Domestic revenue grew by 26.5%, from $112.7 million in 2016 to $142.6 million in 2017 driven by trade taxes.
The Federal Government of Somalia is considering tightening the noose on the corporate sector as it seeks to plug the holes in its budget.
Among the areas the tax man will be looking at includes corporate taxes, sales tax, income and, and in consumption taxes. According the government Budget Strategy (BSP) Paper 2019, each of the categories would requires a major effort to improve the legal and administrative basis for collecting these taxes.
Last year the World Bank pointed out that a poor collection capacity, the weak management of public finance, a narrow tax base, and the absence of the legal and regulatory framework necessary to govern revenue collection and administration have created a tax gap of 70 percent–80 percent.
The global lender added that a tax reform agenda—coupled with strengthened public finance management—could increase domestic revenue.
The Somali cabinet approved $340,060,149 for this year. The figure is about 24 per cent rise from last year’s $274.6 million budget. The government expects $189.9m (55.8%) from internal sources, while it anticipates $124.6m (44.2%) from the donor community.
The federal budget is extremely small by international comparison, at about 3% of GDP, and is largely being used to the recurrent costs mainly based on public sector expenditure and security operations costs, which consequently dominates to the national budget.
The budget characterized by inefficient revenue collection which have in recent years resulted un-excepted arrears. In this case, there are no virtually systematical locations of national budget strategic in sense of the general public services to the people such as free health care, development of public education, and poverty reduction policies.
The BSP pointed out that the dominance of Trade Taxes as a proportion of domestic revenues underscored the weakness in corporate taxes, sales tax, income and, and in consumption taxes. Each of these categories requires major efforts to improve the legal and administrative basis for collecting these taxes.
The BSP also noted that there had been an a large increases in non-tax revenue, primarily Airport and Harbor fees and visa charges, an indication of an improved
The government said among the priority areas it would be paying attention to in 2019 includes education, health, fishery irrigation, energy, sanitation and transportation.
And in a shift of the budgetary procedures, the government will now identify what resources are available, rather than as in the past, to add-up the assessed needs of ministries. Ministries will then be provided with the guiding expenditure ceilings against which they are required to develop their detailed estimates.
“This approach will require further development over the coming years, and for 2019, the intention is to use the 2019 Budget allocations as the initial expenditure ceiling”, reads the explanation in the BPS.
“The increase of the expenditure of the budget is mainly salary centric, which more than 45.5% of spending allocated to staff salary support whereas the proportion of security sector spending is more of the 2018 Budget”
Budget Strategy Paper
Domestic revenue grew by 26.5%, from $112.7 million in 2016 to $142.6 million in 2017 driven by trade taxes. Donor grants almost doubled to $103.6 million in 2017 from $55.3 million in 2016 a remarkable performance of the commitments been realized.
Over the past four years, real GDP growth has been moderate, averaging about 3.4%. Real GDP growth slowed to an estimated 2.4% in 2017, due mainly to the ongoing drought, and projected to recover to 3.5% in 2018 and 2019.
The main drivers in 2017 were construction, telecommunications, and financial services. The rise in GDP growth in 2018 and 2019 expected to be driven by a recovery in the agriculture, higher private-sector investment, and improved security. Inflation, which was contained by dollarization and the sharp decline in oil prices predicted to remain around 2.7% in 2018 and 2019.
The increase of the expenditure of the budget is mainly salary centric, which more than 45.5% of spending allocated to staff salary support whereas the proportion of security sector spending is more of the 2018 Budget.
These large shares of spending crowd-out opportunities for funding other spending areas, such as interest payments on debt, transfers and subsidies to government business enterprises and for other sector development; spending on health and education, which is vitally needed to improve social and economic development, with fostering infrastructure capital spending; and a social safety net.
Additionally, any failure of allocated spending of these sectors can also give rise to arrears to government budgets.
Although comprehensive revenue forecasts for 2019 are still ongoing, propositions are that the total resource envelope will be approximately to that for 2019 about 340 million and accomplishment be contingent censoriously on continued global support.
Most of Somalia’s external debts linked to ousted republic of Somalia lead by former respected president Mohamed Siad Barre, who in the 1970s and 1980s went borrowing spree for infrastructure and development projects. Therefore nearly 30 years, with the war economy lingering, Somalia is one of the three last nations in the world, alongside Sudan and Eritrea, to still not meet conditions for debt relief under a World Bank and IMF initiative known as Heavily Indebted Poor Countries (HIPC), which aims to ensure no poor country faces a debt burden it cannot manage and can address its development needs. It is a several steps process requiring specific criteria and benchmarks to be met before the debt is cancelled and new development focused lending is permitted.
Somalia previous administration failed to pay recurrent costs debts on time due shortage of revenue collection and scarcity of international grants in 2016. International communities have pledged billions to Somali government, but not mostly as direct budget support. Somali government backed by the international community since collapse of central government 1991, but has become a source grumbling for Somalis, as changes come in a very slow pace.
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