Under Saudi Arabia's Zakat Implementing Regulations (Ministerial Resolution No. 2216 of 1440H), the Zakat base for a company keeping commercial books is calculated using a 'sources of funds' approach. Which of the following most accurately describes this approach?
- Start from items such as paid-up capital, reserves, provisions and long-term financing, then deduct items such as net fixed assets and qualifying long-term investments to arrive at the Zakat base
- Start from total revenue for the Zakat year and deduct only cost of goods sold, treating the resulting gross margin as the Zakat base
- Start from net taxable profit as reported for corporate income tax purposes and apply the Zakat rate directly to that same figure without further adjustment
- Start from the company's total assets as shown in its balance sheet and deduct total liabilities, treating shareholders' equity alone as the Zakat base without further adjustment
Why A? And why not the others?
Correct answer: A. Start from items such as paid-up capital, reserves, provisions and long-term financing, then deduct items such as net fixed assets and qualifying long-term investments to arrive at the Zakat base
The sources-of-funds method looks at how a business has financed itself: it aggregates items such as paid-up capital, reserves, undistributed profits and long-term loans, and then removes items considered non-Zakatable, chiefly net fixed assets and qualifying long-term investments, to leave a base representing funds effectively available for zakatable activity. The option using revenue less cost of goods sold is wrong because the Zakat base is a balance-sheet financing concept, not a profit-and-loss gross-margin concept, and ignores financing items entirely. The option applying the Zakat rate directly to taxable profit is wrong because it conflates the Zakat base with the corporate income tax base, which are computed under separate rules and are not interchangeable figures. The option treating equity alone as the base is wrong because it omits required additions, such as long-term loans and provisions, and required deductions, such as fixed assets and long-term investments, that the sources-of-funds calculation specifically requires.
Source: Zakat Implementing Regulations (Ministerial Resolution No. 2216 of 1440H), Articles 4 and 5 (Zakat base)