The Legacy And The Burden Of The 5% Vat Tax, How It Squeezed Somalicitizens Financially And The Profound Impact It Had On Mogadishu's Dwellers

MOGADISHU:SOMALIA. Mogadishu denizens had witnessed another new wave of tax which the residents have interpreted a double burden on their shoulders. The new VAT tax is squeezing harshly on Somali citizens without receiving a government services. Mogadishu city which hosts approximately a four million people was already grapple with pervasive unemployment crisis and recurrent conflict which most of its residents lost their lives.

The recently implemented VAT tax has become a perplexed issue which is widely discussed and analyzed by the masses and was also furiously debated by the federal lawmakers. VAT tax has induced immense dichotomy and talking point for everywhere as the Ministry of finance of the federal government demonstrated that the general sales tax rate in Somalia is set at 5% this rate applies to most commodities and services sold within the country

In recent years, Somalia has made a significant strides towards rebuilding its shattered economy and governance structure after decades of fratricidal strifes and perpetual conflicts that ravaged South and Central Somalia. Yet the introduction of value Added tax (VAT) by the federal government has ignited a wave of public outrage and discontent, primarily due to the absence of corresponding free public services.

Mogadishu residents specifically had become a victims of a controversial tax imposed by ruthless predators who eroded accountability and transparency, the new tax implemented with the aim of raising revenue for the government has left numerous Somalis inquiring its fairness and purpose specifically in a country where access to essential services is still limited.

In this article we delve into the profound and dire impact of the new VAT on Somali households by examining critically how the tax exacerbates existing economic crisis and the broader implications for public trust and social tranquility.

THE INTRODUCTION OF VAT IN SOMALIA.
In 2023, the federal government of Somalia introduced a controversial 5% VAT on commodities and services, a move aimed at increasing government revenue to fund public services and dilapidated infrastructure, However, this policy has been encountered with pervasive excoriation, as citizens argue and keep squabbling that they are being taxed without gaining any substantial government services in return, in a country where essential needs such as Healthcare, education and security are largely provided by Non-governmental Organizations (NGOs) or private entities. The introduction of VAT has caused acrimonious altercation among the public as well dissident politicians and has been viewed as an additional burden on already poverty-afflicted population struggling their daily lives.

THE DOUBLE BURDEN ON SOMALI CITIZENS.

The Introduction of VAT in Somalia has created a double burden for its citizens. On one aspect they are required to pay additional taxes on commodities and services which raises the cost of living, on the other hand they do not receive the government services that these taxes are supposed to fund. This plight is specifically harsh on low-income families who must now stretch their limited and meagre resources even further to meet basic needs.

For instance the price of food, clothing and essential household items has skyrocketed due to the VAT at the same time, families must pay out of pockets for education, Healthcare and other critical services which should be covered by government spending. This creates a Pandora box and never-ending cycle of poverty where the impoverished citizens are continually marginalized and financially throttled unable to access opportunities that could assist them improve their economic circumstances.

Mogadishu dwellers have been left into a total disarray and financially ostracized from other regional states, when the Somali government introduced the controversial 5% Value Added tax (VAT) in 2023 they proudly declared that it was the lowest VAT rate among East African Community (EAC) countries, while the statement is technically accurate, it overlooks a critical question; What does Somalia offers its citizens in return for this tax?

THE REALITY BEHIND SOMALIA'S "LOWEST VAT" CLAIM.

Somalia's 5% VAT is indeed lower than the rates of Kenya, Uganda, Tanzania, Rwanda and Burundi where VAT tax ranges between 16% and 18% However, the essence of taxation is not just in the percentage levied but in the services and infrastructure the government provides in return. In Somalia's case, the Introduction of VAT has exposed a profound disparity and huge discrepancy between taxation and public service provision.

WHAT DO EAC COUNTRIES PROVIDE IN RETURN FOR VAT?

In East Africa community (EAC) countries, VAT revenues are typically reinvested into essential public services that directly benefit citizens. For instance, countries like Kenya, Uganda and Tanzania use VAT proceeds to fund Healthcare systems, education and infrastructure development.

In Kenya VAT revenue supports approximately 30% of the national budget, which is allocated to various public services including free primary education and healthcare initiatives, Similarly Uganda and Tanzania channel VAT funds into improving road networks, healthcare facilities and academic institutions, contributing to overall socio-economic development

The reinvestment of VAT revenues helps to justify the tax, as citizens see concrete benefits in the form of enhanced public services and infrastructure. The clear nexus between taxation and public service provision contribute to greater public acceptance and trust in the tax system

By contrast. In Somalia where VAT revenue has not been fully linked to a visible improvements in public services, there is a significant public outcry and unprecedented scepticism regarding the tax fairness and effectiveness.

THE SOMALI EXPERIENCE PAYING FOR NOTHING.

In stark contrast to its neighbours, Somalia offers little to no public services despite the Introduction of VAT. The government collects taxes but citizens rarely see the benefits that are common in other EAC countries, essential and lifeline services like healthcare, education and infrastructure are either Non-existent or provided by private entities and NGOs.

Healthcare. In Somala, public healthcare is virtually Non-existent, citizens rely heavily on private health facilities and International aid organizations for medical services, often at significant personal costs.

Education. The Education system in Somalia is similarly underdeveloped, most schools are privately run, and those that do exist are often expensive and out of reach for many families let alone the displaced communities languished in IDP camps and lived in appalling conditions. The government's contribution to education is minimal, with NGOs and private institutions filling the gap.

Infrastructure. Roads, electricity, water and sanitation infrastructure in Somalia are severely lacking. The government's ability to build and maintain infrastructure is extremely limited, leaving citizens without basic amenities that taxes should help provide.

Security. One of the most core roles of any government is to provide security for its citizens, Somalia should train and equip the security apparatus to ensure the overall security in Somalia

This responsibility largely falls on private security forces, clan militias and international peacekeeping missions rather than the national government.

Somalia's VAT may be lowest in the region,but it is also the most unfair, given the lack of government services, the Somali government must address this imbalance by prioritizing the development of public services that directly benefit its citizens until then, the VAT will continue to be viewed as unjust and burdensome tax further eroding trust between the government and the people.

The comparison with other East African countries serves as a stark reminder that taxation should be accompanied by tangible benefit. Somalia's government has a long way to go in meeting the expectations of its citizens, who deserve much more than they are currently receiving in return for their taxes.

THE NEEDS FOR ACCOUNTABILITY AND TRANSPARENT SERVICE PROVISION.

The introduction of VAT in Somalia without corresponding public services highlights a significant government challenges while the government may argue that 5% VAT is low. The real issue is that citizens are not receiving the services that this tax should support

For taxation to be justifiable, the government must demonstrate explicitly that it can effectively utilize tax revenues to improve the lives of its citizens, this includes investing in healthcare, education, infrastructure and security without these essential services. The VAT is nothing more than an additional burden on a population already grappling with an extreme poverty and political turbulences.

RECONTEMPLATING THE APPROACH TO TAXATION IN SOMALIA.

The implementation of VAT in Somalia without the provision of public services is a pressing issue that requires to be addressed urgently, while taxation is a cornerstone for nation-building specifically fragile state like Somalia which is recovering from decades of brutal conflicts. Taxation must be accompanied by tangible benefits for the population. The Somali government could learn from its EAC neighbours by investing in public services that improve the lives of its citizens without such investment, the VAT will continue to be seen as an unjust burden, deepening the polarization between the state and its people.

A CALL FOR INCLUSIVE AND EQUITABLE TAXATION AND SERVICE PROVISION.

The Introduction of VAT in Somalia has highlighted the disparity between the government's competency to collect taxes and its capacity to provide public services, While VAT is a necessary tool for generating government revenue. It is imperative that the Somali government verifies that citizens see a return on their tax contributiion in the form of public services.

To avoid further alienation of the population, the federal government must prioritize the development of the infrastructure, healthcare, education and other essential services without these, VAT will continue to be viewed as an unfair burden on citizens who already navigating through unprecedented economic woes.

Comparatively, Somalia's plight stands in stark contrast to other EAC countries where citizens pay similar or higher VAT rates but receive tangible benefits in return. To eschew from plunging Somalia into uncharted territory, the only viable trajectory forward must include not just the collection of the controversial taxes but be responsible and transparent use of these funds to improve the quality of life and ensure similar opportunities for all Somalis to thrive, only then can the VAT system be justified and the trust between the government and its citizens be restored.

ABOUT THE AUTHOR: MOHAMED HUSSEIN AHMED MENTALIST. A Prolific Author, Prominent researcher and senior lecturer at Mogadishu and Somali National Universities

His research mainly focus on peace, good governance, conflict, media, climate change and migration.