Islamic Finance Questions and Answers

(May Allah bestow on Ethica Institute more wisdom and knowledge)

By AMANODING D. ESMAIL, CPA, MPA
President, Philippine Association of Islamic Accountants

First Series

ZAKAT

Zakat – What is zakat?

“And perform the prayer, and pay the alms; whatever good you shall forward to your souls’ account, you shall find it with God; assuredly God sees the things you do.” (2:110) Zakat is an Islamic tax paid by qualifying Muslims to deserving recipients, and a means to purify one’s wealth. It is not charity. Rather, it is a portion of one’s property that needy Muslim members of society already own by virtue of it having been in one’s possession for one lunar year.Zakat therefore, is distributed, not donated. Unlike charity (sadaqah), which is recommended to give, zakat is obligatory, whose non-payment or late payment is an enormity.

Photo credit to Jakarta Post.

Obligation Of Zakat – Who is obliged to pay zakat?

Zakat is obligatorily due on every sane, adult Muslim male and female. Zakat is due on those possessing the minimum nisab and are free of debt obligations; financial obligations (where the net worth of the individual is below the nisab amount because he owes more than he is worth) exempt one from paying zakat only if the individual exhausts all reasonable means to repay these debts using other forms of surplus wealth (i.e. wealth that exceeds what is normal considered a requirement for living).

Exceptions To Zakat On Estate Of Deceased – When is zakat not paid on the deceased’s estate?

Unpaid zakat is not taken from the estate of the deceased unless a bequest specifies that zakat should be paid posthumously, in which case zakat is paid on one-third of the estate, regardless of whether this amount covers the zakat obligation or not; it is permissible, though not obligatory, for the inheritors of the remaining two-thirds of the estate to fulfill the balance of the zakat obligation from their own portion. Zakat-Deduction On Taxable Income Is it permissible to deduct zakat from one’s taxable income when preparing a tax filing?

Zakat-Deduction On Taxable Income. – Is it permissible to deduct zakat from one’s taxable income when preparing a tax filing?

It is permissible to deduct zakat from one’s taxable income as one would a charitable donation when preparing a tax filing.

Money Changers’ Zakat – Is zakat payable on money changers’ capital exchanged within one lunar year?

There is no zakat on money changers’ capital exchanged within one lunar year.

(To be continued)

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