Q. I bought a piece of land five years ago on a commercial basis, with the intention of building some shops to offer for rent, or to sell it when the price is right. Am I liable to pay zakah for this land although it has generated no income since purchase? If so, at what rate, and how often? I also bought a shop which is not yet completed by the builder and I have not taken possession of it yet, but I paid most of its price two years ago. Is this liable to zakah?
M. Salim
A. What is important to understand is that zakah is payable on any money which, by nature, is liable to grow. The piece of land the reader bought fits this perfectly, whether he eventually decides to build these shops or to sell it as it is. He knows that as it lies unused, its price is appreciating, because this is the nature of real estate in our times. Had he realized at any time that keeping it as it is for this length of time would mean a net loss, he would not have left it in his possession undeveloped. Besides, his intention is clear: this is a business transaction. Hence, it is liable to zakah.
Zakah is an annual act of worship, and the reader must pay it every year on its due date. If he falls short of payment for one year, or more, he must fulfill his duty straightaway, without any further delay, because his liability remains due, as a preferred debt. Since none of us can tell whether we will be alive tomorrow, one cannot leave a debt owing to God unpaid for any length of time. Therefore, he must pay his zakah liability for the last five years now, as well as any further arrears he may owe, and continue to pay his zakah every year on his zakah date. For this piece of land, the amount payable is the market value of the land on his zakah date every year. Suppose he bought the piece of land for 10,000 riyals, and on his first zakah date it had appreciated by 10%, and again by 5% the following year, and a further 2% the third year, he pays his zakah on 11,000 the first year, 11,550 the second year and 11,780 the third year. Suppose the year after that its value drops, he calculates that drop and pays zakah on the lesser amount. All calculations are at the rate of 2.5% each year.
As for the shop, again the question is whether in these two years it was marketable or not. If he could not sell it for any price, pending its completion, or if he could sell at a heavy loss, then it would not be liable to zakah. But if it could have realized its purchase price at any time, and his intention is to rent it or sell it at profit, then it is liable to zakah, again at its market value at the rate of 2.5%. On the other hand, if he is building it to use it as a shop where he would have his business, then it is not liable to zakah. Zakah will become due when he starts his business, according to the rules concerning zakah on commercial enterprise.
