does not start with the intention which in fact comes much later than physically possessing the commodity. The fiscal year starts at the sale of the commodity. If he retains the amount generated from the sale for a year, then zakat should be paid. This is the view preferred by the author.
Second: The fiscal year begins when he intends to sell the commodity. This is because the commodity became tradeable with the change in intention from personal use to trade. Therefore, zakat became wajib on it at that point. This is the most correct opinion.
The bigger portion of the zakat should be allotted to the poor given that the commodities have been in possession for a year. It may be given as commodities or its equivalent value in monetary terms. The purchase price of the commodity should not be taken into account. If goods are bought with cash or by trading in similar goods, then its term carries on at the point of purchase. If it was bought with livestock, the term does not carry on.
“The bigger portion of the zakat should be allotted to the poor given that the commodities have been in possession for a year. It may be given as commodities or its equivalent value in monetary terms”: This section explains how zakat on commodities is given. We learnt earlier that zakat is given in the same form as wealth. For example, zakat given on sheep is a sheep itself and the zakat for currency is from its like. The zakat for produce of the land should be from the produce.
Tradable commodities are set aside for selling. Therefore, zakat need not be given from the commodities itself. Instead, an equivalent value in terms of cash may be given as zakat; which is one-fortieth or 2.5% of the total value if the nisab has been attained and the commodities have been in possession for a year.
“The purchase price of the commodity should not be taken into account”: In fact, the price of the commodity should be valued at the end of the fiscal year. Zakat should be given based on the price of the commodity, which could have risen, remained unchanged or fallen, at that time.
“If goods are bought with cash”: That is with currency, gold or silver.
“Or by trading in similar goods”: I.e., trading through barter.
“Then its term carries on at the point of purchase”: That is, throughout the year.
If he bought the commodities during the last month of the fiscal year with cash which was in possession throughout the year, then zakat is still payable. This is because the commodities are a replacement for the cash and the same rule applies to the commodity as with cash in this instance.
For example, if one has a hundred riyals for eleven months and in the last month, he bought some goods with that money. The cash has now been converted to a commodity. We say that zakat must be paid for the commodities bought with the cash which was in the possession of the owner for eleven months; that is the hundred riyals. Hence, this amount warrants zakat on it even though it was not maintained as cash for a whole fiscal year. The cash was converted to a commodity in the last month and therefore it has to be accounted for and zakat must be paid on it.
Similarly, if he purchases commodities with cash and then replaces these commodities with another set of commodities which are similar in nature, then he has to pay zakat on the cash with which he bought the initial commodities. This is provided that the original commodities have been in his possession for one year.
“If it was bought with livestock, the term does not carry on”: This is because currency and livestock are not considered to be of similar nature. This is because livestock are not commodities nor are they a currency. Furthermore, the rules of zakat pertaining to livestock differ from the rules of zakat upon currency and commodities. For example, if he has five camels and just before the completion of a fiscal year, he bought tradable commodities in exchange for the five camels. We say: In this instance, the fiscal year begins with the purchase of the commodities which were bought with the intention of trading. The time the camels were in the possession of the owner is disregarded and is not factored into the fiscal year nor is zakat paid on the camels as they were in possession for less than a fiscal year.
By Shaykh Salih ibn Fawzan al-Fawzan
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