Zakat and its Importance

Written By Akshaya Ashok, Reviewed By Retheesh R S

Published on 26/11/2024

The pillar in Islam is zakat, which limits the charity to those who have reached the financial capability of donating it. The Arabic term 'zakat' translates to "increase" or "growth" in a literal sense. It also implies"cleansing" and "enhancement." At the beginning of its 23-year period of gradual disclosure, the Quran, the holy book of Islam, established the Arabic term ‘zakat’ as the designated form of almsgiving in Islam. It purifies money, enhances faith, encourages benevolence, and benefits the needy and the poor, in addition to reducing poverty and inequality in Muslim society. It entails giving 2.5 percent of your total savings and property. The Zakat collected is then divided among specific needy categories, such as the poor, the needy, and those who have no one to support them.

Why Zakat Matters?

Zakat – one of the components of the so-called five pillars of Islam – means much more than simply devout fulfillment of a religious duty. This is an efficacious weapon for spiritual and moral improvement, social progress, and economic equilibrium. Here's why:

Spiritual Benefits

• Purification of Wealth: Zakat is perceived as a purification process of one’s wealth, which encourages the rich to not accumulate wealth but distribute it among the needy.
• Strengthening Faith: In obeying this divine directive, the Muslim enhances his or her relationship with God as well as his faith.
• Cultivating Gratitude: Zakat promotes thankfulness for what a person has been blessed with and promotes humility as well.

Social and Economic Benefits

• Reducing Poverty: Zakat direct funds are channels to the poor and needy to help meet their basic needs such as food.
• Promoting Social Justice: With respect to the economic impact, Zakat leads to the distribution of wealth hence closing the wealth gaps in society.
• Economic Growth: This spending and investing are encouraged because zakat helps in enhancing the level of spending in the economy.
• Community Development: This means that zakat funds can emphasis of the utilised in funding various projects within the community such as putting up of schools, hospitals, and even infrastructural development.

Zakat in Saudi Arabia

Zakat in Saudi Arabia is comprehensively taken to play the role of a social and economic organizer. Modern Saudi Arabia has made it easier to organize Zakat by establishing a Zakat Fund to disburse and collect Zakat money. This must be done to make sure that the funds get to the neediest and within the Kingdom of Saudi Arabia as well as in other parts of the world. Through Zakat, Muslims provide solutions to the problems that affect society by coming up with positive changes and improvements ensuring people show a level of generosity and managing wealth to impact society positively. 

What are the things to consider when paying for Zakat?

Setting Clear Intentions

• Sincerity: make sure your intention is right; and that your intention is purely for the sake of Allah.
• Disinterestedness: Spend your wealth for Allah’s sake even in the form of charity with no desire for anything in return.
• Prioritise Needs: Concentrate on the areas that are of a more critical priority to the target population.

Rules for Zakat 

Zakat as among the foremost religious obligations of Muslims implies a rather significant cost for enterprises in Saudi Arabia. To ensure proper compliance with the laws and legal requirements of Zakat, business people need to understand the rules to perform their religious duties. 

Business owners are required to pay zakat on all trading stock, which includes:

•  Property and land maintained for future sale
• Unprocessed materials
• Items manufactured for the purpose of being sold
• Nevertheless, the subsequent business assets are not subject to zakat: Structures, equipment, and transportation were utilised for operational needs.

Other than business owners there are people who need to pay Zakat in KSA who possess a certain minimum amount of wealth known as Nisab (minimum amount of wealth). This amount varies on the type of wealth (gold, silver, cash, livestock) and also it is crucial to know the deadline to pay Zakat in KSA. Unlike other Islamic pillars, there is no specific period when Zakat payment is due in KSA. It is paid after one lunar year from the time a person gains more than Nisab value and becomes eligible for it. Nevertheless, it is preferable to pay it before the beginning of a new Islamic lunar year. 

Picking Organisations to Work with

• Reputation: Select groups with clear reporting procedures and accountability responsibilities.
• Efficiency: Only go for causes that require less administrative expenditure while making more difference out of the donations received.
• Direct Impact: Here think of those organisations that are directly involved in the provision of these needs.
• Consult Experts: Contact Islamic religious leaders or get in touch with Reyson Badger – a Zakat and tax consultancy agency in Saudi Arabia.

Keeping Records

• Maintain Records: Source all donations, documenting the date, amount, and name of the person/ organization benefiting from the donation.
• Organize Receipts: Receipts of store purchases or certificates of donations can be kept to be used later.
• Consult Tax Advisors: Speak to your tax advisors or accountants in relation to how Zakat donations would affect your tax matters.

Calculating Zakat

Understanding Zakat Calculation in KSA is an important step in giving Zakat. For business owners, it is computed based on their tangible and intangible assets less certain current fixed assets such as buildings, or machinery.

• Determine Assets for Zakat: Administer outward liabilities of Zakat like Cash, inventory, and Receivables
• Calculate Net Worth: The calculation is as follows: total value of assets of Zakat liabilities (debts).
• Apply Zakat Rate: Divide the asset figure by the net worth and round up–or multiply the figure obtained by 2.5%.

Methods for paying Zakat

• Online Payment: ZATCA provides an online portal for convenient Zakat payments.
• Direct Payment to ZATCA Branches: Payments can be made directly at ZATCA branches.
• Through Authorized Financial Institutions: Almost all the commercial banks and financial institutions in Saudi Arabia offer services in collecting zakat.

Conclusion

Zakat is not simply a charitable act vital in Islam, but it is a social and economic redevelopment act that also leads to individual reformation. Concisely; if being self-employed in Saudi Arabia the principles and calculations of Zakat will help owners to serve the religion and society’s needy deserving people appropriately.

Are you a business person in Saudi Arabia with issues concerning Zakat or taxation? Your solution is Reyson Badger. Our experienced consultants are here to ensure you overcome the various legalities related to zakat and get the correct figures. Please get in touch with us right away to find out how we can help you complete your Zakat responsibly and with confidence.

FAQs

What types of wealth are subject to Zakat?

• Business income: Revenues arising from business activities in which expenses are also subtracted before subjecting them to zakat.
• Investment assets: Likewise, shares, bonds, or any other type of investment also come under the provision of zakat.
• Cash and bank savings: Zakat is due on all saved amounts of money.
• Gold and silver: With regard to gold and silver and other metals, zakat becomes due and payable upon the accumulation of the Nisab value.

How to determine the amount for Zakat?

Zakat calculation begins with the assessment of the total value of the wealth or total value of your assets minus your total debts. If the value is over the Nisab (currently 85 grams of gold), then its amount should multiplied by 2.5%. This is the Zakat you owe. 

Can I give Zakat directly to needy individuals or should I consult an organisation for donating Zakat?

Of course, you may pay your Zakat to anyone you owe, but normally, it should be given to those categorised by Islamic law as deserving recipients of Zakat. But the use of those organisations guarantees proper distribution of the food items as well as observing the rights stipulated in the Islamic laws. When it comes to Zakat and tax advice in Saudi Arabia, there is a recommendable firm known as Reyson Badger.

Should Zakat be paid only during Ramadan?

No, Zakat does not only have to be paid during the month of Ramadan. It’s a calendar yearly requirement that is paid after one lunar year of owning wealth equal to or over the Nisab amount. Many even prefer to pay their Zakat during Ramadan, however, ranging does not confine itself to the period in between.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.