Some other Issues of Value

i. What has so far been discussed deals with the particular issue of the property being illicit (haraam). Should the property in his possession now, which may still belong to others, end up with him through lawful means and sustained damage or loss, the ruling is different, in some aspects, from that which has been discussed so far. It goes without saying that when the original proprietor is known, the property has to be returned to him in kind; if not, a similar one or price thereof should be reimburse. Should the property not be known in some detail. The ruling which should apply is that of property anonymous which has been acquired through haraam means.

ii. What has been termed as "raddil madhaalim" – making amends – falls within the topics already discussed. "Making amends" is generic title for something done to repair or pay for some harm, unkindness, damage, etc. although it may entail financial reparations or damages to others, yet it has become a vehicle, in some cases, to compensating other parties without latter being harmed; Thus, ruling may be passed that makes it incumbent on the mukallaf to pay damaged or return the property to its "owners" or their heir in their absence.

However, the mukallaf should take the following as regards "raddil madhaalim" into account:

Any property, which belongs to other parities and having passed into the hands of the mukallaf, has to be returned to its rightful owners, who are not known, by way of charity on their behalf. This though concerns the property that passes into the hands of the mukallaf through lawful as well as unlawful means, without the latter being mixed up with his halal property. The return of property should be done in kind, or the value thereof, if it was disposed of. This procedure however has to be sanctioned by the Marji', regardless of whether the quantity of property was known or not known.

That said, it must be stressed that taking action as to this matter is not confined to those who passed away or on the brink of death, as is commonly held by those leaving a will at the time of throws of death. Rather, it is an obligation that has to be attended to by the mukallaf as soon as he becomes aware of it, repent for committing the misdeed in the first instance, and being able to make reparations. Furthermore, it is mustahab as a matter of ihtiyat to absolve oneself of the responsibility, in the event of doubt, whenever he wished.

iii. The term "majhul il malik" – property whose owner is unknown – also falls under the banner of this section. This concerns any case where the original proprietor cannot be identified or reached in any way.

It is noteworthy that whether the owner is an individual, a group of people, a quarter, such as the Marji' or a trust administrating a waqf, and the state, even if it is tyrannical or non-Muslim. The state's property is dubbed as "owner anonymous"; this view is at variance with some jurists.

2. That which is left over and above one's annual expenditure

This is the most important topic of Khums, for the mere reason that many people are tested with it and for the huge ramifications of the subjects. The 20% Khums tax should be levied on the surplus of one's gains during the fiscal year. That is, after deducting all expenses on one's living, what is spent on production (and overheads), paying back debt, that which is spent by way of any act of worship, such as hajj, Zakat, and kaffarah, and other from of lawful spending.

Rules Pertaining of Khums and its Avenues

1. Gains are any lawful source of income to the mukallaf. However Khums is not due on each and every sort of gain. The Lawgiver has made some distinctions as to which of these gains should be subjected of Khums tax and which is not.

What is obligatory on the mukallaf to pay Khums on is the net surplus of income from trade, industry, agriculture and business, and acquisitioning anything lawful. Whatever is passed into his hands, such as presents, inheritance, returns from waqf, what the poor receives of the share of sadaat (descendants of the Prophet (a.s. ) ), khums, sadaqah, and raddil madhaalim. As for the "share of the Imam', once it is received by the eligible person by virtue of being poor, turning into a self-sufficient one, he is not required to pay Khums on it, should there be a leftover of the Khums amount.

Should the said share be received under any other title, other than poverty, such as the share given the theology students, those involved in the propagation of Islam, the mujahideen, etc, it will be considered part of his property, in which case Khums has to be paid on it.

Things, which do not attract Khums.

i. Inheritance money passed into the hand of the inheritor after the testator's death. This does not cover that which is wrongly held by the generality as inheritance, i.e. what the father gives away, in his lifetime, to his offspring as gift, and what provisions he makes in his will for them of his own share, of one third.

However, inherited property is that which passes into the hands of the inheritor, after the death of the testator, of what the deceased left behind, of his property in his lifetime, to be distributed in accordance with the ordinances of shari'a law. That is of course, barring any liability, in the bequeathed property, of Khums, in which case the inheritors are responsible for getting the estate Khums taxed before any distribution is made, just to absolve the deceased of the responsibility for Khums liability.

If the inheritors get any property as a result of the death of the testator, without the deceased being the owner of it in his lifetime, such as the compensation paid by his employer or what indemnity he is entitled to for getting martyred, insurance money, blood money… etc. it will not be treated as inheritance exempt from Khums, even if such property is distributed on the same lines of inheritance money.

ii. The dowry, given in marriage, to a woman. So does the compensation paid to the husband by his wife as a price for divorcing her irrevocably.

iii. That which should be Khums taxed immediately, i.e. of minerals and treasure trove. Should the mukallaf pay Khums on such property and amass it to his capital assets, yielding returns and without spending it on his provisions, he is not required to pay Khums on it again, despite the fact that it has become surplus to one's needs.

93. So long as capital assets are considered among gains, any returns they yield are treated likewise with regard to the payment of Khums. Any profits that may attract Khums must be treated in the same way, i.e. without difference between that which is earned seasonally, such as livestock offspring, its mild and woo, the fruit of a tree… etc. and that which is uninterrupted, such as the growing of a tree from a shrub, an under nourished sheep that gets fat, etc.

This rule is one for all types or property, i.e. that which has already been Khums taxed or it may have become due – but not yet collected – the property which has no Khums liability, such as that of inheritance source, and whether it was possessed with the intention of keeping or trading in it. The reason being that any new increase is deemed new profit that is independent of its origin. Thus, Khums has to be paid on it in the same way as other profits, provided that all requirements are fulfilled. You may also consult para. (119) in this regard.

Should the increase come about as a result of the fluctuation in price, which in turn emanates from the economic activity, the ruling may take three different facets:

a. The capital asset, whose value has risen, should have been acquired in the first instance to trade in, which is of two kinds:

a/1. The capital asset, which has been intended as an investment, may remain constant over the years, such as dairy cows, chicken eggs, and transport cars… etc. In such a case any appreciation in the market value of the capital asset should not be subject to Khums, as long as it remains in his possession. Should he sell it, any extra amount over and above its price would be deemed as gains in the year it was sold. If the excess amount is spent during that year, he should be exempt from paying Khums on it; and if it remains till the end of the fiscal year, Khums must be paid on it.

a/2. The same applies to the capital expenditure (in any business), such as showrooms, equipment and machinery of production, premium paid for the property, etc.

a/3. In some other instances, the capital asset in itself is intended to be traded in and make a living as a result, such as buying and selling real property, livestock, vehicles… etc. In this case, any profit made in the process, i.e. over and above the market price, is deemed profit; thus, it should be Khums taxed, even if it is not sold.

b. The item could have been acquired for the purpose of personal benefit. No tax should be levied on any extra amount of appreciation, over and above what the mukallaf has paid for the item, unless he sells it. For example, a person bought a property to live in. having sold it and made a profit of, say, thirty thousand dollars on the buying price, he must pay Khums on the profit he made in the process. That is, when his tax year comes to an end, and provided that the profit is still surplus to his requirements.

c. The property should not be liable for Khums to start with, such as that which passes into the hands of the mukallaf by way of inheritance. Should it appreciate in price since the owner first acquired it, and he sells it, or decides to trade in it for that matter, no Khums is due on the profit he could have made.

The same ruling applies to any property passing into the hands of the mukallaf by way of gift of without paying for it, provided it does not carry a Khums liability at the outset. For example, the item could have been used the moment it has passed into the mukallaf's hands, or Khums has become due on it and was paid. Since payment of money has been made which render the item as though it was bought, no Khums should be paid on the excess amount on the original value, even if the owner decides to trade in it.

There may be another scenario. Suppose that Khums has become due on a derelict land, which the mukallaf developed, yet he did not utilize it in any way, until one year has passed. When he paid Khums on it, he paid it in money; in such a case, he is not required to pay Khums on any extra money made as a result of the property appreciating, in a measure equivalent to four fifths of the value. As for the remaining one fifth of the property, he should pay Khums on the extra amount of appreciation.

94. There is no difference in whether the item getting appreciated being any kind of property, i.e. currency or otherwise. For example, should you exchange your lira or dinar for a US dollar or German mark, only to appreciate within the fiscal year, this increase deemed profit, in which case it is liable for payment of Khums. It will be governed by the rules so far discussed and those that will be. That is, irrespective of whether it was intended for acquisition or trading and making up for any loss.

For example, a person exchanged one thousand units of an (x) currency, which is net of Khums, into one thousand US dollars. Having acquired the new money, they set about their expenditure and trading in this money. The value of (x) depreciated, so much so that the rate of exchange, at the end of the fiscal year, has reached 2 (x) for every dollar. The mukallaf in this example must pay Khums on the second one thousand (x), regardless of the fact that they are not dealing with it now.

It will be considered part or the one thousand dollars, if they were speculating with currency. Should the exchange of money be intended to retain the value, no Khums should be paid. That is, irrespective of whether it was spent on one's living expenses or on assets bought with a view to making profit, or using in the means of production, such as equipment, vehicles…etc.