African Tax Administration Paper 44
This study examines Somalia’s intergovernmental customs competition and fragmentation of the income taxation system, and considers their impact on revenue mobilisation. It employs a mixed-methods approach, integrating documentary and literature review, and structured interviews with 20 government and business representatives. The study posits that intergovernmental fiscal competition is prevalent, especially in the realm of customs, while income tax is mainly fragmented. This situation has emerged as a result of existing competitive federalism fuelled by unstable political dynamics, the underlying financial necessity of the states, and disjointed donor activities in an already polarised country.
These factors have led to parallel and competing tax systems, with varied tariff and tax rates. They have eroded the tax base for all jurisdictions, and created unnecessary complexity, and consumer and regional inequality. To alleviate these repercussions and strengthen fiscal state-building, the study recommends recognising the political realities in designing the tax system, and establishing a harmonised and shared tax system to counter competition. It furthermore highlights the importance of a simplified tax administration, elimination of internal ‘nuisance’ taxes, and coordinating donor efforts. While addressing the root political causes and eliminating internal tariffs can prove difficult in the short term, simplifying tax procedures without affecting the tax base could be started soon.
