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Khums is an important pillar of the Islamic economic system and an essential obligation for a Muslim. It is the most common tax in the Shia law of Islam as it applies to savings and profits on an annual basis and has been emphasized repeatedly by the Holy Prophet and all the Imams.
Refer to The Quran 8:41.

Why Khums?
Islam wants to prevent the excessive accumulation of wealth in the hands of a few people, and this tax enables a balance between the extreme rich and poor. To bring about this equality in economic conditions Islam encourages charitable and ethical acts like Sadaqah. But to guarantee economic equality collective action is required and this is through the obligatory taxes, primarily Khums & Zakaat.

An Obligatory Act
Khums is not a charity but an obligation like Salaat and Sawm for which we will be questioned. Not paying khums amounts to misappropriation of the money which which rightfully belongs to the Imam and the needy. Imagine a person being buried in the grave wearing the shroud/kafan bought from wealth on which khums has not been paid. This shroud would be described as usurped/ghasbi.

How?
Khums literally translates to “one fifth” or “20%”. There are seven items eligible for khums including mines and minerals, precious stones and spoils of war. Perhaps the most common to all of us though is khums paid on savings or surplus of income.

“Income” relates to whatever is earned from business, wages/salary, dividend income, or by other means of possession recogmized by shariah. Most mujtahids say it is precautionary wajib to pay khums on gifts, prizes and legacy(upon will of a friend or unrelatesd person) but not on dowry or inheritance, except when one inherits unexpectedly.

“Savings” is whatever remains after deducting the annual expenditure of oneself and one’s dependants. In case of a business person, it equals whatever remains afyer deducting the annual business expenses which includes the person’s salary

The “expenditure” which is to be deducted is of two types:household and commercial

Household expenses according to one’s status include:
1. Food, drinks,,transportation, furniture, medical expenses etc
2. Car, medical or protection insurance. All new unused housejold items or groceries that have not been used by the end of your khums year must be counted as your savings.

Commercial expenses include:
1. Business expenditure including wages, rent, insurance & taxes
2. Depreciation in commodity or loss of a commodity

Shares of Khums
There are two shares of khums, the share of our living Imam (given to his representative) and the share of Sadaat (The Sayyids – those who descend from Janabe Fatema Zehra). Khums money, which constitutes of the two shares, can be handed to Ayat…Sistani himself, or his local representative or someone who has evident permission to collect Khums money on his behalf.

Special Circumstances
Special rules exist for a person who has not paid Khums before and where legitimate wealth has mixed with illegitimate wealth, for which further clarification will be required.

Extracted from publication by AFED Tabligh Board and COEJ