Sunday August 18, 2024
President Hassan Sheikh Mohamud addresses the nation in a televised speech on Saturday, August 17, 2024, clarifying the government's implementation of the 5% sales tax and urging businesses to comply with the revamped tax system.
Mogadishu (HOL) — Somalia's new 5% sales tax officially took effect on Sunday, with the tax being automatically deducted from business accounts at the point of sale.
President Hassan Sheikh Mohamud addressed the nation in a televised address ahead of the tax's implementation, emphasizing that this measure is a revamp of the existing tax system rather than a new tax.
"The government has not introduced any new taxes," President Mohamud explained. "We have revamped the existing tax system to ensure that everyone contributes fairly to the nation's development. This is not about imposing additional financial pressure on our citizens, but about ensuring that everyone pays their fair share."
The President also directly addressed concerns raised by various groups, including young Bajaj (tuk-tuk) drivers, who feared the new tax would increase their financial burden. President Mohamud sought to reassure them that the government was not seeking to impose undue pressure and emphasized that the tax would not apply to personal money transfers, such as mobile money transactions. The tax is limited to commercial transactions only.
He mentioned plans to make it easier for small businesses and service providers like Bajaj drivers to obtain necessary licenses, further reducing barriers to compliance.
The President stressed the important role that revenue from the 5% Value Added Tax (VAT) plays in funding essential services and infrastructure projects, urging all businesses and citizens to comply with the updated tax obligations. He added that the modernization of the tax system is vital for Somalia's progress, both economically and socially.
The Ministry of Finance outlined that the sales tax would be automatically deducted from transactions to minimize tax evasion and increase efficiency in the collection process. This tax applies to a broad range of goods and services.
However, the introduction of the tax has met resistance from some regional administrations, most notably Jubbaland. The Jubbaland Ministry of Finance issued a statement rejecting the federal government's decision, advising local businesses to continue operating under regional tax laws established last year. Jubbaland officials claimed the tax was implemented without proper consultation and indicated that it would not be enforced within their territory.
President Mohamud said that tax revenues are crucial for funding security operations against Al-Shabaab, particularly in regions like Jubbaland and South West State.
For consumers, the sales tax is anticipated to lead to higher prices for everyday goods and services, potentially altering spending habits. Some consumers may seek alternatives in the informal market, where enforcement of the tax is less likely.
Economists warn that the success of this tax policy will depend on effective implementation, including clear communication, strong enforcement, and visible improvements in public services.