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Zakah on stocks: some unsettled issues

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  • Islahi, Abdul Azim
  • Obaidullah, Mohammed

Abstract

Issues relating to zakah on equity shares are far from being settled if one considers the available fatawa and observed practices in many Muslim countries. The most basic questions pertain to the correct method of valuation of equity shares for the purpose of estimation of zakah liability. This paper reviews alternative methods of valuation and argues in favour of marketbased valuation. It also raises serious questions on the permissibility of exemption of fixed assets from zakah liability in the accounting based framework, notwithstanding its actual use in some Muslim countries. A market-based valuation framework is rooted in the notion of market efficiency, which dominates modern finance theories for over a century. The paper seeks to push forward the concept of "average price" as the basis of valuation as also of estimating zakah liability. It argues that the concept not only follows logically from the efficient market theory, but also is backed by sound Shari'ah evidence.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18631.

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Date of creation: 2002
Date of revision: 2003
Publication status: Published in Journal of King Abdulaziz University -Islamic Economics 2.17(2004): pp. 3-17
Handle: RePEc:pra:mprapa:18631

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Related research

Keywords: Zakah tax; stock evaluatio; application of average price; Islamic economic;

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Cited by:
  1. Hifzur Rab & Syeda Anjum, 2011. "Financial interest causing problems of monetary transmission as evaluated by the Islamic alternative," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, vol. 27(3), pages 184-200, August.
  2. Shaikh, Salman Ahmed, 2010. "Proposal for a New Economic Framework Based On Islamic Principles," MPRA Paper 23000, University Library of Munich, Germany.

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