Somali Consumers Bear the Cost of the "5% Sales Tax"

Mogadishu (PP News Desk) — A new paper by Somali Public Agenda, a Mogadishu-based think tank, has brought to light issues arising from the introduction of a 5% sales tax in August 2024 to boost domestic revenue. The sales tax expands the scope of the 1984 Sales Tax Act, covering essential services such as electricity and water. Retail consumers bear the cost of the sales tax on every transaction.

While the tax has generated significant revenue for the Federal Government of Somalia, compliance is stronger in central Mogadishu’s business district than in peripheral districts. Resistance stems from public mistrust, technical inefficiencies and its impact on low-income families, whose budgets are adversely affected by price increases resulting from the sales tax.
Somali Public Agenda recommends exempting necessities, increasing transparency and improving administrative capacity. The think tank highlights the potential for growth if the government builds public trust and harmonises tax implementation across regions.

The paper does not address how the sales tax can be introduced in other parts of Somalia without political agreements. The incumbent Federal Government of Somalia views the new sales tax as an opportunity to portray progress in state capacity, despite the absence of a consensus on how such a policy can be credibly and transparently implemented by the Federal Member States.

President Hassan Sheikh Mohamud has stated that the Federal Government of Somalia would use security forces to ensure compliance with paying the sales tax, rent tax, and other forms of taxation collected by the Federal Ministry of Finance. The Federal Government of Somalia employed plainclothes revenue protection officers to prevent sales tax evasion.

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