Deducting taxes from Zakah

(Part No. 9; Page No. 286) Co-operative organizations Fatwa no. 409 A constitution of a co-operative organization stipulates that 10% of their net profits shall be consigned to charitable causes. However, the Zakah Authority demands the Zakah due on its profits. Now, should the society pay Zakah on its profits in this case? If they should, do they pay Zakah for the past years during which they did not pay Zakah?

A: This co-operative organization is governed by the same rules as other business and commercial organizations, it must pay Zakah on its profits. As to the 10% deducted from the net profits for charitable causes, it does not exempt it from the obligation of Zakah. The 10% in question is like voluntary charity (sadaqah), and sadaqah does not replace Zakah, because Zakah is an obligatory act of worship which must be carried out with the appropriate intention. The amount of 10% is not paid as Zakah; rather it is given as a voluntary act of charity. So this organization has to pay Zakah to the competent authority. Furthermore, it has to pay Zakah for the past years during which no Zakah was paid. (Part No. 9; Page No. 287) May Allah grant us success. May peace and blessings be upon our Prophet Muhammad, his family, and Companions.