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Islamic Finance




Determination of Zakah Base


The zakah base (receptacle; وعاء الزكاة) is typically calculated at a zakah rate which ranges from 2.5% to 20% depending on the means by which wealth is accumulated. For example, that rate would be quarter of a tenth or 2.5% in the case of zakah on cash and cash equivalents, tradable assets, and investment income, half of a tenth or 5% for zakah on agricultural and horticultural produce irrigated at a cost (not by natural means), and tenth10% if watered by artificial means (pumps and pipes, etc).

However, for commercial activities, zakah is determined by using 2.5% rate for a lunar calendar year or 2.5775% for a solar (Gregorian) calendar year based on either of two commonly used methods: the “net assets” method and the “net invested funds” method.



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