Chapter 4

Zakat & tax planning

Prepared by
Khalid abdi nur
Objectives of this chapter
At end of chapter, student must be able:-

1. To identify the zakat and tax planning in Islamic way

2. To classify Of zakat rules and legislation
3. To differentiate zakat and tax in Islamic perspective and
ideology's.
4. To explain the importance of taxation for personal
financial planning
5. To state the objectives of Islamic zakat accounting and
their rules.
6. To explain the zakat accountant needs for tools and
methods to use zakat statement.
7. To ability to create personal zakat planning and zakat
statement
 Contents

Zakat planning
Zakat meaning and quran, sunnah -
. Zakat Rules.( Fiqh ) -
.Zakat Accounting Rules( Principles ) -
.Zakat Accounting Statements -
Tax planning
Tax planning in Islamic way-
Tax planning objectives-
Importance taxation for personal finance -
 Zakat Meaning
Zakat means , in Language , : Blessing,
. Purity, Growth and Uprightness
It means in Shariah :a defined allocating
amount from a defined money for an
. assigned people
 Zakat in The Holy Quran

: ‫قال هللا تبارك و تعالي‬

“... ‫” و أقيموا الصالة و أتوا الزكاة و اركعوا مع الراكعين‬
) 43 ‫ اآلية‬: ‫( سورة البقرة‬
Allah says : “ and be steadfast in
prayer ,practice regular Zakat and Bow
down
..… Your heads with those who down
) Al-Baqara- 43 (
 ‫‪Zakat in THe Sunnah‬‬

‫قال رسول هللا صلي هللا عليه وسلم ‪:‬‬

‫” بني اإلسالم علي خمس ‪ ,‬شهادة أن ال إله إال هللا ‪ ,‬وأن‬
‫محمدا عبده ورسوله ‪ ,‬وإقام الصالة ‪ ,‬و إيتاء‬
‫الزكاة ‪ ,‬وحج البيت ‪ ,‬و صوم رمضان ”‬
‫( رواه البخاري ومسلم )‬
 Zakat Rules
‫أحكام الزكاة‬
Muslim Scholars have summarized
: Zakat Rules as follow
.Zakat is a Farida from Allah (obligatory ) -
. Zakat is a Financial Worship -
. Zakat is a Believe -
.Zakat is Due to an assigned Receivers -
..Cont

.Zakat is Annuity -
No Zakat until Wealth exceeds Nisab -
Zakat affairs are the Responsibility -
.of Government
TAX PLANNING
Tax planning for Islamic way

• Tax planning refers to financial planning

for tax efficiency. It aims to reduce one’s
tax liabilities and optimally utilize tax
exceptions and benefits as much as
possible.
• Tax planning can be best described as the
process of becoming tax-efficient by
reducing your tax liability to a minimum.
Tax Planning Objective

Maximize amount
of money you keep
Minimize amount
of money paid in
taxes
Importance of Taxation in Personal finance

To minimize an individual’s income taxes.

The higher the tax the lower is the disposable income,
thus, difficult to achieve personal financial goals.
Taxes reduce our disposable income and so make it
more difficult for us to achieve some of our financial
goals .
How?
 Take into account all current and future income and develop
strategies to defer or minimize tax payments.
Managing your taxes well can lead to considerable
savings regardless of your income level.

1
2
 Zakat and Tax Differences
Zakat is a financial Worship ,and a pillar -
of Islamic Religion , but Tax is compulsory
by the Government by Low ragardless to
.Religion

Zakat is based on Religious and Ethical -

Values ,but Tax mostly ignores such
-. Values and based on monetary factors
..Cont

Zakat is calculated according to Fiqh Rules , but -

Tax is calculated according to Governmental
.Rules
Zakatable wealth is gained from Good and Halal -
Sources, but Tax Revenues and Incomes may be
earned from Non-Halal and Worse Sources from
.the sight of islam rules
..Cont
Zakat Rules are stable and permanent for each -
Time and place because they excreted from
.Quran and Sunnah ,while Tax Rules are flexible

Zakat purifies soul and money ,while Tax does -

. not
Zakat Accounting
Rules
 Zakat Accounting Meaning
It means the calculation, reviewing and
. announcing of Zakat on money
It is governed by agroup of Accounting
rules, extracted from the sources of
,Islamic Shari’ah
Zakat Accounting Objectives

:They are as follow

. Determining the Zakat Base -
. Calculating the Due amount of Zakat -
. Preparing Zakat Statements and Reports -
Distributing Due Zakat amongst -
.its Duers
:Zakat Accounting Rules are as Follow
The Lunar Year .1

Zakat is calculated according to the lunar

year. Counting starts when the amount of
money attains the Nisab (the minimum
.amount on which Zakat should be paid)
 :Independence of each Year .2
Each Zakat year is an independent one, and Zakat
on a given amount of money should not be
.more than once in the same year
Duality should be avoided. The Prophet (Peace
be upon him) said: “No duality in Zakat
.”giving
 :Actual or Expected Growth 3
Actual or assumed growth of an amount of
money is a condition for any Zakat is to be
.given from this money
Therefore, Zakat is not due on fixed assets
.or things for personal use
This is because the condition of actual or
.assumed growth would not be met
Zakat Base should reach Nisab .4

Zakat is due on money which is

abounding (more than basic needs). No
Zakat is due for little amounts of money.
The amount of money should reach the
Nisab. This guarantees that only those
who have the capacity of paying will be
.obliged to pay
Calculating Zakat on the Total or Net .5
Zakatable Money
For every kind of money or activity there is a
.rule for calculation Zakat which is due on it
Some are calculated in relation to the total
amount and others are calculated in relation to
.the net amount ( Property)
Grouping Money of the Same kinds .6
:together as Zakatable Base

It is permissible to group cash money of

wealth to cash money available from
offers of trade and other gained cash
money, so that for all these monies there
.would be one Nisab and one Zakat Year
Evaluating Zakatable Money .7
. according to the Current value
Evaluating cash money of wealth and
cash money from offers of trade to define
the due Zakat should be according to the
current value at the time of paying Zakat.
They should not be evaluated according
to the historic value, cost or market,
.whichever is less
 Zakat Duers

Zakat Funds should be spent as mentioned

:in the Holy Quran
 ‫يقول هللا سبحانه وتعالي ‪:‬‬
‫” إنما الصدقات للفقراء و المساكين والعـاملين‬
‫عليها و المؤلفــة قلوبهم وفـــــي الرقـاب و‬
‫الغارمين وفي سبيل هللا وابن السبيل فريضة‬
‫من هللا وهللا عليم حكيم ” ( سورة التوبة ‪) 60 :‬‬
 The Duers of Zakat as mentioned in this
: Verse are as f0llow

.The poor .1
.The needy people .2
Those employed to administer the .3
.Funds
4. Those whose hearts are to be reconciled,
meaning new Muslims and friends of the
Muslim community.
5. Those in bondage (slaves and captives.
6. The debt-ridden.
7. In the cause of God.
8. The wayfarer, meaning those who are
stranded or traveling with few resources.
 Zakat Accounting
Tools and Methods
In order to calculate Zakat on money, an
accountant needs the following tools and
: methods

General Balance Sheet (Financial Position) .1

.made on the date of calculating Zakat

Final Accounts or annual report for the .2

ended year, on which Zakat is to be
.calculated
Clarifications concerning the Balance .3
:Sheet and the final accounts, such as
.Current value of Zakatable assets -
.Bad and good debts to be collected -
Revenue from fixed assets which are -
.for collecting or for investment

And other necessary clarifications -

.concerning calculating Zakat
The price of Gold at the time when .4
paying Zakat is due, in order to
calculate the Nisab

Different Duties possessed by the .5

Zakat giver should be grouped if
.they are of the same kind
Different contemporary Fatwas.6
.concerning Zakat

.The guide for calculating Zakat .7

Other accounting tools and methods .8

which may be useful for calculating
. Zakat
The diagram in the following
summarizes the procedure for
.calculating Zakat on money
Diagram for calculating Zakat

Starting Point

)1 ( Prepare the general Balance Sheet and

clarifications on it

)2 ( Define and assess the Zakat assets

)3( Define and assess liabilities which must be met

)4( Define the receptacle of Zakat by deducing

from (2)(Zakat Base ) )3(

)5(
Define the Nisab according to the price of gold
)6( Compare the receptacle of Zakat with the Nisab

)7( Calculate the Due Zakat if the receptacle

reaches the Nisab

)8(
The Due Zakat = Zakat Base By Zakat Rate
Zakat Accounting
Statements
( Forms)
 Zakat Statement on Cash Wealth
/ / for the year ended
Total
Sub- Item
total

:Elements of cash wealth *

Saudi riyal -
**
American Dollar (after assessing -
** according to market price)
Gold and silver monies (after -
** defining weight or number)
 Zakat Statement 0n Cash Wealth
for the year ended / / (Continue)
Total
Sub- Item
total

*** Total Zakat cash money*

*** Deduced: Debts which must be paid now
by the Zakat giver (if any)
*** Cash wealth Zakat Holder *
Compare with the Nisab (the equivalent•
to 85 grams of gold) if receptacle reaches
the Nisab, then Zakat should be calculated
:as follows
= Amount of Zakat *
*** …= Zakat holder x 2.5%
 Zakat Statement on Trading and Industry
Wealth
/ / for the year ended
Total
Sub- Item
total

:Zakatable Wealth for trading: such as *

Goods for Trading -
**
Duties / documents of payment -
**
** .Investments for trade -
** .Cash in banks -
** .Cash in safe -
****
 Zakat Statement onTrading and Industry
Wealth
/ / for the year ended
Total
Sub- Item
total

:Deduced: Short Term Liabilities: such as *

** Debtors / documents of payment-

.)to be paid( -
** .Suppliers -
**
.Loans due -
**
- Other Short Term Liabilities.
****
 Zakat Statement onTrading and Industry
Wealth
for the year ended / / (Continue)
Total
Sub- Item
total
*** Net Zakat Wealth for Trade *
***
.Added: Earned money (if any)
The receptacle of Zakat on wealth for*
*** trade.( Zakat Base )
Compare with the Nisab (the equivalent•
to 85 grams of gold) if the Zakat Base
reaches the Nisab, Zakat should be
:calculated as follows
*** = Amount of Due Zakat *
 Zakat Statement on Plants and fruits
…… for the crop
Total Item
Sub-
total
*** :The value of the crop *
Deduced: - The expenses of farming (with the -
**
condition that they do not exceed one third of
. the value of the crop)
** .The cost of farming -
** .Governmental taxes -
** ** .Other expenses related to the crop -
*** .Net value of the crop
** .Deduced: Currently due debts (if any)
 Zakat Statement on Plants
and Fruits for the crop……(Continue)
Total Item
Sub-
total

*** .Zakat Base of Plants and fruits *

•Compare with the Nisab, the value of which is 5 Awsaq or
their equivalent. if the Zakat Base reaches the Nisab, Zakat
should be calculated as follows:
:Amount of Due Zakat
:in the case of watering by cost *
…= Zakat Base x 5%
:in the case of watering without cost *
…= Zakat Base x 10%
The amount of Zakat should be taken from the *
.crop
 ‫‪Finished‬‬

‫‪Praise be to Allah‬‬

‫الحمد هلل الذي بنعمته تتم الصالحات‬