Regulations on the Zakat of Trade Goods
The obligation of Zakat on trade goods is widely recognized among scholars, who have stipulated several conditions necessary for its applicability. These conditions are outlined as follows:
- Attainment of the Nisab
This refers to the condition that the wealth designated for trade reaches a specific threshold, measured in gold or silver. If an individual’s trade goods fall below this Nisab, Zakat is not required. All types of trade goods can be aggregated together, even if they are of different kinds. Scholars have differing opinions regarding which currency should be used to evaluate trade goods for Zakat purposes.
The Hanbali scholars, along with one opinion from the Hanafi school, assert that valuation should be based on the asset’s greatest benefit to the poor. If the goods are evaluated using one currency and meet the Nisab, yet do not meet it when evaluated using another, Zakat should be given based on the value that reached the Nisab. The owner has the option to discharge the Zakat using either of the two evaluations. The Shafi’i scholars believe that the evaluation should be done based on the currency used for the purchase. The more cautious approach is to favor the first opinion regarding the valuation that benefits the poor most. The Zakat obligation activates once the value reaches the Nisab.
- Intention for Trade
It is essential to have the intention to engage in trade at the time of selling and acquiring, as goods are innately created for use and only qualify for trade status through intent.
- Completion of the Hawl
When a full cycle (Hawl) has elapsed, it becomes necessary for the owner to evaluate their trade assets and subsequently pay the Zakat on their trade.
- Complete Ownership of Trade Goods
The owner must possess the trade goods through actions such as sale, acceptance of a gift, inheritance, or permissible earnings. Even if inherited or received through a gift, if the owner intends to use them for trade, they then become subject to Zakat. When the ownership exists without the intent to trade, Zakat is still applicable if the items reach the Nisab and a Hawl has passed since their acquisition.
Definition of Trade Goods
Trade goods are defined as items prepared for sale and purchase with the intention of profit, encompassing various forms of assets, excluding gold and silver. Trade entails the buying and selling of goods to generate profit across all assets, apart from monetary currencies. Any item designated for trade, regardless of its category, is subject to Zakat, including livestock such as camels and cattle.
As stated in the Holy Quran: ﴿O you who have believed, spend from the good things which you have earned and from that which We have produced for you from the earth. And do not aim toward the defective from it, spending [from that] while you would not take it yourself, except with a close eye. And know that Allah is Free of need and Praiseworthy﴾.
Factors Leading to the Cessation of the Hawl
Several factors result in the interruption of the Hawl for trade goods, as outlined below:
- If the Nisab decreases during the Hawl before its completion, it leads to the interruption of the Hawl. For instance, if a person has forty sheep and one is lost before the Hawl completes, Zakat is not due since the Nisab must be maintained throughout the entire Hawl for Zakat to be obligatory.
- The sale of any portion of the Nisab in exchange for items of a different kind during the Hawl without an intention to evade Zakat results in the termination of the Hawl, except in the case of trade goods.
- If the Nisab is replaced with goods of a different type during the Hawl without an intent to evade Zakat, the Hawl will cease. For example, if a person possesses forty sheep and exchanges them for cattle, a new Hawl will commence. However, if the exchange is made within the same category (e.g., trading forty sheep for forty other sheep), the Hawl remains intact. If the exchange is made to avoid Zakat, the Hawl will also continue uninterrupted.