By - Abdikadir Hassan Sabir Boogle
MA of Journalism at Erciyes University. Digital Economic Director at DPA
Introduction
The Somali Government has imposed a 5% sale tax it will be added or subtracted in the electronic selling platforms existent in the country. This tax has been legally justified by the Sales Tax Act of 1984 though this a regulation is completely different from the current state of affairs in the country. This sales tax is implemented as follows; if for instance you want to buy a product that costs $20, $1 of it will be taken as sales tax and passed straight to the Ministry of Finance. “This is a transparent tax which goes directly to the ministry account from the payee,” said Minister of Finance, FGS.
The neighboring country of Kenya has a sales tax of 16%, while other East African Community members, including Uganda, Rwanda, Tanzania and Burundi have a rate of 18%. The Somali government says that the sales tax rate it is charging is the lowest among the East African Community countries after it joined the federation at the end of last year. An official from the Federal Government of Somalia, the Minister of Finance, Mr Bihi Iman said that the rate of sales tax in Somalia is the lowest and all the other members of EAC have rates above 15%.
However, the public and business community in the Benadir region have been very much against the tax, local media reported some business people have been arrested for being unwilling to pay the new sales tax. The President of Somalia Hassan Sheikh Mohamud has also condemned the disturbance and said that those people who are provoking public are the same businessmen who agreed for this system earlier. The President kept on saying that this new tax must be placed since the government needs to provide its expenses for instance soldiers’ wages, teachers’ wages and many more.
The people, especially in the city of Mogadishu, have expressed their discontent with the implemented sales tax with three key issues that the government of this country has not responded to. First, the sales tax will be implemented directly only in the Benadir region and other regions did not implement the tax due to various challenges, it will add more burden on the residents. Secondly, people are afraid that they don’t use actual physical money but rather electronic money and cards from which the five percent tax shall be charged automatically when paying for goods and services. Finally, from the residents of Mogadishu and moreover, Somali people they complain that they never feel to enjoy the result of their paid taxes since they cannot really access fundamental needs such as education and health care services.
The Member of Parliament Fa’iza Jeyta speaking on the sales tax said: “The merchants pay tax and when fire catches the market there are no firefighting services ready to respond to the emergencies so the question is what has been used for the tax they paid?” Unlike other countries that have put in place the sales of tax the situation in Somalia is a bit different. For instance, Kenya does not allow the sales tax to be charged on basic goods and food items like vegetables and milk and Uganda, Rwanda, Tanzania and Burundi do not allow the sales tax to be imposed on educational materials. The sales tax imposed by the Somali government is not sensitive to the needs of the public, which leaves no exemption for even items that are considered basic necessities as well as luxury products.
After the implementation of the sales tax by the government, it has discouraged the public, business people, the opposition as well as some of the members of parliament. Besides, debate is given to the legal aspects of the sales tax levied by the government on taxpayer’s acceptation. Other notable critics of the new tax include; Professor Yahye Amir an economist and two-times the member of the central Bank of Somalia’s Board of Governors has said the new tax is unlawful since it was not through legal warranted process of laws of Somalia to impose taxes. Talking about the specific issue of 5% and how it is, he said before this, “Before we talk about 5% and how it is, first you have to knock on the door, does it legal or not legal, it's illegal” Speaking about the sources of this tax the professor said that this tax was introduced because of the pressure from the IMF and the World Bank.
As the economists who have closely worked on the issue have rightly said, there is no reason to suggest that the tax rate has been set having gone through the best economic indicators, instead of setting it seems like it has been raised in an unusual manner with complete disregard to the ability of the general public to bear the tax burden. They also claim that one cannot compare Somalia to the rest of the countries in the East African community.
The question of interest for the present piece is subsequently whether or not this tax can be implemented properly? Technically, the new sales tax system could be implemented, as more than 70% of sales transactions take place electronically, facilitating the systematic collection of the tax. However, there are certain obstacles that can hamper it, including the lack of cooperation of regional governments, Puntland and Jubbaland and areas under Al-Shabaab control are the additional problems. In addition, Somaliland, which boasts of an independent economic infrastructure, makes it even more difficult. These challenges arise at a time when Somalia has embraced the federalism systems though to date there is no consensus on the physical federalism, whereby regional states institute their taxes unaccountable to anyone.
Finally, this new sales tax system has several questions yet to be answered on its legal basis, its viability and its applicability in all the parts of the country. Somali continues to use currency printed by the central government that failed 33 years ago, yet over 70% of the transaction is done electronically. This new tax can fuel cost of living, can cause severe inflation, because the government has not clearly defined VAT as separate from the uniform sales tax on all items regardless of whether they are necessities or luxuries. The Somali public still doubts and does not think that the tax collected will be invested in the Somali public utilities since the President promised to use the money to pay soldiering and teachers’ salaries.
