LEG Comments on Draft Law Sent to Authorities

Background

The Legislative Entity Group (LEG) has submitted its comments on the draft law passed by the authorities in March 2004 to reform the general income tax. The LEG’s comments were sent to the authorities earlier this week.

Key Changes in the Draft Law

• Reduces the top marginal tax rate on wages and salaries
• Increases exemptions
• Corporate tax remains progressive with rates varying from 15% to 40%
  • Previous law had rates ranging from 20% to 60%

LEG’s Concerns

The LEG has expressed concerns over certain aspects of the draft law, including:

• Impact on non-oil revenue
• Potential effects on the economy

Economic Developments

According to the latest World Economic Outlook, Libya’s economy is expected to have experienced:

• Large fiscal and current account surpluses in 2004
• Real GDP growth estimated at around 4.5%, driven by:
  • Deceleration in oil production
  • Robust non-hydrocarbon sector
• Overall fiscal surplus estimated to be around 19% of GDP, with:
  • Oil revenue accounting for 52.4% of GDP due to higher oil prices and production
  • Non-oil revenue declining by about 1 percentage point of GDP partly due to reduced tax revenue following the new tax law provisions

External Sector

Libya’s external current account is expected to have recorded a surplus, with reserves standing at around $24.6 billion equivalent to approximately:

• 27 months of projected imports
• Stable exchange rate since devaluation in June 2003
• No pressure on the exchange rate has been reported

Next Steps

The LEG’s comments are expected to be reviewed by the authorities before any further action is taken. In the meantime, Libya continues to focus on:

• Strengthening its economic fundamentals
• Promoting growth and stability