Mogadishu(Mogadishu24)-The Federal Government of Somalia has introduced a 5% sales tax on all goods and services, affecting a broad spectrum of society, from the poorest laborers to the wealthiest individuals. The tax, which mirrors a controversial financial bill recently tabled in Kenya, has sparked widespread criticism and concerns about its implementation and potential consequences.

Criticism and Concerns

The new tax has drawn comparisons to Kenya’s financial bill, which faced public protests and rejections. Somalia’s Minister of Finance, Bihi Iman Egeh, pushed the tax forward despite the country lacking a functioning national currency and relying heavily on U.S. dollars and mobile banking systems managed by private banks.

Critics argue that Somalia’s economic conditions differ significantly from Kenya’s and that the tax’s implementation does not account for the country’s unique challenges.

The sales tax is currently enforced only in Mogadishu, as the government lacks control over other parts of the country, where Al-Shabaab and regional states exert influence. This selective application of the tax has raised questions about its fairness and sustainability.

Legal and Operational Issues

According to the 1984 law cited by critics, tax collection should be managed by state institutions, not private banks. The Ministry of Finance has instructed banks providing mobile services to deduct 5% from transactions and deposit it into government accounts.

However, concerns have been raised about the legality of this practice and the functionality of the systems purchased to manage the tax. Reports indicate that the Electronic Transfer Account (ETA) system is not operational, and the whereabouts of 10,000 point-of-sale (POS) devices remain unknown.

Economic Implications

Economic analysts warn that the new tax could undermine public trust in commercial banks, with potential long-term consequences for Somalia’s fragile economy. Despite collecting $227.8 million in taxes last year, including $34.9 million from sales taxes, the government’s plans do not indicate significant growth in revenue in the coming years.

The tax’s future remains uncertain, especially with its exemption from areas such as Somaliland, Puntland, and territories under Al-Shabaab control. Jubaland State has already rejected the tax, and the stances of Galmudug, Hirshabelle, and Southwest States are unclear.

The Ministry of Finance has yet to respond to inquiries about the tax’s implementation and its broader economic impact. As Somalia faces significant challenges, including security concerns and a lack of basic services, the new tax has added another layer of difficulty for residents of Mogadishu.