Munich Personal RePEc Archive

Zakah on stocks: some unsettled issues

Islahi, Abdul Azim and Obaidullah, Mohammed (2002): Zakah on stocks: some unsettled issues. Published in: Journal of King Abdulaziz University -Islamic Economics , Vol. 17, No. 2 (2004): pp. 3-17.

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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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