The Somali government’s recent introduction of a 5% tax on all electronic sales transactions has generated widespread concern and discussion among the public and officials.
This tax, initially proposed in 1984 but previously unenforceable due to technical limitations, is now fully operational thanks to recent advancements in the government’s monitoring and assessment capabilities.
Finance Minister Bihi Iman Egeh explained that the government has implemented a modern system to efficiently track and collect these taxes. Egeh claimed the 5% rate is lower than in many neighboring countries, aiming to encourage tax compliance among the population.
The government has directed telecommunications companies and other digital service providers to cooperate with tax officials to facilitate the collection process.
Digital payment solutions, such as mobile money services from Hormuud’s EVC Plus and Telesom’s ZAAD, have become increasingly popular in Somalia due to their convenience and the lack of traditional banking infrastructure. Over 70% of Somali adults now use these mobile money services. The new taxation system affects transactions conducted via mobile money transfers, e-wallets, and other electronic payments for both the general public and businesses.
Abdifitah Dahir Harun, an economics professor at Horseed University in Mogadishu, commented on the potential benefits and drawbacks of this tax. “The government can use the new revenue to invest in economic infrastructure, increasing overall income and reducing dependency on foreign aid,” Harun explained. However, he also acknowledged the potential negative impact on the public.
“People’s expenses will increase as the tax applies to their final transaction amounts, which might lead to a decrease in the use of these electronic services.” he , stating.
This shift could result in a return to cash transactions, potentially reversing the recent growth in digital payments and undermining the gains made in financial inclusion and economic efficiency facilitated by widespread mobile money services and digital banking.
The tax’s introduction has led to confusion and criticism. MP Dahir Amin Jeesow raised concerns in parliament about the tax’s specifics, particularly how it applies to non-commodity transactions like education and healthcare. “If I send one dollar to someone, will I be taxed for that? Will it be classified as a purchase? What does this tax mean in practical terms?” Jeesow questioned.
There is also uncertainty about how the tax will apply to non-commodity transactions, such as education and healthcare.
“Are we taxing digital payments at hospitals and schools?” Jeesow continued.
The Somali government’s decision to implement this digital transaction tax has sparked a lively debate, with both the public and officials expressing concerns about its potential impact on the country’s economic development and financial inclusion efforts.