Zakah on oil should be paid if it’s owned by individuals. State-owned oil is subject to disagreement among scholars regarding whether it’s subject to Zakah or not. Sheikh Yusuf Al-Qaradawi, states: “There is no scholarly difference concerning Zakah that is to be paid on oil and its returns if they are owned by individuals. Jurists have differed here on the amount of Zakah that should be paid: Is it a quarter of the tenth (i.e., 2.5%) or a fifth (i.e., 20%)?
I discussed this point in my book Fiqh of Zakah. In this regard, I agree with Abu Hanifah, Abu `Ubaid and some other jurists in that it is a fifth of the value of the mineral concerned (whether oil or other kinds of minerals) that is to be paid as Zakah, for these are considered to be rikaz (buried wealth or treasures)
In this regard, it was reported on the authority of Abu Hurayrah (may Allah be pleased with him) that the Prophet (peace and blessings be upon him) said: ‘As regards the rikaz, one-fifth thereof is to be paid (as Zakah).’
Regarding state-owned oil, there is a difference of opinion whether Zakah is to be paid on it or not.
The difference here is not a juristic one. It was some Muslim economists (namely Dr. Shawqi Isma`il Shehatah and Dr. Mohammad Shawqi Al-Fangari) who raised this question during the first International Conference on Islamic Economy (held in 1976 AD in Makkah under an invitation from King `Abdelaziz University). According to them, the state is to pay Zakah on the oil and minerals it owns. As I was present at this conference I criticized this point of view and the jurists who were participating agreed with me.
I also tackled this view in my book Al-Ijtihad in Shari`ah. In this book, I refuted this opinion and some other contemporary views as being not in line with the scholarly consensus reported in these specific fields.
The unanimously agreed upon juristic ruling that there is no Zakah on state-owned wealth is also to apply to the oil owned by the state. There are many reasons for this.
First, Zakah is to be paid by a specific party owning wealth that is liable to zakah. Allah, the Almighty says: ‘Take alms of their wealth, wherewith you may purify them’ (At-Tawbah: 103). The Prophet (peace and blessings be upon him) also said: ‘Pay the Zakah of your wealth.’
The addressee in the verse and the hadith are individuals. This is indicated by the use of the possessive pronouns ‘their’ in the verse and ‘your’ in the hadith. This is not the case with the wealth of the state, for it is not the individual property of the head of the state or any other individual, so that they may be required to pay Zakah on it.
Secondly, concerning the individual who pays Zakah, he is only to pay the amount that is spent on the recipients of Zakah, while he has every right to spend of the rest of his wealth in whichever way he chooses [as long as this is done in lawful means]. In the case of the state however, it is required to spend all its resources, not only a part thereof, on the interests of the Muslims, of which meeting the needs of the poor and other recipients of Zakah is extremely important to be considered. Allah, the Almighty says: ‘That which Allah gives as spoil unto His messenger from the people of the townships, it is for Allah and His messenger and for the near of kin and the orphans and the needy and the wayfarer, that it become not a commodity between the rich among you.’ (Al-Hashr: 7). Thirdly, the state is the responsible party for collecting Zakah. Were it required to pay Zakah, how could it be a giver of Zakah and a collector at the same time? I know that it is out of good will that some Muslim economists hold such a point of view. This is an attempt on their part to present a means to the Muslims to overcome their underdevelopment. They feel agonized, seeing that some small Muslim countries have become very wealthy; oil wealth deposits bring billions of dinars or dollars in foreign banks, while there are many large Muslim countries whose population suffer from poverty and some are even on the verge of famine. These economists fear that the youth of poor Muslim countries might easily fall prey to evil trends, such as Christian missionaries and communism.
These economists believe that if the oil-producing countries pay Zakah on their oil, the amount of this Zakah would be distributed as stated in Islam, i.e., it would be first spent on the interests of the Muslims in these countries and the surplus would be given to poor countries according to their need.
Had there been a Muslim Caliphate uniting the Muslim countries under one banner, as was the case during the eras of the Muslim caliphate, there would have been no need to adopt such a view.
In my opinion, saying that oil-producing states have to pay Zakah on oil would not solve the problem of disintegration which Muslim countries suffer from, nor would it necessarily overcome the problems of the poor Muslim countries.
Even if we agreed that oil-producing countries would pay Zakah on oil, who would guarantee that the amount of Zakah collected would not be spent in the interests of the same countries, in which case nothing would remain for the poor Muslim countries!
Instead, what we need is to bring into effect the Islamic principle that all Muslims, regardless of their nationality, belong to one nation, and hence, they should seek to achieve solidarity and fellowship in times of prosperity and hardship, and cooperate in piety and goodness. It is unfair that there are many Muslim countries suffering from poverty and diseases, while rich ones spend huge amounts of money on luxuries and still have a great amount of surplus to spend wastefully. It is also unfair that certain Muslim countries of limited income bear the expenses of jihad against the enemies of Islam, while other rich Muslim countries stand still, avoiding their financial responsibility in that respect as tenets of fellowship dictate.
The Jurists’ saying that oil and other minerals are to be under the control of the ‘Imam’ does not mean that they are to be under the control of the leaders of states. ‘Imam’ here refers to the legitimate authority of the Muslim nation as united under one banner and ruled by one Law, i.e., Islamic Law. This means that the resources of the Muslim states are not owned by certain groups of people (i.e., the authorities of these states), rather, they belong to the Muslim nation as a whole, i.e., the Muslims all over the world . (from my book: Al-Ijtihad in Shari`ah)
This is what I called for ten years ago. And here I emphasize the importance of achieving solidarity and cooperation among the Muslim countries. This is a religious duty and a national necessity. It is not lawful that wealthy Muslim countries enjoy prosperity while their fellow Muslims in poor countries suffer from poverty and disease. The Prophet (peace and blessings be upon him) said: ‘He is not one of us (i.e., good Muslims) who goes to bed satisfied, while his neighbor is hungry [having no food to eat due to poverty].’
It may be a way to achieve this solidarity if the wealthy Muslim countries allocate a fifth if its mineral resources to help the poor ones, i.e. with what individuals pay as Zakah on the treasures they own.
The Gulf Cooperation Council set a good example of expressing solidarity after the second Gulf War when it sought to establish a fund to enhance solidarity between Muslim countries. We hope that narrow-minded people in authority in some Muslim countries do not hinder such steps. Any obstruction in that regard only serves the enemies of Islam who leave no stone unturned to impede the progress of our nation and prey on our insolvent countries.”