A Double Burden: How the New VAT is Squeezing Somali Citizens Without Government Services

In recent years, Somalia has made significant strides toward rebuilding its economy and governance structures after decades of conflict. Yet, the introduction of a Value Added Tax (VAT) by the Somali government has ignited a wave of public discontent, primarily because of the absence of corresponding free public services. The new tax, implemented with the aim of raising revenue for the government, has left many Somalis questioning its fairness and purpose, particularly in a country where access to essential services is still limited. This blog explores the impact of the new VAT on Somali households, examining how the tax exacerbates existing economic challenges and the broader implications for public trust and social stability.

The Introduction of VAT in Somalia

In 2023, Somalia introduced a 5% VAT on goods and services, a move aimed at increasing government revenue to fund public services and infrastructure. However, this policy has been met with widespread criticism, as citizens argue that they are being taxed without receiving any substantial government services in return. In a country where basic needs such as healthcare, education, and security are largely provided by non-governmental organizations (NGOs) or private entities, the introduction of VAT has been seen as an additional burden on an already struggling population.

The Double Burden on Citizens

The introduction of VAT in Somalia has created a double burden for its citizens. On one hand, they are required to pay additional taxes on goods 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 situation is particularly harsh on low-income families, who must now stretch their limited resources even further to meet basic needs.

For instance, the price of food, clothing, and essential household items has increased due to the VAT. At the same time, families must pay out of pocket for education, healthcare, and other critical services, which should be covered by government spending. This creates a cycle of poverty, where the poorest citizens are continually disadvantaged, unable to access opportunities that could help them improve their circumstances.

When the Somali government introduced a 5% Value Added Tax (VAT) in 2023, they proudly declared that it was the lowest VAT rate among East African Community (EAC) countries. While this statement is technically accurate, it overlooks a critical question: What does Somalia offer 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 in Kenya, Uganda, Tanzania, Rwanda, and Burundi, where VAT 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 deep disconnect between taxation and public service provision.

What Do EAC Countries Provide in Return for VAT?

In East African Community (EAC) countries, VAT revenues are typically reinvested into essential public services that directly benefit citizens. For example, 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 educational institutions, contributing to overall socio-economic development.

The reinvestment of VAT revenues helps to justify the tax, as citizens see tangible benefits in the form of enhanced public services and infrastructure. This clear link between taxation and public service provision contributes to greater public acceptance and trust in the tax system. By contrast, in Somalia, where VAT revenue has not yet been fully linked to visible improvements in public services, there is significant public outcry and skepticism regarding the tax's 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. Basic services like healthcare, education, and infrastructure are either non-existent or provided by private entities and NGOs.

Healthcare: In Somalia, public healthcare is virtually non-existent. Citizens rely heavily on private clinics 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. 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 limited, leaving citizens without the basic amenities that taxes should help provide.

Security: One of the most critical roles of any government is to provide security. In Somalia, this responsibility largely falls on private security forces, clans, and international peacekeeping missions, rather than the national government.

Somalia’s VAT may be the 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 seen as an 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 benefits. 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 Need for Accountability and Service Provision

The introduction of VAT in Somalia without corresponding public services highlights a significant governance challenge. While the government may argue that a 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 that it can effectively use tax revenue 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 struggling with poverty and instability.

Rethinking the Approach to Taxation in Somalia

The implementation of VAT in Somalia without the provision of public services is a pressing issue that needs to be addressed. While taxation is essential for nation-building, it 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 investments, the VAT will continue to be seen as an unjust burden, deepening the divide between the state and its people.

A Call for Equitable Taxation and Service Provision

The introduction of VAT in Somalia has highlighted the disparity between the government’s ability 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 ensures that citizens see a return on their tax contributions in the form of public services.

To avoid further alienation of the population, the government must prioritize the development of infrastructure, healthcare, education, and other essential services. Without these, VAT will continue to be viewed as an unfair burden on citizens who already face significant economic challenges.

Comparatively, Somalia's situation stands in stark contrast to other EAC countries where citizens pay similar or higher VAT rates but receive tangible benefits in return. Somalia's path forward must include not just the collection of taxes but the responsible and transparent use of these funds to improve the quality of life for all Somalis. Only then can the VAT system be justified, and the trust between the government and its citizens be restored.