Foreword: In the name of Allah, the Gracious, the Merciful, and prayer and peace be upon the ...
Since 2023-02-01
Foreword:
In the name of Allah, the Gracious, the Merciful, and prayer and peace be upon the most honorable of messengers, our master Mohammed.
Certainly Islam is a religion of all humanity and of all times. Also, it pays particular attention to a class of society (whatever their obedience) affected by financial weakness so that it is reassured, and that its means of subsistence and its rights to a dignified life are guaranteed.
However, the financial resource to achieve this noble objective is the responsibility of all; individual and society. This funding is the Zakat that God, all powerful, has imposed on Muslims and has made it one of the five pillars of Islam as well as the daily prayer, the fasting of the month of Ramadan, and the pilgrimage to the Sacred House (Mecca)
The Zakat is an individual act of worship with financial and social purposes. But Zakat, as some believe, is not the whole of the Islamic economic system, but certainly an integral part of it.
On the other hand, Zakat is not a tax. It is a personal and religious obligation of a financial nature. It is collected and then distributed specifically for the benefit of a group defined in the Holy Quran in verse 60- Surat al-tawba:
“Charities (Zakat) are for the poor, and the destitute, and those who administer them, and for reconciling hearts, and for freeing slaves, and for those in debt, and in the path of Allah, and for the traveler in need-an obligation from Allah. Allah is All-Knowing, Most Wise”
The tax is a compulsory (pecuniary) levy on the financials resources of the resident natural or legal persons, Muslim or other, serving to cover the expenses of the State: the army, the police, education, health, dams, public services and others. So, taxes cannot replace Zakat.
Without a doubt, the majority of Muslims are keen to submit to religious obligations and to perform them. So, the five daily prayers, fasting and Hajj are all known to everyone; and the obligatory or optional duties recommended are by no means disregarded. But, when a Muslim decides to pay the Zakat, he is lost knowing, in a clear and easy way, these elementary rules, namely: the base, the obligatory minimum (Nissab), and the percentages; for many reasons, including:
- The ignorance of old and repetitive jurisprudential terminologies, which describe, for the most part, a different environment, by its structure, its calculation and measurement elements and its economic scales, from the contemporary societal, environmental and economic structure.
- The literary style of the subjects of Zakat, although most of the Zakat is a financial and accounting matter
- Emphasis on the devotional aspect; encouraging those who pay Zakat and admonishing those who abstain from submitting Zakat
- Emphasis on those who are eligible for Zakat
- Most recent research focuses on the social, financial and economic purposes of Zakat
- Multiple of Fatwas, and in some cases even among those of the same School (Madhab) or among the citizens of the same country
- Difficulty in obtaining books, articles and research that directly and clearly illuminate, and consolidated by applied examples; the calculation of funds subject to Zakat, the minimum of Nissab and the rates for calculating the due to pay.
Also, and with time and modern technological transformation, forms, economic and trade relations, the structure of societies and their multidimensional relations, change continuously. Fortunately, the precepts of Islam are not rigid. Consequently, it is necessary to review the old Jurisprudences (which adapted with an environment different from ours) namely: the determination and the calculation of the funds subjected to the Zakat, the minimum of the Nissab and the rates to be paid. And all this, in a direct, simplified, clear and applicable way (without going into complicated jurisprudential narratives), for what is, in the end, a practical guide for all.
Finally, I mention in this respect that this effort is the result and conclusion inspired by the Jurisprudences of scholars and accounting experts, ancient and contemporary, which are, in my humble opinion, compatible with the law and the spirit of our indulgent religion. It is also, the inspired result and conclusion due to my diligence is the experience of more than three decades in the field of accounting, economics and business management.
Mascara (Algeria) on December 31, 2022
Dr. Abdelkrim MANSOUR BENAOUF
Statutory Auditor and expert in
business financial management
[email protected]
I- Elements and principles of Zakat:
The Zakat is calculated after determining, with precision, the following elements:
1- the base:
The base is the type of net equity that serves as the basis for calculating the value of the Nissab (minimum). It is determined by value, weight and number. It is made up of monetary resources, jewellery, industrial, agricultural, fishing and commercial wealth, income from sports professionals and various articles of art and antiquity... On the other hand, everything that Muslim owns does not subject to Zakat. Thus, the basic and necessary needs for life in general and work, such as housing, cars, buildings, equipment, work tools and investments of all kinds, are excluded from the field of Zakat.
In another hand, it should be mentioned that, now days, agricultural and animal production is subject to, the same principles as the productive manufacturing and industrial sectors. Thus, the agricultural wealth is not only, as mentioned in the old case law as external and internal, dates, raisins and grains, irrigated not, consumable or non-consumable, cows, sheep, goats and camels.
Thus, with change and agricultural development in general, new types are specifically geared towards the food industry. On the other hand, innovative techniques have emerged such as automatic watering or rotating spraying, irrigation with very deep boreholes, greenhouses, gigantic plantations... As for animal production, it has also developed for the same reasons: multiplicity of productions and crossings and most domestic and non-domesticated animals have become merchants
And sometimes a person is subject to Zakat only for one type of income which may or may not reach the minimum of Nissab, so that is not the problem, except another person may have several types of income which may not, separately, reach the Nissab, so he does not pay Zakat. In the latter case, we suggest that it’s fair to determine the value of the Nissab from all incomes combined.
2- The Nissab:
The Nissab is the minimum amount of net property (base) that serves as the basis for calculating Zakat. Conventional case law calculates this limit by the weight, the number or the net value of the funds held, depending on the type of base.
Thus, for monetary and gold, industrial and commercial wealth, they determine the Nissab is at an average value equivalent to 85 grams of 24-carat gold. As for the Nissab of cattle, it is determined by number; for sheep, for example, the Zakat of one sheep is imposed if the Nissab is between 40 and 120 sheep. As for agricultural production, it is not undefined by a group of classical jurists and determined by others and this for a weight of 653 kg or 948 kg. The value of Zakat to be paid is determined by weight; 10% or 5% of the Nissab, depending on the type of agricultural land, watered by rain and the rivers, or irrigated by using camels.
But, Now days, if we calculate the agricultural and animal Nissab with these same proportions and without examination or analysis, and without taking into account the effort and the expenses which are devoted to it, we can, certainly, fall into the risk of injustice towards the poor farmer; whose food produced is not enough, sometimes not even for self-consumption or to meet the basic needs of his family. Also, and with these same proportions of the Nissab, individuals, investors, and even large companies that operate in the agricultural field, sometimes realize losses after calculating their annual income, all risk being harmed.
Besides, the world has many species agricultural crops and animal breeds, and their production costs, as well as sales prices, vary from one region to another. Thus, now days, agricultural and animal production is subject to the same industrial and commercial production and management methods.
However, for all these reasons, and to avoid all inequalities, I suggest that it is fair to evaluate animal and agricultural wealth, of all kinds, financially and to determine a fixed reference for its Nissab which does not differ from the Nissab of the commercial and industrial heritage. This Nissab must be determined by the official authorities of each country. For example in Algeria, the value of the Nissab is 85 grams of 18 karat gold or the equivalent of the value of the Algerian Dinar.
3- The year (annuality):
We can define annuality as the cycle of passage of a full year from the date on which the Muslim decided to pay his Zakat, after his financial wealth has reached the Nissab. The year is determined according to the Hijri (Muslim) or Gregorian calendar. According to classical jurisprudence, the principle of annuality does not apply for the agricultural production. But, in today's real world, it is unfair to determine the aforementioned Nissab of agricultural products, as such, for many reasons such as the annual expenses, sometimes the charges even cover several years, it can be specific to one product (direct charges) or for the whole production (indirect charges), farmers' wages and their social security, owner's social security, rental of land and equipment, expenses for irrigation, fertilizers, electricity, fuels… are not spent only for one type of production, but rather on the whole production. In addition, certain charges, such as taxes, provisions, depreciation of machinery and equipment are calculated at the end of the year.
On the other hand, in the other sectors, we can find cases like a merchant who sells all his stocks of goods before the advent of the year, and in that same year he will have spent all his income in various ways, consumption and investment, so at the end of the annual cycle there will be no base for Zakat. Or also a doctor, an accountant or a lawyer and their ilk, can spend all their annual income and at the end of the annual cycle their financial balance is null.
It is for all these reasons that it is right that the annual results of their work, profits or losses, be one of the fundamental elements when determining the base of Zakat. Therefore, we suggest that it is more appropriate, correct and practical for the year (the annuality of Zakat) to be the date of the new year, Hijri or Gregorian, for everyone and all areas: employees or non-salaried, industrial, agricultural and various services.
4- The value of Zakat:
The value of Zakat is determined and calculated from the Nissab. It pays pecuniary, in weight or in number. However, and seen all the reasons mentioned above, and seen different contemporary modes of production and funding of all economic activities, we suggest that the calculation of the value of Zakat on agricultural and animal wealth aligns with Zakat on industrial and commercial wealth. That is to say a unified average 2.5% of the Nissab each end of the year.
III- the amount of the base, the Nissab, and the value of the Zakat:
The Zakat is a personal obligation and not collective, because it is an individual act of worship. It does not concern the legal persons such as companies or same the State. So the person himself, or with the help of a qualified Muslim accountant, determines the base, the Nissab and the value of Zakat. Then, he pays directly, himself, the amount of Zakat to those who are legally eligible (according to the precepts of the Holly Quran), or by delegating an official government fund for Zakat or a non-profit organization approved by the State.
And before giving arithmetic practices examples, it is important take a brief look of the field of economic activity, source of considerable wealth for a large category subject to Zakat.
As it was mentioned above, a person can collect income from a single source or through multiple sources; such as employment, inheritance, or the profits of his investments in economic activity or otherwise. Contemporary economic activities are those activities witch providing, making, buying, or selling of commodities or services by people to satisfy their day-to-day needs of life. Economic activities include any activity that deals with the manufacturing, distributing, or utilizing of products or services. In general, they are classified into three sectors: the primary (exploitation of natural resources), secondary (industrial activities), and tertiary (the rest, notably services). The primary sector includes agriculture, fishing and the extraction of raw materials such as coal, oil, iron and various minerals... The secondary sector is a manufacturing sector that includes the processing of products agricultural and fishing (agri-food), the transformation of raw materials into finished products. The tertiary sector includes all kinds of services, such as health, education (private), bold, insurance, transport, scientific professions (liberal) such as medicine, defense lawyer, accounting, computer science, architecture…, artistic activities …
Any economic operator, in any sector, constitutes an economic enterprise; a cell in economic activity. This entity can be owned by a natural person or owned by several people such as a limited liability company (LLC) or stock company (SPA). All these companies, in principle, must, compulsory or optional, throughout the year, register all accounts and record all their financial activity. At the end of the year, the company prepares a summary of its activity, namely the financial statements; the balance sheet where include all the elements of its assets and its financial obligations (assets and liabilities), and the income statement where the difference between all his incomes and all his expenses is calculated.
If these financial statements provide a true and faithful, as objective as possible, the reality of the entity’s economic and financial situation, the amount of working capital, to which the profit is added or the loss which is deducted, is considered as the basic base of Zakat.
Net base of Zakat funds = working capital ± Result
On the other hand, in the event that it is not possible to keep accounting books and record all operations in detail, the assets and the result will be calculated on a flat-rate basis, except that the amount of the expenses deducted does not exceed one-third of estimated income (jurisprudence).
Generally, working capital is determined by the difference between the sum of short-term assets (cash and bank account, net stocks of goods and raw materials, guaranteed and non-doubtful debts that will be paid by customers...) and the sum of short-term liabilities (confirmed debts of suppliers of goods and services, bank debts due, various debts: taxes and different debts...)
However, I remind that the working capital or profit is not fresh cash money, but rather the funds contained in company assets; who are either available, or that can be liquidated in short term, i.e. during the next year next. We also point out, that some companies, especially in the service and industrial sectors, can have very limited working capital while making significant profits. While for some, especially in the merchandise trade (supermarkets selling food and clothing and others), the working capital can be very important, and, despite this, they make a paltry profit or even, sometimes, losses.
Therefore, we believe it is fair to determine the company's Zakat base, across all sectors, by adding annual net income to working capital.
At last, two points should be noted:
- whatever our scientific and arithmetic knowledge, we emphasize that reading and analyzing financial statements and accountants is not a general culture, but rather, it’s a field of science and technical reserved for recognized professionals.
- The Zakat cannot be counted in companies, because, as we mentioned before, it’s a personal and individual act that the Muslim pays for his own finances. So, Zakat is not a debt or an expense borne by the economic enterprise.
III-Application examples:
All the examples below will have the same elements, namely:
-All persons are Muslim adults and meet all requirements to pay Zakat.
-Year: from January 2021 to December 31, 2021
- For economic operators: their personal and family expenses (equipment or expenses), as well as the purchase of means of production (investment) for their different types of economic establishments, are all excluded (mathematically) from the base subject to the Zakat.
- The people's residence is the Algeria. The amount of the Nissab, for the year 2021, is 731 000,00 DA (seven hundred and thirty-one thousand Algerian Dinars)
- Receivables and debts are net worth and confirmed
- Cash or bank balances as of 31-12-2021
- Zakat calculation date is December 31, 2021
- The Zakat value, if it reaches the Nissab, is calculated with a unified average rate of 2,5%.
Example number 1: treatment and Wages
Mohammed ALI is an engineer. He works in a company in the south of the country. The sum of his bank account balance and personal cash 897 000,00 DA. The total debts, expired and unpaid (December home loan due date, electricity, gas and water bill …) 58 200,00 DA. One of his relatives owes him a sum 35 000,00 DA which will be paid in January 2022
Solution of the example number 1:
1-Net base of equity subject to Zakat:
897 000,00 + 35 000,00 - 58 200,00 = 873 800,00 DA
2-The value of Zakat
Net base subject to Zakat X 2.5% = 21 845,00 DA
(Twenty-one thousand eight hundred and forty-five Algerian Dinars)
Example number 2: jewelry (thrift and adornment)
Mrs. ZENAB is a housewife. The bank and personal balance 8 754,00 DA, the sum of the average value of her gold and silver jewelry 800 000,00 DA, and she owes a relative 45 000,00 DA.
Solution of example number 2:
1-Net base subject to Zakat:
800 000,00 + 8 754,00 - 45 000,00 = 763 754,00 DA
2- The value of Zakat:
Net base subject to Zakat X 2.5% = 19 093,85 DA
(Nineteen thousand ninety-three Algerian Dinar and eighty-five cents)
Example number 3: agricultural production
Mr. Abdelkader AMIRI owns agricultural land. He produces cereals, vegetables and of fruits. The total annual sales of its production is 895 873,00 DA. A stock of product will be sold in the month of February 2022, his value (average cost) 750 000,00 DA. The total of the various annual expenses (salaries of farmers and their social security, his social security, seeds, irrigation, electricity, equipment rental, etc.) 912 541,00 DA. He owes a sum to various suppliers 451 254,00 DA. His clients owe him 547 890,00 DA. The sum of the balance of his availability banking and cash 898 745,00 DA.
Solution of the example number 3:
The value of Zakat is:
Amounts Description
898 745,00 Availability (1)
750 000,00 Inventory (2)
895 873,00 Sales (3)
547 890,00 clients (4)
912 541,00 expenses (5)
451 254,00 suppliers (6)
1 728 713,00 Net base subject to Zakat (7) = (1)+(2)+(3)+(4)-(5)-(6)
43 217.83 Net Base Zakat amount subject to Zakat X 2.5%
(Forty-three thousand two hundred seventeen Algerian Dinar and 83 cents)
Example number 4: Breeding of animals: use and sale
Achraf Emad is a Fellah. He rents three warehouses; two for breeding cows for the production of milk and the third warehouse for breeding sheep in order to market them. It had the following accounting and financial information: availability
989 054,00 DA, annual milk sales 5 489 782,00 DA, annual sheep sales
3 568 741,00 DA, the average cost of the remaining sheep 2,925,484,00 DA, three (3) cows sold for sum 550 000,00 DA, the cost of buying cows sold 850 000,00 DA, claims on clients 589 745,00 DA, debts of the suppliers, debts taxes and social security 458 792,00 DA, Other operating expenses (Cost purchase of sheep sold, transport , fodder, wages, social security, rent, electricity...) 6 113 836.65 DA
Solution of the example number 4:
Amounts Description
989 054,00 availability(1)
5 489 782,00 sale of milk (2)
3 568 741,00 sale of sheep (3)
2 925 484,00 remaining sheep (stocks) (4)
550 000,00 sale of cows (5)
589 745,00 clients (6)
850 000,00 purchase cost of cows sold (7)
6 113 836.65 expenses(8)
458 792,00 liabilities(9)
6 690 177,35 Net base subject to Zakat (10)=(1)+(2)+(3)+(4)+(5)+(6)-(7)-(8)-(9)-
167 254,43 Value of Zakat: Net base subject to Zakat X 2.5%
(One hundred and sixty-seven thousand one hundred and fifty-four Algerian Dinars and 43 cents)
Observation not: The dairy cows, in this example, are considered as fixed assets (investment), so, they are not part of the funds submitted to the Zakat.
Example number 5: retail sales
Mrs. Amina Mhamdi rents a shop in which she sells various general foodstuffs (mini-supermarket). At the end of the year, it had the following information: availability monetary 548 974,00 DA, total annual sales 1 954 870,00 DA, the value of the remaining stocks (average cost price) 1 732 547,00 DA, debts to customers 236 548,00 DA, cost of goods sold* 1 258,723,00 DA, Miscellaneous expenses (salaries and social security of employees, social security of employers, annual rent, electricity and gas, etc.) 451 283,00 DA, debt of suppliers (goods and services) 954 214,00 DA, other debts 49 769,00 DA.
* The cost of goods sold is calculated as follows:
Value of stocks at the start of the period (1-1-2021) + amounts of annual purchases – value of stocks at the end of the period (31-12-2021)
Solution of the example number 5:
Amounts Description
548 974,00 availability (1)
1 954,870,00 total sales (2)
1 732,547,00 stocks (3)
236 548,00 clients (4)
1 258,723,00 Cost of goods sold (5)
451 283,00 miscellaneous costs (6)
954 214,00 suppliers (7)
49 769,00 debts (8)
1 758 950,00 Net base subject to Zakat (9) =(1)+(2)+(3)+(4)- (5)-(6)-(7)-(8)
43 973,75 Zakat value: Net base subject to Zakat X 2.5%
(Forty-three thousand nine hundred and seventy-three Algerian Dinar and 75 cents)
Example number 6: liberal professions
Mr. Mahfoud Brahim is a physician specializing in pediatrics. He rent a local (apartment) where he opens his medical office. At the end of the year, its financial situation is presented as follows: bank balance in national currency 958 741,00 DA, bank balance in foreign currency equivalent to 325 487,00 DA, annual revenue 2 998 468,00 DA, annual miscellaneous expenses (salaries and social security, its own social security, rental, electricity and gas, medical equipment depreciation, various expenses..) 968 541,00 DA, and no claim or debt.
Solution of the example number 6:
Calculation of Zakat:
Amounts Description
958 741,00 national currency (1)
325 487,00 foreign currency (2)
2 998 468,00 income (3)
968 541,00 expenses (4)
3 314 155,00 Net base subject to Zakat = (5) = (1) + (2) + (3) - (4)
82 853,88 Value of: Net base subject to Zakat X 2.5%
(Eighty-two thousand eight hundred fifty-three Algerian Dinar, and 88 cents)
Example 7: construction and public works Company (natural person)
Mr. Abdenour Houari is a contractor. He exercises in the field of construction, public works and hydraulics.
He keeps, with the help of a chartered accountant, a real accounting. He insists on recording in his accounting books all the financial operations provided for by the legislation. And this, not only for the establishment of the financial statements at the end of the year, but, especially to have, at the end of the year, a faithful and real situation of its patrimony and its net result which is used as important information for the calculation of the Zakat.
The accounts information’s of the year 2021 are the following:
1- The company balance sheet:
ASSETS LIABILITIES
Description Gross mounts amortization and provision net
mounts Description Amount
fixed assets 11 500 000 1 725 000 9 775 000 equity 6 500 000
inventory (raw material) 3 545 874 3 545 874 New report (losses) - 1 257 462
clients 3 164 786 236 548 2 928 238 result 1 699 132
bank 1 548 795 1 548 795 Long- debts (LTD) 5 000 000
cash 854 875 854 875 Short-debts (STD) 3 000 000
suppliers 2 956 471
miscellaneous debts 754 641
TOTAL 20 614 330 1 961 548 18 652 782 TOTAL 18 652 782
3- Personal funds: total cash available and bank account balance 695 421,00 DA, personal debts 245 635,00 DA
Solution of example number 7:
1- calculate the working capital
The working capital is calculated from the balance sheet by two methods, but the result remains the same
a- first method:
Permanent equity (long terms) - fixed assets
net assets liabilities
Description Amount Description Amount
fixed assets 9 775 000 equity 6 500 000
working capital 2 166 670 net results 441 670 *
Long-debts 5 000 000
TOTAL 11 941 670 TOTAL 11 941 670
*1 699,132 – 1 257,462
B-second method:
Circulating asset-Current liabilities
NET ASSETS LIABILITIES
stock 2 928 238 Short-debts 3 000 000
clients 3 164 786 suppliers 2 956 471
bank 1 548 795 miscellaneous debts 754 641
cash 854 875 working capital 2 166 670
TOTAL 8 496 694 TOTAL 8 496 694
2- Net base subject to Zakat:
Working capital + profits +personal availability - personal debt
2 166 670 + 441 670 + 695 421 – 245 635 = 3 058 126,00 DA
3- The amount of Zakat is equal 2.5% Net base subject to Zakat:
76 453,15 DA
(Seventy six thousand four hundred fifty three Algerian Dinars 15 cents)
Example 8: commercial enterprises
Mr. Salim Benzargua holds 1 000 shares out of a total of 2 000 shares in the capital of the general partnership company "Salim and Co".
The company manufactures and trades in home and office furniture. It is subjected to the real regime for its tax declarations. These accounting summary tables (balance sheet and income statement) serve, each year, as a basis of credible information for the calculation of Zakat. The information for the year 2021 is as follows:
1-Total monetary availability and bank balances personal 1 256 325.32 DA
2- Personal debts 129 354,45 DA
3- Working capital and profits of the “Salim and Co” 4 984 974,00 DA and
1 879 945,00 DA.
Solution of the example number 8:
1-Net funds subject to Zakat equal:
½ Working capital + ½ profits +availability - personal debt
2 492 487,00 + 939 972.50 +1 256 325.32 - 129 354.45 = 4 559 430,37 DA
2- The amount of Zakat equal 2.5% of net funds subject to Zakat:
113 985,76 DA
(One hundred thirteen thousand nine hundred and eighty-five Algerian Dinars and 76 cents)
Example number 9: sea fishing
Abderazak Nassim is a professional sinner. He owns a medium sized fishing boat. To the He owns a medium-sized fishing vessel. At the end of 2021, he had the following information:
total annual sales 11 987 839,00 DA, salaries and social security ( seven fishing sailors) 2,600,000,00 DA, personal social security 60 000,00 DA, miscellaneous costs (fuel oil and lubricants, depreciation of the vessel, maintenance of the vessel, engine and fishing equipment, insurance, different costs, etc.) 2 967 983,00 DA, total cash and bank availability 1 122,579,00 DA, debts of clients 792 548,00 DA, amount bank loan, without interest, 2 500 00,00 DA over 5 years, repayable over 5 years from 2022
Solution of example number 9:
1-Result calculation (profit or loss):
Seafood sales - (Salaries and social security + personal insurance + miscellaneous expenses)
11 987,839,00 – (2 600,000,00 + 60 000,00 + 2 967,983,00 ) = 6 359 856,00 DA
2-Net base subject to Zakat:
(Availability +receivables + profits) - (1/5 of the bank's debt)
(1 122 579,00 + 792 548,00 + 6 359 856,00 ) - (1/5 x 2 500 000,00 ) =
7 774 983,00 DA
3-The amount of Zakat is equal to: 194 374,58 DA
(One hundred ninety four thousand three hundred seventy four Algerian Dinar 58 cents)
Example number 10: health services (clinical)
Ms Fatima Nadia is a gynecologist who works at the clinic Echifa. The clinic Echifa is a limited liability company (LLC). Ms Fatima holds 2 000 shares of the 10 000 shares of capital of the LLC Echifa. At the end of 2021, it had the following data:
Working capital and profits of the LLC Echifa 9 257 347,00 DA, and 6 458 789,00 DA, total of personal availability in Dinars and in foreign currency 1 857 246,00 DA, debts due 149 778,00 DA, claim against a friend 219 366,00 DA.
Solution of example number 10:
DESCRIPTION OPERATIONS AMOUNT
Working capital (1) 9 257 347,00 X 20% 1 851 469,40
benefits (2) 6 458 789,00 X 20% 1 291 757,80
availability (3) 1 857 246,00
receivables (4) 219 366,00
debts (5) 149 778,00
Net base subject to Zakat =
(1)+(2)+(3)+(4)-(5) 5 070 061,20
Amount of Zakat 2.5 of the base 126 751,53
(One hundred twenty six thousand seven hundred and fifty one Algerian Dinar 53 cents)
Example number 11: many incomes
Adel Karim is a public employee. He owns with his brothers and sisters a plot of agricultural land of 7 hectares inherited from their father. His share is 275 out of a total of 1 000 shares of agricultural land. The family exploits this land through Adel Karim, delegate by proxy, as manager. He receives, in compensation, 10% of net profits of the family farm. Adel Karim oversees agricultural production, poultry farming and livestock (sheep).On the other hand, Adel Karim invested part of his personal funds in an industrial limited liability company (LLC) called “Namaa” as a partner. He possesses 1 500 shares out of a total of 6,000. He pays Zakat on March 31 of the following year (after the approval of all accounts by the general assemblies of the company "Namaa" and its family). The accounting data and financial information as of December 31 were as follows:
1- The total of his personal availability balance (cash plus bank balance)
650 000,00 DA, he is not liable to any person or entity, working capital and net profit of the company "Namaa" is 3,600,000,00 DA, and 1,975,000,00 DA
2-Annual data of the farm (from January 1 to December 31, 2021):
Description Amount
fruit and vegetable sales 1 697 500,00
poultry sales 1 915 000,00
purchase cost of poultry sold 350 000,00
sale of cattle 1 756 300,00
purchase cost of cattle sold 925 000,00
value of cattle in stock on 31-12-2020 551 000,00
value of poultry in stock on 31-12-2021 973 000,00
mortality of chicks and poultry during the year 45 000,00
cash balance 652 300,00
receivables from customers 421 000,00
miscellaneous debts 396 250,00
Miscellaneous charges (seeds, fertilizers, salaries and security, electricity, fuel oil, etc.) 1 127 000,00
Solution of the example number 11:
To calculate the total value of Zakat due to Mr. Adel Karim, the following elements must be calculated:
1- The proportion of the working capital of “Namaa” company:
3 600 000,00 X (1 500/6 000) = 900 000,00 DA
2-the share of Benefits of the "Namaa" company:
1 950 000,00 X (1500/6000) = 487 500,00 DA
3- the result (profit or loss) of the agricultural operation:
from 1-1 to 31-12-2021 Amount
fruit and vegetable sales (1) 1 697 500,00
poultry sales (2) 1 915 000,00
sale of cattle (3) 1 756 300,00
purchase cost of poultry sold (4) 350 000,00
purchase cost of cattle sold (5) 925 000,00
Miscellaneous expenses (6) 1 127 000,00
mortalities (7) 45 000,00
result (profit) (1)+(2)+(3)-(4)-(5)-(6)-(7) 2 921 800,00
4- The share of Benefits (owner and manager): (175/1000) + 10%
2 921 800,00 X (17.5% + 10%) = 803 495,00
5- The quota of availabilities and stocks (poultry and livestock) of the farm:
(652 300,00 + 515 000,00 + 973 000,00 ) X 17.5% = 363 851,00 DA
6- The proportion of debts and receivables of the agricultural operation:
421 000,00 -396 250,00 X )17.5%)= 4 331,25 DA
NB: The calculation of the Nissab differs from the calculation of the results. In this example, sheep are considered among stocks (accounting expression), i.e. from commercial offers (jurisprudential expression), whose average accounting cost (according to market prices) is evaluated at the end of each year in order to include them in the elements of determining the value of the Nissab. But if the livestock is a capital asset (accounting term), i.e. generation, plowing or milk production, in this case it is not considered as a basis for calculating the Zakat.
7- Calculation of the value of Zakat due to Mr. Adel Karim:
Description Amount
(1) Personalfunds 650 000,00
Quota of FR "Namaa" (2) 900 000,00
share of "Namaa" profit (3) 487 500,00
share of profits from the farm (4) 803 495,00
availability and stocks of the agricultural holding (5) 374 552,50
share of receivables and debts of the agricultural holding (6) 4 331,25
Net base subject to Zakat (1)+(2)+(3)+(4)+(5)+(6) 3 219 878,75
Amount of Zakat 2,5% 80 496,97
(Eighty thousand four hundred ninety six Algerian Dinar and 97 cents)
Example number 12: restaurant
Ahmed Benali runs a restaurant where he serves full meals. At the beginning of the year 2022, he decided to pay Zakat for the year 2021. So he turned to a certified accountant with scientific knowledge to determine the amount, the Nissab and the calculation of Zakat. For this purpose, he provided him with documented and confirmed financial information for the year 2021, which are as follows: The annual rental agreement for the premises 360 000,00 DA, electricity, gas and water consumption bills 17,500,00 DA, salaries of the 3 assistants
720 000,00 DA, social security of the assistants 187 200,00 DA, personal social security 40 000,00 DA, taxes 37 000,00 DA, insurance of the store 9,000,00 DA, supplier debts 196 000,00 DA, customer receivables 35 000,00 DA, the average cost of vegetables, fruits and miscellaneous goods in stock as of 31-12-2021 is equal to 20,000,00 DA, the total cash (store, home and bank as of 31-12-2021
850 000,00 DA. But, for its annual purchases of vegetables, fruits and various foodstuffs, as well as for some miscellaneous expenses (miscellaneous maintenance, hygiene materials ...), and its annual income, it has not recorded any data. They were therefore estimated (with the help of the accountant) as follows: average daily purchases 6 500,00 DA, average daily income 15 000,00 DA, average miscellaneous expenses each month 3 500,00 DA, and all this, for a number of 310 working days in 2021.
Solution of example number 12:
1- The amount of the purchases is estimated at:
6 500,00 X 310 = 2 015 000,00 DA
2- The amount of miscellaneous costs is estimated at:
3 500,00 X 10 = 35 000,00 DA
3- The amount of income is estimated at:
15 000,00 X 310 = 4 650 000,00 DA
4- General total of annual expenses:
Description Amount
lease 360 000,00
Electricity… 17 500,00
wages 720 000,00
employee safety 187 200,00
employer security 40 000,00
taxes 37 000,00
insurance 9 000,00
Purchases 2 015 000,00
various charges 35 000,00
TOTAL 3 420 700,00
5- Annual result is equal to: annual income – total annual expenses
2 650 000,00 - 3 420,700,00 = 1 229 300,00 DA
6- Calculate working capital:
Description Amount Description Amount
stock 20 000,00 supplier 176 000,00
customer 35 000,00 working capital 729 000,00
availability 850 000,00
TOTAL 905 000,00 TOTAL 905 000,00
7- The amount of Zakat:
Description Amount
working capital 729 000,00
net profit 1 229 300,00
Net base subject to Zakat 1 958 300,00
Amount of Zakat 2.5% 48 957,50
(Forty eight thousand nine hundred fifty seven Algerian Dinar 50 cents)
In the name of Allah, the Gracious, the Merciful, and prayer and peace be upon the most honorable of messengers, our master Mohammed.
Certainly Islam is a religion of all humanity and of all times. Also, it pays particular attention to a class of society (whatever their obedience) affected by financial weakness so that it is reassured, and that its means of subsistence and its rights to a dignified life are guaranteed.
However, the financial resource to achieve this noble objective is the responsibility of all; individual and society. This funding is the Zakat that God, all powerful, has imposed on Muslims and has made it one of the five pillars of Islam as well as the daily prayer, the fasting of the month of Ramadan, and the pilgrimage to the Sacred House (Mecca)
The Zakat is an individual act of worship with financial and social purposes. But Zakat, as some believe, is not the whole of the Islamic economic system, but certainly an integral part of it.
On the other hand, Zakat is not a tax. It is a personal and religious obligation of a financial nature. It is collected and then distributed specifically for the benefit of a group defined in the Holy Quran in verse 60- Surat al-tawba:
“Charities (Zakat) are for the poor, and the destitute, and those who administer them, and for reconciling hearts, and for freeing slaves, and for those in debt, and in the path of Allah, and for the traveler in need-an obligation from Allah. Allah is All-Knowing, Most Wise”
The tax is a compulsory (pecuniary) levy on the financials resources of the resident natural or legal persons, Muslim or other, serving to cover the expenses of the State: the army, the police, education, health, dams, public services and others. So, taxes cannot replace Zakat.
Without a doubt, the majority of Muslims are keen to submit to religious obligations and to perform them. So, the five daily prayers, fasting and Hajj are all known to everyone; and the obligatory or optional duties recommended are by no means disregarded. But, when a Muslim decides to pay the Zakat, he is lost knowing, in a clear and easy way, these elementary rules, namely: the base, the obligatory minimum (Nissab), and the percentages; for many reasons, including:
- The ignorance of old and repetitive jurisprudential terminologies, which describe, for the most part, a different environment, by its structure, its calculation and measurement elements and its economic scales, from the contemporary societal, environmental and economic structure.
- The literary style of the subjects of Zakat, although most of the Zakat is a financial and accounting matter
- Emphasis on the devotional aspect; encouraging those who pay Zakat and admonishing those who abstain from submitting Zakat
- Emphasis on those who are eligible for Zakat
- Most recent research focuses on the social, financial and economic purposes of Zakat
- Multiple of Fatwas, and in some cases even among those of the same School (Madhab) or among the citizens of the same country
- Difficulty in obtaining books, articles and research that directly and clearly illuminate, and consolidated by applied examples; the calculation of funds subject to Zakat, the minimum of Nissab and the rates for calculating the due to pay.
Also, and with time and modern technological transformation, forms, economic and trade relations, the structure of societies and their multidimensional relations, change continuously. Fortunately, the precepts of Islam are not rigid. Consequently, it is necessary to review the old Jurisprudences (which adapted with an environment different from ours) namely: the determination and the calculation of the funds subjected to the Zakat, the minimum of the Nissab and the rates to be paid. And all this, in a direct, simplified, clear and applicable way (without going into complicated jurisprudential narratives), for what is, in the end, a practical guide for all.
Finally, I mention in this respect that this effort is the result and conclusion inspired by the Jurisprudences of scholars and accounting experts, ancient and contemporary, which are, in my humble opinion, compatible with the law and the spirit of our indulgent religion. It is also, the inspired result and conclusion due to my diligence is the experience of more than three decades in the field of accounting, economics and business management.
Mascara (Algeria) on December 31, 2022
Dr. Abdelkrim MANSOUR BENAOUF
Statutory Auditor and expert in
business financial management
[email protected]
I- Elements and principles of Zakat:
The Zakat is calculated after determining, with precision, the following elements:
1- the base:
The base is the type of net equity that serves as the basis for calculating the value of the Nissab (minimum). It is determined by value, weight and number. It is made up of monetary resources, jewellery, industrial, agricultural, fishing and commercial wealth, income from sports professionals and various articles of art and antiquity... On the other hand, everything that Muslim owns does not subject to Zakat. Thus, the basic and necessary needs for life in general and work, such as housing, cars, buildings, equipment, work tools and investments of all kinds, are excluded from the field of Zakat.
In another hand, it should be mentioned that, now days, agricultural and animal production is subject to, the same principles as the productive manufacturing and industrial sectors. Thus, the agricultural wealth is not only, as mentioned in the old case law as external and internal, dates, raisins and grains, irrigated not, consumable or non-consumable, cows, sheep, goats and camels.
Thus, with change and agricultural development in general, new types are specifically geared towards the food industry. On the other hand, innovative techniques have emerged such as automatic watering or rotating spraying, irrigation with very deep boreholes, greenhouses, gigantic plantations... As for animal production, it has also developed for the same reasons: multiplicity of productions and crossings and most domestic and non-domesticated animals have become merchants
And sometimes a person is subject to Zakat only for one type of income which may or may not reach the minimum of Nissab, so that is not the problem, except another person may have several types of income which may not, separately, reach the Nissab, so he does not pay Zakat. In the latter case, we suggest that it’s fair to determine the value of the Nissab from all incomes combined.
2- The Nissab:
The Nissab is the minimum amount of net property (base) that serves as the basis for calculating Zakat. Conventional case law calculates this limit by the weight, the number or the net value of the funds held, depending on the type of base.
Thus, for monetary and gold, industrial and commercial wealth, they determine the Nissab is at an average value equivalent to 85 grams of 24-carat gold. As for the Nissab of cattle, it is determined by number; for sheep, for example, the Zakat of one sheep is imposed if the Nissab is between 40 and 120 sheep. As for agricultural production, it is not undefined by a group of classical jurists and determined by others and this for a weight of 653 kg or 948 kg. The value of Zakat to be paid is determined by weight; 10% or 5% of the Nissab, depending on the type of agricultural land, watered by rain and the rivers, or irrigated by using camels.
But, Now days, if we calculate the agricultural and animal Nissab with these same proportions and without examination or analysis, and without taking into account the effort and the expenses which are devoted to it, we can, certainly, fall into the risk of injustice towards the poor farmer; whose food produced is not enough, sometimes not even for self-consumption or to meet the basic needs of his family. Also, and with these same proportions of the Nissab, individuals, investors, and even large companies that operate in the agricultural field, sometimes realize losses after calculating their annual income, all risk being harmed.
Besides, the world has many species agricultural crops and animal breeds, and their production costs, as well as sales prices, vary from one region to another. Thus, now days, agricultural and animal production is subject to the same industrial and commercial production and management methods.
However, for all these reasons, and to avoid all inequalities, I suggest that it is fair to evaluate animal and agricultural wealth, of all kinds, financially and to determine a fixed reference for its Nissab which does not differ from the Nissab of the commercial and industrial heritage. This Nissab must be determined by the official authorities of each country. For example in Algeria, the value of the Nissab is 85 grams of 18 karat gold or the equivalent of the value of the Algerian Dinar.
3- The year (annuality):
We can define annuality as the cycle of passage of a full year from the date on which the Muslim decided to pay his Zakat, after his financial wealth has reached the Nissab. The year is determined according to the Hijri (Muslim) or Gregorian calendar. According to classical jurisprudence, the principle of annuality does not apply for the agricultural production. But, in today's real world, it is unfair to determine the aforementioned Nissab of agricultural products, as such, for many reasons such as the annual expenses, sometimes the charges even cover several years, it can be specific to one product (direct charges) or for the whole production (indirect charges), farmers' wages and their social security, owner's social security, rental of land and equipment, expenses for irrigation, fertilizers, electricity, fuels… are not spent only for one type of production, but rather on the whole production. In addition, certain charges, such as taxes, provisions, depreciation of machinery and equipment are calculated at the end of the year.
On the other hand, in the other sectors, we can find cases like a merchant who sells all his stocks of goods before the advent of the year, and in that same year he will have spent all his income in various ways, consumption and investment, so at the end of the annual cycle there will be no base for Zakat. Or also a doctor, an accountant or a lawyer and their ilk, can spend all their annual income and at the end of the annual cycle their financial balance is null.
It is for all these reasons that it is right that the annual results of their work, profits or losses, be one of the fundamental elements when determining the base of Zakat. Therefore, we suggest that it is more appropriate, correct and practical for the year (the annuality of Zakat) to be the date of the new year, Hijri or Gregorian, for everyone and all areas: employees or non-salaried, industrial, agricultural and various services.
4- The value of Zakat:
The value of Zakat is determined and calculated from the Nissab. It pays pecuniary, in weight or in number. However, and seen all the reasons mentioned above, and seen different contemporary modes of production and funding of all economic activities, we suggest that the calculation of the value of Zakat on agricultural and animal wealth aligns with Zakat on industrial and commercial wealth. That is to say a unified average 2.5% of the Nissab each end of the year.
III- the amount of the base, the Nissab, and the value of the Zakat:
The Zakat is a personal obligation and not collective, because it is an individual act of worship. It does not concern the legal persons such as companies or same the State. So the person himself, or with the help of a qualified Muslim accountant, determines the base, the Nissab and the value of Zakat. Then, he pays directly, himself, the amount of Zakat to those who are legally eligible (according to the precepts of the Holly Quran), or by delegating an official government fund for Zakat or a non-profit organization approved by the State.
And before giving arithmetic practices examples, it is important take a brief look of the field of economic activity, source of considerable wealth for a large category subject to Zakat.
As it was mentioned above, a person can collect income from a single source or through multiple sources; such as employment, inheritance, or the profits of his investments in economic activity or otherwise. Contemporary economic activities are those activities witch providing, making, buying, or selling of commodities or services by people to satisfy their day-to-day needs of life. Economic activities include any activity that deals with the manufacturing, distributing, or utilizing of products or services. In general, they are classified into three sectors: the primary (exploitation of natural resources), secondary (industrial activities), and tertiary (the rest, notably services). The primary sector includes agriculture, fishing and the extraction of raw materials such as coal, oil, iron and various minerals... The secondary sector is a manufacturing sector that includes the processing of products agricultural and fishing (agri-food), the transformation of raw materials into finished products. The tertiary sector includes all kinds of services, such as health, education (private), bold, insurance, transport, scientific professions (liberal) such as medicine, defense lawyer, accounting, computer science, architecture…, artistic activities …
Any economic operator, in any sector, constitutes an economic enterprise; a cell in economic activity. This entity can be owned by a natural person or owned by several people such as a limited liability company (LLC) or stock company (SPA). All these companies, in principle, must, compulsory or optional, throughout the year, register all accounts and record all their financial activity. At the end of the year, the company prepares a summary of its activity, namely the financial statements; the balance sheet where include all the elements of its assets and its financial obligations (assets and liabilities), and the income statement where the difference between all his incomes and all his expenses is calculated.
If these financial statements provide a true and faithful, as objective as possible, the reality of the entity’s economic and financial situation, the amount of working capital, to which the profit is added or the loss which is deducted, is considered as the basic base of Zakat.
Net base of Zakat funds = working capital ± Result
On the other hand, in the event that it is not possible to keep accounting books and record all operations in detail, the assets and the result will be calculated on a flat-rate basis, except that the amount of the expenses deducted does not exceed one-third of estimated income (jurisprudence).
Generally, working capital is determined by the difference between the sum of short-term assets (cash and bank account, net stocks of goods and raw materials, guaranteed and non-doubtful debts that will be paid by customers...) and the sum of short-term liabilities (confirmed debts of suppliers of goods and services, bank debts due, various debts: taxes and different debts...)
However, I remind that the working capital or profit is not fresh cash money, but rather the funds contained in company assets; who are either available, or that can be liquidated in short term, i.e. during the next year next. We also point out, that some companies, especially in the service and industrial sectors, can have very limited working capital while making significant profits. While for some, especially in the merchandise trade (supermarkets selling food and clothing and others), the working capital can be very important, and, despite this, they make a paltry profit or even, sometimes, losses.
Therefore, we believe it is fair to determine the company's Zakat base, across all sectors, by adding annual net income to working capital.
At last, two points should be noted:
- whatever our scientific and arithmetic knowledge, we emphasize that reading and analyzing financial statements and accountants is not a general culture, but rather, it’s a field of science and technical reserved for recognized professionals.
- The Zakat cannot be counted in companies, because, as we mentioned before, it’s a personal and individual act that the Muslim pays for his own finances. So, Zakat is not a debt or an expense borne by the economic enterprise.
III-Application examples:
All the examples below will have the same elements, namely:
-All persons are Muslim adults and meet all requirements to pay Zakat.
-Year: from January 2021 to December 31, 2021
- For economic operators: their personal and family expenses (equipment or expenses), as well as the purchase of means of production (investment) for their different types of economic establishments, are all excluded (mathematically) from the base subject to the Zakat.
- The people's residence is the Algeria. The amount of the Nissab, for the year 2021, is 731 000,00 DA (seven hundred and thirty-one thousand Algerian Dinars)
- Receivables and debts are net worth and confirmed
- Cash or bank balances as of 31-12-2021
- Zakat calculation date is December 31, 2021
- The Zakat value, if it reaches the Nissab, is calculated with a unified average rate of 2,5%.
Example number 1: treatment and Wages
Mohammed ALI is an engineer. He works in a company in the south of the country. The sum of his bank account balance and personal cash 897 000,00 DA. The total debts, expired and unpaid (December home loan due date, electricity, gas and water bill …) 58 200,00 DA. One of his relatives owes him a sum 35 000,00 DA which will be paid in January 2022
Solution of the example number 1:
1-Net base of equity subject to Zakat:
897 000,00 + 35 000,00 - 58 200,00 = 873 800,00 DA
2-The value of Zakat
Net base subject to Zakat X 2.5% = 21 845,00 DA
(Twenty-one thousand eight hundred and forty-five Algerian Dinars)
Example number 2: jewelry (thrift and adornment)
Mrs. ZENAB is a housewife. The bank and personal balance 8 754,00 DA, the sum of the average value of her gold and silver jewelry 800 000,00 DA, and she owes a relative 45 000,00 DA.
Solution of example number 2:
1-Net base subject to Zakat:
800 000,00 + 8 754,00 - 45 000,00 = 763 754,00 DA
2- The value of Zakat:
Net base subject to Zakat X 2.5% = 19 093,85 DA
(Nineteen thousand ninety-three Algerian Dinar and eighty-five cents)
Example number 3: agricultural production
Mr. Abdelkader AMIRI owns agricultural land. He produces cereals, vegetables and of fruits. The total annual sales of its production is 895 873,00 DA. A stock of product will be sold in the month of February 2022, his value (average cost) 750 000,00 DA. The total of the various annual expenses (salaries of farmers and their social security, his social security, seeds, irrigation, electricity, equipment rental, etc.) 912 541,00 DA. He owes a sum to various suppliers 451 254,00 DA. His clients owe him 547 890,00 DA. The sum of the balance of his availability banking and cash 898 745,00 DA.
Solution of the example number 3:
The value of Zakat is:
Amounts Description
898 745,00 Availability (1)
750 000,00 Inventory (2)
895 873,00 Sales (3)
547 890,00 clients (4)
912 541,00 expenses (5)
451 254,00 suppliers (6)
1 728 713,00 Net base subject to Zakat (7) = (1)+(2)+(3)+(4)-(5)-(6)
43 217.83 Net Base Zakat amount subject to Zakat X 2.5%
(Forty-three thousand two hundred seventeen Algerian Dinar and 83 cents)
Example number 4: Breeding of animals: use and sale
Achraf Emad is a Fellah. He rents three warehouses; two for breeding cows for the production of milk and the third warehouse for breeding sheep in order to market them. It had the following accounting and financial information: availability
989 054,00 DA, annual milk sales 5 489 782,00 DA, annual sheep sales
3 568 741,00 DA, the average cost of the remaining sheep 2,925,484,00 DA, three (3) cows sold for sum 550 000,00 DA, the cost of buying cows sold 850 000,00 DA, claims on clients 589 745,00 DA, debts of the suppliers, debts taxes and social security 458 792,00 DA, Other operating expenses (Cost purchase of sheep sold, transport , fodder, wages, social security, rent, electricity...) 6 113 836.65 DA
Solution of the example number 4:
Amounts Description
989 054,00 availability(1)
5 489 782,00 sale of milk (2)
3 568 741,00 sale of sheep (3)
2 925 484,00 remaining sheep (stocks) (4)
550 000,00 sale of cows (5)
589 745,00 clients (6)
850 000,00 purchase cost of cows sold (7)
6 113 836.65 expenses(8)
458 792,00 liabilities(9)
6 690 177,35 Net base subject to Zakat (10)=(1)+(2)+(3)+(4)+(5)+(6)-(7)-(8)-(9)-
167 254,43 Value of Zakat: Net base subject to Zakat X 2.5%
(One hundred and sixty-seven thousand one hundred and fifty-four Algerian Dinars and 43 cents)
Observation not: The dairy cows, in this example, are considered as fixed assets (investment), so, they are not part of the funds submitted to the Zakat.
Example number 5: retail sales
Mrs. Amina Mhamdi rents a shop in which she sells various general foodstuffs (mini-supermarket). At the end of the year, it had the following information: availability monetary 548 974,00 DA, total annual sales 1 954 870,00 DA, the value of the remaining stocks (average cost price) 1 732 547,00 DA, debts to customers 236 548,00 DA, cost of goods sold* 1 258,723,00 DA, Miscellaneous expenses (salaries and social security of employees, social security of employers, annual rent, electricity and gas, etc.) 451 283,00 DA, debt of suppliers (goods and services) 954 214,00 DA, other debts 49 769,00 DA.
* The cost of goods sold is calculated as follows:
Value of stocks at the start of the period (1-1-2021) + amounts of annual purchases – value of stocks at the end of the period (31-12-2021)
Solution of the example number 5:
Amounts Description
548 974,00 availability (1)
1 954,870,00 total sales (2)
1 732,547,00 stocks (3)
236 548,00 clients (4)
1 258,723,00 Cost of goods sold (5)
451 283,00 miscellaneous costs (6)
954 214,00 suppliers (7)
49 769,00 debts (8)
1 758 950,00 Net base subject to Zakat (9) =(1)+(2)+(3)+(4)- (5)-(6)-(7)-(8)
43 973,75 Zakat value: Net base subject to Zakat X 2.5%
(Forty-three thousand nine hundred and seventy-three Algerian Dinar and 75 cents)
Example number 6: liberal professions
Mr. Mahfoud Brahim is a physician specializing in pediatrics. He rent a local (apartment) where he opens his medical office. At the end of the year, its financial situation is presented as follows: bank balance in national currency 958 741,00 DA, bank balance in foreign currency equivalent to 325 487,00 DA, annual revenue 2 998 468,00 DA, annual miscellaneous expenses (salaries and social security, its own social security, rental, electricity and gas, medical equipment depreciation, various expenses..) 968 541,00 DA, and no claim or debt.
Solution of the example number 6:
Calculation of Zakat:
Amounts Description
958 741,00 national currency (1)
325 487,00 foreign currency (2)
2 998 468,00 income (3)
968 541,00 expenses (4)
3 314 155,00 Net base subject to Zakat = (5) = (1) + (2) + (3) - (4)
82 853,88 Value of: Net base subject to Zakat X 2.5%
(Eighty-two thousand eight hundred fifty-three Algerian Dinar, and 88 cents)
Example 7: construction and public works Company (natural person)
Mr. Abdenour Houari is a contractor. He exercises in the field of construction, public works and hydraulics.
He keeps, with the help of a chartered accountant, a real accounting. He insists on recording in his accounting books all the financial operations provided for by the legislation. And this, not only for the establishment of the financial statements at the end of the year, but, especially to have, at the end of the year, a faithful and real situation of its patrimony and its net result which is used as important information for the calculation of the Zakat.
The accounts information’s of the year 2021 are the following:
1- The company balance sheet:
ASSETS LIABILITIES
Description Gross mounts amortization and provision net
mounts Description Amount
fixed assets 11 500 000 1 725 000 9 775 000 equity 6 500 000
inventory (raw material) 3 545 874 3 545 874 New report (losses) - 1 257 462
clients 3 164 786 236 548 2 928 238 result 1 699 132
bank 1 548 795 1 548 795 Long- debts (LTD) 5 000 000
cash 854 875 854 875 Short-debts (STD) 3 000 000
suppliers 2 956 471
miscellaneous debts 754 641
TOTAL 20 614 330 1 961 548 18 652 782 TOTAL 18 652 782
3- Personal funds: total cash available and bank account balance 695 421,00 DA, personal debts 245 635,00 DA
Solution of example number 7:
1- calculate the working capital
The working capital is calculated from the balance sheet by two methods, but the result remains the same
a- first method:
Permanent equity (long terms) - fixed assets
net assets liabilities
Description Amount Description Amount
fixed assets 9 775 000 equity 6 500 000
working capital 2 166 670 net results 441 670 *
Long-debts 5 000 000
TOTAL 11 941 670 TOTAL 11 941 670
*1 699,132 – 1 257,462
B-second method:
Circulating asset-Current liabilities
NET ASSETS LIABILITIES
stock 2 928 238 Short-debts 3 000 000
clients 3 164 786 suppliers 2 956 471
bank 1 548 795 miscellaneous debts 754 641
cash 854 875 working capital 2 166 670
TOTAL 8 496 694 TOTAL 8 496 694
2- Net base subject to Zakat:
Working capital + profits +personal availability - personal debt
2 166 670 + 441 670 + 695 421 – 245 635 = 3 058 126,00 DA
3- The amount of Zakat is equal 2.5% Net base subject to Zakat:
76 453,15 DA
(Seventy six thousand four hundred fifty three Algerian Dinars 15 cents)
Example 8: commercial enterprises
Mr. Salim Benzargua holds 1 000 shares out of a total of 2 000 shares in the capital of the general partnership company "Salim and Co".
The company manufactures and trades in home and office furniture. It is subjected to the real regime for its tax declarations. These accounting summary tables (balance sheet and income statement) serve, each year, as a basis of credible information for the calculation of Zakat. The information for the year 2021 is as follows:
1-Total monetary availability and bank balances personal 1 256 325.32 DA
2- Personal debts 129 354,45 DA
3- Working capital and profits of the “Salim and Co” 4 984 974,00 DA and
1 879 945,00 DA.
Solution of the example number 8:
1-Net funds subject to Zakat equal:
½ Working capital + ½ profits +availability - personal debt
2 492 487,00 + 939 972.50 +1 256 325.32 - 129 354.45 = 4 559 430,37 DA
2- The amount of Zakat equal 2.5% of net funds subject to Zakat:
113 985,76 DA
(One hundred thirteen thousand nine hundred and eighty-five Algerian Dinars and 76 cents)
Example number 9: sea fishing
Abderazak Nassim is a professional sinner. He owns a medium sized fishing boat. To the He owns a medium-sized fishing vessel. At the end of 2021, he had the following information:
total annual sales 11 987 839,00 DA, salaries and social security ( seven fishing sailors) 2,600,000,00 DA, personal social security 60 000,00 DA, miscellaneous costs (fuel oil and lubricants, depreciation of the vessel, maintenance of the vessel, engine and fishing equipment, insurance, different costs, etc.) 2 967 983,00 DA, total cash and bank availability 1 122,579,00 DA, debts of clients 792 548,00 DA, amount bank loan, without interest, 2 500 00,00 DA over 5 years, repayable over 5 years from 2022
Solution of example number 9:
1-Result calculation (profit or loss):
Seafood sales - (Salaries and social security + personal insurance + miscellaneous expenses)
11 987,839,00 – (2 600,000,00 + 60 000,00 + 2 967,983,00 ) = 6 359 856,00 DA
2-Net base subject to Zakat:
(Availability +receivables + profits) - (1/5 of the bank's debt)
(1 122 579,00 + 792 548,00 + 6 359 856,00 ) - (1/5 x 2 500 000,00 ) =
7 774 983,00 DA
3-The amount of Zakat is equal to: 194 374,58 DA
(One hundred ninety four thousand three hundred seventy four Algerian Dinar 58 cents)
Example number 10: health services (clinical)
Ms Fatima Nadia is a gynecologist who works at the clinic Echifa. The clinic Echifa is a limited liability company (LLC). Ms Fatima holds 2 000 shares of the 10 000 shares of capital of the LLC Echifa. At the end of 2021, it had the following data:
Working capital and profits of the LLC Echifa 9 257 347,00 DA, and 6 458 789,00 DA, total of personal availability in Dinars and in foreign currency 1 857 246,00 DA, debts due 149 778,00 DA, claim against a friend 219 366,00 DA.
Solution of example number 10:
DESCRIPTION OPERATIONS AMOUNT
Working capital (1) 9 257 347,00 X 20% 1 851 469,40
benefits (2) 6 458 789,00 X 20% 1 291 757,80
availability (3) 1 857 246,00
receivables (4) 219 366,00
debts (5) 149 778,00
Net base subject to Zakat =
(1)+(2)+(3)+(4)-(5) 5 070 061,20
Amount of Zakat 2.5 of the base 126 751,53
(One hundred twenty six thousand seven hundred and fifty one Algerian Dinar 53 cents)
Example number 11: many incomes
Adel Karim is a public employee. He owns with his brothers and sisters a plot of agricultural land of 7 hectares inherited from their father. His share is 275 out of a total of 1 000 shares of agricultural land. The family exploits this land through Adel Karim, delegate by proxy, as manager. He receives, in compensation, 10% of net profits of the family farm. Adel Karim oversees agricultural production, poultry farming and livestock (sheep).On the other hand, Adel Karim invested part of his personal funds in an industrial limited liability company (LLC) called “Namaa” as a partner. He possesses 1 500 shares out of a total of 6,000. He pays Zakat on March 31 of the following year (after the approval of all accounts by the general assemblies of the company "Namaa" and its family). The accounting data and financial information as of December 31 were as follows:
1- The total of his personal availability balance (cash plus bank balance)
650 000,00 DA, he is not liable to any person or entity, working capital and net profit of the company "Namaa" is 3,600,000,00 DA, and 1,975,000,00 DA
2-Annual data of the farm (from January 1 to December 31, 2021):
Description Amount
fruit and vegetable sales 1 697 500,00
poultry sales 1 915 000,00
purchase cost of poultry sold 350 000,00
sale of cattle 1 756 300,00
purchase cost of cattle sold 925 000,00
value of cattle in stock on 31-12-2020 551 000,00
value of poultry in stock on 31-12-2021 973 000,00
mortality of chicks and poultry during the year 45 000,00
cash balance 652 300,00
receivables from customers 421 000,00
miscellaneous debts 396 250,00
Miscellaneous charges (seeds, fertilizers, salaries and security, electricity, fuel oil, etc.) 1 127 000,00
Solution of the example number 11:
To calculate the total value of Zakat due to Mr. Adel Karim, the following elements must be calculated:
1- The proportion of the working capital of “Namaa” company:
3 600 000,00 X (1 500/6 000) = 900 000,00 DA
2-the share of Benefits of the "Namaa" company:
1 950 000,00 X (1500/6000) = 487 500,00 DA
3- the result (profit or loss) of the agricultural operation:
from 1-1 to 31-12-2021 Amount
fruit and vegetable sales (1) 1 697 500,00
poultry sales (2) 1 915 000,00
sale of cattle (3) 1 756 300,00
purchase cost of poultry sold (4) 350 000,00
purchase cost of cattle sold (5) 925 000,00
Miscellaneous expenses (6) 1 127 000,00
mortalities (7) 45 000,00
result (profit) (1)+(2)+(3)-(4)-(5)-(6)-(7) 2 921 800,00
4- The share of Benefits (owner and manager): (175/1000) + 10%
2 921 800,00 X (17.5% + 10%) = 803 495,00
5- The quota of availabilities and stocks (poultry and livestock) of the farm:
(652 300,00 + 515 000,00 + 973 000,00 ) X 17.5% = 363 851,00 DA
6- The proportion of debts and receivables of the agricultural operation:
421 000,00 -396 250,00 X )17.5%)= 4 331,25 DA
NB: The calculation of the Nissab differs from the calculation of the results. In this example, sheep are considered among stocks (accounting expression), i.e. from commercial offers (jurisprudential expression), whose average accounting cost (according to market prices) is evaluated at the end of each year in order to include them in the elements of determining the value of the Nissab. But if the livestock is a capital asset (accounting term), i.e. generation, plowing or milk production, in this case it is not considered as a basis for calculating the Zakat.
7- Calculation of the value of Zakat due to Mr. Adel Karim:
Description Amount
(1) Personalfunds 650 000,00
Quota of FR "Namaa" (2) 900 000,00
share of "Namaa" profit (3) 487 500,00
share of profits from the farm (4) 803 495,00
availability and stocks of the agricultural holding (5) 374 552,50
share of receivables and debts of the agricultural holding (6) 4 331,25
Net base subject to Zakat (1)+(2)+(3)+(4)+(5)+(6) 3 219 878,75
Amount of Zakat 2,5% 80 496,97
(Eighty thousand four hundred ninety six Algerian Dinar and 97 cents)
Example number 12: restaurant
Ahmed Benali runs a restaurant where he serves full meals. At the beginning of the year 2022, he decided to pay Zakat for the year 2021. So he turned to a certified accountant with scientific knowledge to determine the amount, the Nissab and the calculation of Zakat. For this purpose, he provided him with documented and confirmed financial information for the year 2021, which are as follows: The annual rental agreement for the premises 360 000,00 DA, electricity, gas and water consumption bills 17,500,00 DA, salaries of the 3 assistants
720 000,00 DA, social security of the assistants 187 200,00 DA, personal social security 40 000,00 DA, taxes 37 000,00 DA, insurance of the store 9,000,00 DA, supplier debts 196 000,00 DA, customer receivables 35 000,00 DA, the average cost of vegetables, fruits and miscellaneous goods in stock as of 31-12-2021 is equal to 20,000,00 DA, the total cash (store, home and bank as of 31-12-2021
850 000,00 DA. But, for its annual purchases of vegetables, fruits and various foodstuffs, as well as for some miscellaneous expenses (miscellaneous maintenance, hygiene materials ...), and its annual income, it has not recorded any data. They were therefore estimated (with the help of the accountant) as follows: average daily purchases 6 500,00 DA, average daily income 15 000,00 DA, average miscellaneous expenses each month 3 500,00 DA, and all this, for a number of 310 working days in 2021.
Solution of example number 12:
1- The amount of the purchases is estimated at:
6 500,00 X 310 = 2 015 000,00 DA
2- The amount of miscellaneous costs is estimated at:
3 500,00 X 10 = 35 000,00 DA
3- The amount of income is estimated at:
15 000,00 X 310 = 4 650 000,00 DA
4- General total of annual expenses:
Description Amount
lease 360 000,00
Electricity… 17 500,00
wages 720 000,00
employee safety 187 200,00
employer security 40 000,00
taxes 37 000,00
insurance 9 000,00
Purchases 2 015 000,00
various charges 35 000,00
TOTAL 3 420 700,00
5- Annual result is equal to: annual income – total annual expenses
2 650 000,00 - 3 420,700,00 = 1 229 300,00 DA
6- Calculate working capital:
Description Amount Description Amount
stock 20 000,00 supplier 176 000,00
customer 35 000,00 working capital 729 000,00
availability 850 000,00
TOTAL 905 000,00 TOTAL 905 000,00
7- The amount of Zakat:
Description Amount
working capital 729 000,00
net profit 1 229 300,00
Net base subject to Zakat 1 958 300,00
Amount of Zakat 2.5% 48 957,50
(Forty eight thousand nine hundred fifty seven Algerian Dinar 50 cents)
