Reforming the Tax System of the Federal Government of Somalia

Abstract

Domestic revenue mobilization is a high priority for the Federal Government of Somalia. Homegrown revenue offers a promising and sustainable financing option. Building the capacity to raise revenue through taxes is particularly important in Somalia, as it reduces dependence on aid and helps to finance the provision of public goods and services. At the same time, it strengthens the social contract between the state and citizens, and can fortify intra-societal relationships. Somalia has recently made a number of fiscal reforms in agreement with the International Monetary Fund (IMF). In addition to that, the Somalian government has adopted many revenue reforms in the last two to three years. This study investigates the status of the Federal Government of Somalia’s reforms; that is, its achievements and the outcomes of these reforms. Successfully implemented tax reforms have included the adoption of new tax policy measures, revenue law updates, and revenue administration improvements. These reforms have been fruitful, resulting in an increase in government revenue, simplified tax collection processes based on a self-assessment approach, increased efficiency of operations through automation, and significant contributions being made to state-building. The study recommends that the Somali authorities further develop policies related to the expansion of tax bases in states and build tax relations with federal member states more effectively through fiscal federalism discussions. This will contribute to the efforts being made to mobilize domestic resources beyond the capital city.