YANBU UNIVERSITY COLLEGE

Management Science Department

ACCT 325
Accounting for Zakat and Taxes

Module 1

© Yanbu University College

 Objective
o Define zakat meaning and rules
o Distinguish between zakat and tax
o Explain zakat principles
o Explain the conditions of wealth subject to Zakat
o Describe the conditions of deductible liabilities for zakat
purpose
o Describe the steps in zakat computations
o Describe the zakat duers
o Explain the benefit of zakat to community

© Yanbu University College Slide 2

 Zakat Meaning…In Language:

o Blessing… ‫بركة‬
o Purity… ‫نقاء‬
o Growth….. ‫نمو‬
o Uprightness…. ‫االستقامة‬

© Yanbu University College

 Zakat Meaning….. In Shariah :

o The third pillar of Islam.

 A specific amount…

 of specific types of money …

 Must be paid to specific categories of people in shariah.

o A fixed right of those individuals on what is surplus’ of their personal

expenditures & needs.
o This right cannot be unpaid by death of the person subject to it.
o Zakat is considered debts on the dead person heritage like the rest of
debts for other individuals.

© Yanbu University College

 Zakat Rules

 Muslim Scholars have summarized Zakat Rules as follow :

1. Zakat is a Farida from Allah (obligatory )

2. Zakat is a Financial Worship

3. Zakat is Compulsory to Muslims who are:

o Mature

o Free of slavery

4. Zakat is Due to an assigned Receivers

5. Zakat is paid annually, except:

o Zakat on Plants & Fruits

o Zakat on Rekaz

6. No Zakat until Wealth exceeds Nisab

© Yanbu University College
 Zakat Rules

8. No Duality in Zakat

9. Zakat affairs are the responsibility of the government

10.Due Zakat does not obsolete

© Yanbu University College

 Basic Terminology

Zakat money
The zakat money is the money must be subject to the zakat.
This money include the following:

1- Livestock 5- Mineral, marine, and rikaz wealth

2- Cash wealth 6- Earned Salaries & revenues
3- Plants and fruits 7- Commercial wealth
4- Al-mustaghalat

© Yanbu University College

 Basic Terminology

The Nisab:
o The minimum amount on which the zakat should be paid.

o Each kind of zakat has a special Nisab.

o Zakat on cash is required when the cash amount is equal to:

85 grams of pure gold.

o A gram should be evaluated according to current prices at the time of paying

Zakat in the country in which the original money is located.

© Yanbu University College

 Basic Terminology

Zakat base:

o An amount which subjected to the zakat.

o Calculated as follows:

o Zakat base = Zakat money – Due liabilities ( CL )

© Yanbu University College

 Basic Terminology

Zakat Rate:
o The percentage charged to the zakat base to determine the amount of zakat.

o The relationship between zakat base, tax rate and zakat amount is expressed
by the following formula:

o Zakat= Rate x Base

o Zakat rate varies from 2.5% to 20% of zakat base.

© Yanbu University College

 The Amount of Due Zakat:

o When Zakat Base money reaches the Nisab, the Due Zakat is calculated as
follow :

o Zakat Due= Zakat Base x Zakat Rate

o The Zakat rate varies according to the kind of money and activity.

© Yanbu University College

 Zakat Accounting Meaning:

A. The calculation,
B. Reviewing
C. Announcing of Zakat on money.

o Governed by a group of accounting rules, extracted from:

The sources of Islamic Shari’ah.

© Yanbu University College

 Zakat Accounting focus on:

1. Interpret & assess the income and money subject to zakat,

2. Assess zakat liabilities
3. Determining the Zakat Base.
4. Calculate the Due amount of Zakat.
5. Prepare Zakat Statements & Reports.
6. Distribute Due Zakat amongst its Duers.

© Yanbu University College

 Zakat Accounting Principles

1. The lunar year

o Zakat is calculated according to the lunar year.

o Counting starts when the amount of money attains the Nisab.
o This includes all kinds of Zakat :

 Zakat on agriculture,
 Fruits,
 Mineral assets
 Rikaz (metals found in the earth).

© Yanbu University College

 Zakat Accounting Principles

2. Independence of each year

o Each Zakat year is an independent one,

o Zakat on a given amount of money should not be more than once in the same year.

o Duality should be avoided.

o The Prophet (Peace be upon him) said:

‫ال ازدواجية في إخراج الزكاة‬

“No duality in Zakat giving”

© Yanbu University College

 Zakat Accounting Principles

3. Actual or Assumed Growth:

o Actual or assumed growth of an amount of money is a condition for any zakat is

to be given from this money.

o Zakat is not due on fixed assets or things for personal use.

o The condition of actual or assumed growth would not be met.

© Yanbu University College

 Zakat Accounting Principles

4. Zakat Base should reach Nisab:

o Zakat is due on money which is abounding (‫ غزيرة‬more than basic needs).

o No Zakat is due for little amounts of money.

o The amount of money should reach the Nisab.

o This guarantees that only those who have the capacity of paying will be obliged to
pay.

© Yanbu University College

 Zakat Accounting Principles

5. Assessment of deductible liabilities for Zakat purpose:

o Zakat liabilities are short term liabilities which are due payment according to the
following conditions:

1. Should be related to the activity

2. Should be due payment during the coming year
3. Should be legally permissible.

o Zakat liabilities are assessed according to the rules of zakat,

o Are due to be deducted from zakat money.

© Yanbu University College Slide 18

 Zakat Accounting Principles

6.Calculating Zakat on the Total or Net Zakat Money:

o For every kind of wealth or activity there is a rule for calculating the Zakat due.

A. Some are calculated in relation to the total amount.

B. Others are calculated in relation to the net amount

© Yanbu University College

 Zakat Accounting Principles

7. Grouping Money of the Same kinds together as Zakat Base:

o It is permissible to group cash to other similar cash equivalent according to zakat in

Shariea ,

o So that for all these type of wealth there would be:

A. One Nisab
B. One Zakat Year.

o It is not permissible to group other different types of Zakatable wealth and pay one
zakat on them.

© Yanbu University College

 Zakat Accounting Principles

8. Evaluating Zakat Money according to the Current value.

o Evaluating cash money of wealth and cash money from offers of commerce to define
the due Zakat should be according to the current value at the time of paying Zakat……
FMV

o They should not be evaluated according to the:

A. Historic value,
B. Cost or market, whichever is less.

© Yanbu University College Slide 21

 Zakat Accounting Principles

9. Full ownership

o Zakat payer should be the only owner of Zakatable wealth,

o The owner have the full wright to spend and use these assets without interference of
other parties such as creditors.

o All benefits or revenues realized from that wealth are considered return to the zakat
payer.

© Yanbu University College Slide 22

 Equation for zakat computation is as follows:

o Receptacle of Zakat ‫ = وعاء الزكاة‬Zakat Base

 Zakat Base = Zakat Money ( Assets) (-) Zakat Deductions (Liabilities).

 Zakat Base = Assets (-) Liabilities

 Zakat wealth ( Assets ) = Assets meet the conditions of obligatory Zakat.

 Zakat deductible Liabilities = due to be paid at the moment , (current)

 Due Zakat = Zakat Base (x) Zakat Rate

© Yanbu University College

 Steps of calculating Zakat
Zakat Accounting procedures

© Yanbu University College

 Zakat should be calculated according to the following steps:

1. Defining the date of completing the Lunar year.

2. Different Monies owned by the Zakat Payer should be assessed at the end of
the year, according to Zakat authorities

3. Assessment of Taxable Liabilities (deductions)

4. Defining the receptacle of Zakat ( Zakat Base )

5. Calculating the Nisab as mentioned before

6. A comparison should made between the Zakat Base, defined in step 4 above, with Nisab
defined in step 5

7. Define the amount which should be taken from the receptacle of Zakat (Zakat Base),

8. Calculating the amount of Zakat

9. Define who pays the due Zakat as follows

© Yanbu University College

 Zakat should be calculated according to the following steps:

1. Defining the date of completing the Lunar year.

o This date varies according to the circumstances of the Zakat giver (Payer).

o With the exception of Zakat on:

 Agriculture,

 Fruits,

 Minerals

 Minerals underground

o Zakat should paid at time of harvest or the acquisition of the minerals.

o The date of beginning and the date of completing should be defined according to
the date of reaching the Nisab amount.

© Yanbu University College

 2. Different Monies owned by the Zakat Payer should be assessed at the end of year
according to the rules of Zakat. Tax payer should determine which money is subject to
Zakat; Zakat Money ( Assets).

3. Assessment of Taxable Liabilities (deductions) which are due to be deducted from Zakat
money according to the rules of Zakat.

4. Defining the receptacle of Zakat ( Zakat Base )by the deduction of Due Liabilities from
Zakat Money by the following equation:

The receptacle of Zakat ( Zakat Base ) = Zakat Money – Due Liabilities.

© Yanbu University College

 5. Calculating the Nisab as mentioned before. Each kind of Zakat has a special Nisab.

6. A comparison should made between the Zakat Base, defined in step 4 above, with Nisab
defined in step 5 to know whether Zakat is due or not. If the Zakat Base has reached the
amount of Nisab, then Zakat would be Due.

7. Define the amount which should be taken from the receptacle of Zakat (Zakat Base), it is
an assigned percentage ( % ) ; called the price of Zakat.

Ranges between 2.5% & 20% of Zakat Base.

8. Calculating the amount of Zakat by multiplying the amount of the receptacle by the
amount of the price (or percentage) of Zakat.
The result should be the amount of due Zakat.

© Yanbu University College

 9. Define who pays the due Zakat as follows :

a. For individuals and personal establishments:

The individuals or the owner should pay the due Zakat.

b. For partnership:
o The amount of the due Zakat should be divided between the partners,
o Each according to the percentage of his share in the capital of partnership.

© Yanbu University College

 9. Define who pays the due Zakat as follows :

c. For investment companies:

o The amount of the due Zakat should be divided on the number of shares to know
the amount of Zakat due on each share.
o Each investor should then pay Zakat according to his ownership of shares .

d. For partnerships of labor and capital (mudarabah Sahr’iyyah) :

o The laborer (Mudarib) pay Zakat according to his share of profits.
o The financier (Mumawwil) should pay Zakat on the capital and the profit less the
labourer's share.

© Yanbu University College

 10.Zakat Amount should be distributed according to its duers in the light of

the rules of Islamic Law (Shari’ah).

o It is permissible to give Zakat to institutes or committees of Zakat to redirect

the funds in their due activities and persons according to Islamic Law

© Yanbu University College

 ‫ِإَّنَم ا الَّص َد َقاُت ِلْلُفَقَر اِء َو اْلَم َس اِكيِن َو اْلَع اِمِليَن َع َلْيَها َو اْلُم َؤ َّلَفِة ُقُلوُبُهْم َو ِفي الِّر َقاِب َو اْلَغ اِر ِم يَن َو ِفي َس ِبيِل‬
‫ِهَّللا َو اْبِن الَّس ِبيِل ۖ َفِر يَض ًة ِّم َن ِهَّللاۗ َو ُهَّللا َع ِليٌم َح ِكيٌم‬

‫سورة التوبة‪....‬اية ‪60‬‬

‫‪© Yanbu University College‬‬

 Zakat Duers

Zakat Funds should be spent as mentioned in the Holy Quran:

“ Zakat are for the Poor, and the needy, and those employed to administer the
funds, for those whose hearts have been recently reconciled to Truth , for
those in Bondage and in Debt , In the cause of Allah , and the Wayfarer ,
Ordained by Allah , and Allah is full of knowledge and Wisdom . “

( Al Tawbah -60 )

© Yanbu University College

 Zakat Duers

1. The poor, who unable to earn his/her living

2. The destitute who is in dire need
3. The obligatory charity worker, as a wage due to his/her responsibilities
of collecting, accounting, managing, distributing Zakat
4. Those whose hearts have reconciled but finding some difficulties to
settle
5. Those in Bondage(slavery) in debt
6. Those who are in debt and have no ability to pay off
7. Those who are in any kind of obligatory duties of God but unable to pay
8. The needy travellers.

© Yanbu University College

 Differences between Zakat and Tax

Zakat Tax

1. Financial worship ,and a pillar of 1. Tax is imposed by the government by

Islam law regardless to religion.
2. Zakat is based on Religious and 2. Tax mostly ignores such values and
ethical values. based on monetary factors .
3. Zakat is calculated according to
3. Tax is calculated according to
Fiqh Rules.
government rules.
4. Zakat wealth is gained from good
4. Tax Revenues and Incomes may be
and halal sources.
earned from non-Halal activities

© Yanbu University College

 Differences between Zakat and Tax

Zakat Tax

5. Zakat Rules are stable and permanent 5. Tax Rules are variable.
for each time and place because they
excreted from Quran & Sunnah.

6. Zakat purifies soul and money. 6. Tax does not.

7. Zakat Base is based on the difference 7. Tax base is based on net adjusted
between earnings plus equity, and net income
book value of assets

© Yanbu University College

 Benefits of zakat

Religious objectives:
o Zakat is purification and chastening of money and spirit.

‫الزكاة تطهير وتأديب للمال والروح‬

Ethical Objectives:

o Enhance the commitment to ethical values such as honesty, devotion, integrity through
the Zakat payer behaivor.

o Zakat also discourages the muslims from many vices, as love of wealth is the root of
many immoral actions.

o Zakat implies a deep humanitarian and social-political value such as free society from
class warfare, distrust and corruption.

© Yanbu University College

 Benefits of zakat

Social objectives:

o The proceeds of zakat used to achieve social integration among Islamic society
individuals.

o Zakat will balance the socio economy in the country and encourage the rich to
help the poor continuously.

o The practice of zakat will produce more loving, caring and helping society in
the future.

© Yanbu University College

 Benefits of zakat

Economic objectives:

o The proceed of zakat help in reduction of unemployment as it lead to increase

of purchasing power of poor people,

o Increase of demand on necessary goods and services,

o The zakat leads also to redistribute wealth’s as it takes from rich to give the
poor.

o Zakat is the backbone of Muslim nation's financial system that keeps money in
circulation.

© Yanbu University College