Introduction: Scholars differ on the calculation of Zakāh on shares due to varying considerations regarding shares: whether they are trade goods subject to Zakāh like other trade goods, or they are assets generating income subject to income Zakāh, or they are wealth held for value appreciation. I believe shares can be categorized into two types:
1. Short-term shares: This type is bought by the owner not for long-term investment but for quick profit through price increases. The owner might sell these shares an hour, a day, or more after purchasing them, aiming for quick gains. There is no fixed holding period for this type; the owner might hold it for an hour or a year but aims for profit from the share itself, not its dividends.
Zakāh on this type is calculated as Zakāh on trade goods. The value of the share and any profit made from it, if sold, should be included in the calculation. If not sold by the end of the year, the market value of the shares is added to the owner’s wealth, and Zakāh is paid at a rate of 2.5% (one-quarter of one-tenth).
For example, if someone owns shares worth $10,000 and has $10,000 in cash at the end of the year, they would pay 2.5% of $20,000.
2. Long-term shares: This type involves buying shares in large or growing companies in sectors like aviation, pharmaceuticals, transportation, hotels, and cleaning services, with the intention of earning steady or semi-steady income from profits (which might not always be guaranteed).
Profits here are calculated after deducting operating costs and administrative fees, and the remaining amount is distributed to shareholders as dividends, whether monthly, quarterly, semi-annually, or annually.
This type might also experience an increase in share value during the year, raising the share price along with the profits, or vice versa.
Scholars have different opinions on calculating Zakāh for this type:
- The first opinion is that both the share and its profit are subject to Zakāh at a rate of 2.5%, similar to the first type.
- The second opinion is that only the profit is subject to Zakāh, not the share’s principal value, considering the shares as income-generating tools, similar to machinery and raw materials used in production, which are not subject to Zakāh. Only the income generated from these tools, if not consumed in basic needs, is subject to Zakāh at a rate of 2.5%.
- The third opinion is that only the profit is subject to Zakāh, but at a rate of 10% if expenses are deducted or 5% if not, considering the share’s principal value as fixed capital, intended to generate income rather than grow in value.
This is the opinion I support because the opinions that requires Zakāh on both the share and its profit for long-term investments can be burdensome, forcing the sale of some shares to pay Zakāh, which is costly. The principle in Islam is to avoid harm: “He has chosen you and has not placed upon you in the religion any difficulty.” [Al-Ḥajj 78]. Moreover, it distinguishes between similar types of wealth, giving landowners an advantage over property or factory owners who do not intend to sell.
The opinion that requires Zakāh only on remaining profits is excessive as it allows the wealthy to consume their wealth on luxuries without giving anything to the poor. For instance, someone with numerous shares in a factory or hotel earning millions might spend the money on personal luxuries and not pay Zakāh on this opinion, which is unjust. It taxes someone saving a few thousand for the future but not millionaires consuming their wealth.
The third opinion is fair since the owner pays Zakāh on the income generated. If the profit is monthly, Zakāh is paid monthly. If quarterly, Zakāh is paid quarterly. If annually, the owner must calculate and pay Zakāh even if the profit is spent, similar to agricultural Zakāh.
Finally, an increase in the share value in this type does not affect Zakāh calculation, similar to the rising value of agricultural land or buildings used for income generation, which does not affect the Zakāh rate.
Fatwā issued by Dr. Khālid Naṣr
