The Libyan Supreme Court Abolishes the Jihad Tax
On February 2, 2025, the Libyan Supreme Court declared Law 44 of 1970 (Jihad Tax Law) unconstitutional. The law, which imposed up to 4% tax on corporate profits and up to 3% tax on salaries and pensions, was found incompatible with Islamic Shari’ah and the interim constitution. This ruling makes it unlawful for the Libyan state to collect these taxes starting from February 2025.
What is Jihad Tax?
The Ghaddafi Regime, especially during the seventies and eighties, presented itself as a proponent of anticolonial movements in the Middle East, Africa, the Islamic world, and the global south in general. The regime introduced the Jihad Tax through the Jihad Tax Law to “fund liberation movements, support the Islamic world against colonial powers, and assist the families of martyrs and those wounded within the Islamic community.”
The Jihad Tax Law provides for taxes of 1% to 4% of all taxable income (except agricultural income) including salaries and pensions. Initially, these taxes did not flow into the public treasury or budget. Instead, they funded various state-owned funds like the Jihad Fund, Islamic Da'wah Association, Authority for the Families of Martyrs and Missing Persons, and General Authority for Endowments and Islamic Affairs. After 2016, 15% of the taxes were allocated to the public budget.
Does Jihad Tax Contradict Islamic Shari’ah?
A Libyan teacher filed the Constitutional Challenge 5/64 JY (Challenge) rejecting the deduction of 3% of his salary in Jihad Tax under the grounds that the Jihad Tax Law is unconstitutional.
Constitution in this sense is the Constitutional Declaration of 2011, which is a temporary legal framework issued by the National Transitional Council on August 3, 2011, following the uprising against Muammar Gaddafi’s regime. It serves as an interim constitution until a permanent constitution can be adopted. According to Article 1 Sentence 2 of the Constitutional Declaration, the principal source of legislation is the Islamic Shari’ah. As widely interpreted, this means laws that contradict the essence or core of the Islamic Sharai can be deemed unconstitutional.
The appellant argued that the Jihad Tax Law fails to meet Islamic Shari’ah requirements for tax imposition. He claimed Shari’ah protects private ownership, allowing taxes only under strict conditions: necessity (when state funds are insufficient), temporary duration, minimal amount, and use for public interest. The appellant maintained the Jihad Tax does not meet these criteria.
The Court Decision
The Supreme Court accepted the appellant’s challenge and ruled the Jihad Tax Law unconstitutional.
As enshrined in Islamic Shariah, private ownership according to the Supreme Court is sacred and protected under the Constitutional Declaration. The Supreme Court concluded that the Jihad Taxes alienates the concept of imposing governmental taxes because the funds collected as Jihad Tax do not flow in the public budget nor do they contribute to public spending. This amounts to unjustifiable infringement of the right to private ownership.
Additionally, the Supreme Court argued that the Jihad Tax Law was enacted under the former Constitutional Declaration of 1969 in line with the then prevailing political vision. These political visions are in turn not part of the applicable Constitutional Declaration of 2011.
The Supreme Court ruled the Jihad Tax Law unconstitutional, but to prevent burdening the state with refund claims for taxes paid since 2011, this ruling takes effect for the future only, starting from February 3, 2025.
How Does This Impact Companies Doing Business in Libya?
As of February 3, 2025, there will be no Jihad Taxes imposed on corporate income tax, allowing companies operating in Libya to retain approximately a flat 4% of their taxable corporate profits. Furthermore, the Jihad Tax should not be deducted from employees' salaries. Failure to comply may expose employers to refund claims from their employees.
If you would like more information about this topic then please contact us.
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