Zakāh on Stocks
Economic Issues
Question asked by .
Answered by Dr. Shehzad Saleem

How should we calculate Zakāh on stocks and shares?


Before I answer this question, let me draw your attention to an important aspect regarding its calculation: One of the heads on which Zakāh was levied in the time of the Prophet (sws) was on the harvested crop. It is evident that, contrary to wealth (on which Zakāh was levied annually at the rate of 2.5 %), crops form a different category. While in the former, no production is taking place, the latter are actually a form of produce. On crops grown on rainy lands, Zakāh was levied at the rate of 10 % of the produce at the time of produce, while on lands which needed human effort for water supply to grow crops, it was levied at the rate of 5 % of the produce at the time of produce. In other words, if the spirit of this directive is kept in consideration, Zakāh on any form of produce is either 10 % or 5%, whatever be its nature. In the times of the Prophet (sws), since agricultural produce was the only form of produce, therefore Zakāh was imposed on it on the above mentioned rates. Today by analogy, it should be levied at these very rates on any other form of produce. Industrial produce, in these times, for example is a very common form of produce.

As far as the difference in the two rates of produce (5% and 10%) is concerned, it is evident that where human effort is very little – that is it is confined to sowing seeds only and where water is actually supplied through rains, the rate of Zakāh is more, ie 10%. On the contrary, where this effort is considerable, the rate is reduced to 5 %. In other words, if one derives the principle underlying this calculation, one can safely conclude that Zakāh on all items which are produced both by the interaction of labour and capital is 5%, and on items which are produced such that the basic factor in producing them is either labour or capital, it is 10%.

It also needs to be appreciated that all the tools of production are exempted from Zakāh.

With this background, I now come to your question. By analogy, earning money through stocks seems to be a form of produce in which no labour is involved. It is the case of production made through capital only. If this derivation is true, then Zakāh should be levied at the rate of 10 % on the dividend earned. The total amount invested in stocks is, of course, exempt from Zakāh since it is basically the tool of production.

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