Issue No. 500

Published 30 Jan 2023

Tax Reform and Nation-building

Published on 30 Jan 2023 0 min

Tax Reform and Nation-Building

In 2022, the Hiraal Institute, a Mogadishu-based think tank, released a report saying that Al-Shabaab collected almost as much in taxes as the government of Somalia. Based on interviews with 70 Somali businessmen, government officials, members and ex-members of Al-Shabaab, the insurgent tax collectors were bringing in USD 15 million per month. Today, Somalia’s tax revenue stands at 4.4 percent of its GDP, the lowest tax revenue in Africa.

Re-building Somalia after decades of conflict takes money. Somalia cannot counter its endemic fragility, enhance government legitimacy or deliver critical public services to the Somali people without adequate resources. But mobilizing domestic resources in such a fragile, conflict-ridden environment is a formidable challenge.

The news is not all bad, however. For the past ten years, excluding 2020 when the Covid-19 pandemic rolled across Africa, Somalia has consistently increased its domestic revenue toward the goal a 15 percent tax to GDP ratio in the medium to long term. And last year’s election brought hope that Somalia’s new government has the political will to sustain and improve tax collection.

The Federal Government of Somalia relies heavily on nominal types of domestic revenue, including income tax, customs, property taxes, fines and penalties, and fees imposed for government services. However, taxes collected have often been known to make their way into individuals’ accounts instead of the government’s. Somalia’s progress in tax reform over the last several years includes adopting new tax policy, updates to revenue law, and improvements to revenue administration.

These reforms have increased government revenue, resulted in a more simplified tax collection process based on self-assessment, increased operational efficiency through automation, and generally contributed to state-building.

Collecting taxes is more than just generating revenue. There are three responsibilities that differentiate the state from other actors in this regard. First, the government is exclusively charged with the collection and management of taxes. In addition, the government is tasked with financing public goods and services, including security. And, finally, the central government alone possesses enforcement authority.

In a 2019 IMF study on the experiences of Cambodia, Georgia, Guyana, Liberia and Ukraine in relation to tax reform, some lessons learned are also signficant for Somalia. Georgia, for example, following the collapse of the Soviet Union, experienced many of the same problems of current-day Somalia—rampant corruption, widespread tax evasion, distrust of the tax system, illegal tax credits, and outright theft of government tax revenue. But in 2004, Georgia’s Rose Revolution presented the government with a mandate to reform its economy and fight corruption. It adopted a policy of zero tolerance of corruption. As laws changed, so did the culture.

What can Georgia’s successful tax reform experience teach Somalia?

The necessity of a clear mandate. A government with a clear mandate to reform taxes can succeed. In the case of Somalia, the new president still enjoys the support and goodwill of his people. Fulfillment of his promise to transform Somalia into a country at peace with itself and the world depends on a functioning government that can provide its people with the public services that were denied to them for decades. The collection of taxes binds the government and its citizens together in a social contract, a prerequisite for successful nation-building.

The need for high-level political commitment to and buy-in from all stakeholders. A mandate is not enough. The government must effectively make its case to both regional and local leaders and its people.

Success also requires a simplified tax system. Especially in fragile states, a simplified tax system fosters compliance in an environment of still-weak institutions.

Management, governance and human resources are key. Tax offices should employ Somalia’s best and brightest talent, and Somalia’s youth need employment. The government should invest in education and training of the next generation of tax collectors and administrators.

Management information systems are also essential. Automated systems help prevent corruption. The government must invest in automated systems, and train youth in information technology to run them. 

Tax reform has the potential to generate critical resources for Somalia, and to transform the relationship between the state and its people. By building a fair and transparent system of tax collection, the Federal Government of Somalia can begin to re-establish its social contract with the Somali people.

The Somali Wire Team

To continue reading, create a free account or log in.

Gain unlimited access to all our Editorials. Unlock Full Access to Our Expert Editorials — Trusted Insights, Unlimited Reading.

Create your Sahan account Login

Unlock lifetime access to all our Premium editorial content

You may also be interested in

Issue No.944
Türkiye's Deepwater Reach in Somalia
The Somali Wire

In the 17th century, the Ottoman polymath Kâtip Çelebi penned 'The Gift to the Great on Naval Campaigns', a great tome that analysed the history of Ottoman naval warfare at a moment when Constantinople sought to reclaim maritime supremacy over European powers.


21:14 min read 01 Apr
Issue No. 943
Baidoa Falls and Federal Power Prevails
The Somali Wire

Villa Somalia has prevailed in Baidoa. After weeks of ratcheting tensions, South West State President Abdiaziz Laftagareen proved a paper tiger this morning, unable to resist the massed forces backed by Mogadishu. After several hours of fighting, Somali National Army (SNA) forces and allied Rahanweyne militias now control most of Baidoa and, thus, the future of South West. In turn, Laftagareen is believed to have retreated to the protection of the Ethiopian military at Baidoa's airport, with the bilateral forces having avoided the conflict today.


18 min read 30 Mar
Issue No. 942
A Son Sent to Die in Jihad
The Somali Wire

Last October, Al-Shabaab Inqimasin (suicide assault infantry) overran a National Intelligence and Security Agency (NISA) base in Mogadishu, freeing several high-ranking jihadist detainees and destroying substantial quantities of intel. A highly choreographed attack, the Inqimasin had disguised their vehicle in official NISA daub, weaving easily through the heavily guarded checkpoints dotting the capital to reach the Godka Jilicow compound before blowing open the gates with a suicide car bomb. In the months since, Al-Shabaab's prodigious media arm-- Al-Kataib Media Foundation-- has drip-fed images and videos drawn from the Godka Jilicow attack, revelling in their infiltration of Mogadishu as well as the dark history of the prison itself. And in a chilling propaganda video broadcast at Eid al-Fitr last week, it was revealed that among the Inqimasin's number was none other than the son of Al-Shabaab's spokesperson Ali Mohamed Rage, better known as Ali Dheere.


22:20 min read 27 Mar
Issue No. 941
Echoes of the RRA: Identity and Power in South West State
The Somali Wire

The Rahanweyne Resistance Army (RRA) did not emerge from a shir (conference) in October 1995 to defend a government, nor to overthrow it. Rather, the militia —whose name was even explicit in its defence of a unified Digil-Mirifle identity —arose from the ruin of Bay and Bakool in the years prior, and decades of structural inequalities.


21 min read 25 Mar
Issue No. 940
Baidoa or Bust for Hassan Sheikh
The Somali Wire

The battle for South West—and Somalia's political future—continues apace. With the brittle alliance between South West State President Abdiaziz Laftagareen and President Hassan Sheikh Mohamud having broken down spectacularly, the federal government is pouring in arms and forces to oust the Digil-Mirifle leader. Staring down the barrel of the formal opposition holding three Federal Member States and, with it, greater territory, population, and clan, Villa Somalia is looking to exploit intra-Digil-Mirifle grievances—and convince Addis—to keep its monopolistic electoral agenda alive. But this morning, Laftagareen announced a 9-member electoral committee to hastily steer his re-election, bringing the formal bifurcation of the Somali state ever closer.


20:23 min read 23 Mar
Issue No. 939
Laftagareen turns kingmaker to homewrecker
The Somali Wire

The worm, it seems, has finally turned. After years serving as a prop for President Hassan Sheikh Mohamud's monocratic aspirations, Abdiaziz Laftagareen, the leader of South West State, has clapped back against Villa Somalia, accusing the federal government of – among other things - dividing the country, monopolising public resources, colluding with Al-Shabaab, and leading Somalia back into state failure.


18:32 min read 18 Mar
Issue No. 938
An Army in Search of a Nation
The Somali Wire

Last April, General Sheegow Ahmed Ali-- once the highest-ranking military officer hailing from the Somali Bantu-- died in ignominy in a Mogadishu hospital. A senior commander who had previously spearheaded operations in south-central Somalia, Sheegow had been summarily sentenced to 10 years in prison in 2023 for operating a militia in the capital. His death-- mourned widely and protested in Mogadishu and Beledweyne-- returned the spotlight to the pernicious issues of discrimination in the Somali National Army (SNA).


22:23 min read 16 Mar
Issue No. 937
The Other Strait
The Somali Wire

The Horn of Africa's political fate has always been wired to external commercial interests, with its expansive eastern edge on the Red Sea serving as an aorta of trade for millennia. A Greek merchant's manual from the 1st century AD describes the port of Obone in modern-day Puntland as a hub of ivory, tortoiseshell, enslaved people and cinnamon destined for Egypt. Today, as so often quoted, between 12-15% of the world's seaborne trade passes along the arterial waterway, with the Suez Canal bridging Europe and Asia. But well before the globalised world or the vying Gulf and Middle Powers over the Red Sea's littoral administrations, the logic of 'gunboat diplomacy' underpinned the passage over these seas.


19:31 min read 13 Mar
Issue No. 936
More Guns, Less State in Somalia
The Somali Wire

At the collapse of the Somali state in the early 1990s, the bloated, corrupt, and clan-riven national army was nevertheless in possession of vast quantities of light weapons. Much of it sourced during Somalia's ill-fated alliance with the USSR and later Western and Arab patrons, government armouries were soon plundered by warring militias across Mogadishu, Kismaayo, Baidoa, and every garrison town as the country descended into chaos, providing the ammunition for the deaths of hundreds of thousands of people.


22:24 min read 11 Mar
Scroll