Evolution of Somalia’s Fiscal Sector: Modernizing Revenue Collection and Tax Administration

Policy Briefs June 2025 008/2025 Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

June 2025 CBS Policy Briefs info@centralbank.gov.so www.centralbank.gov.so @CBSsomalia Central Bank of Somalia ©2025 In the case of quotation, please refer to this Publication as follow: - Central Bank of Somalia (CBS) Policy Briefs: June 2025 Mogadishu – Somalia To request a complimentary copy of this report, an electronic copy is available at www.centralbank.gov.so 55 Corso Somalia P. O. Box 11 Mogadishu, Somalia

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Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration Policy Research & Analysis Division Research and Statistics Department Monetary, Financial, Regulatory Policy Group Central Bank of Somalia June 2025

Policy Brief, June 2025 2 Executive Summary Somalia’s fiscal sector is undergoing a significant transition, marked by reforms in tax policy, digitization of business processes, and public financial management. These significant strides in reforming the fiscal system have strengthened domestic revenue performance aimed to reduce over-reliance on external grants. After reaching the Heavily Indebted Poor Countries (HIPC) Completion Point in December 2023, the Federal Government of Somalia (FGS) accelerated tax mobilization initiatives through customs modernization, broader sales tax, and better tax administration. Most of the reform was driven by enhanced collection of income tax and sales tax. In September 2024, the FGS widened the sales tax base by working with firms in the telecommunications sector to introduce a digital mechanism to collect a 5 percent sales tax from businesses using merchant accounts. The main benefits of this reform were seen in the fourth quarter of 2024, assisted by digital tools like the Electronic Tax Administration System (ETAS) and Invoice Tracking System (ITS). These efforts led to domestic revenue growth, from US$262.8 million in 2022 to US$369.4 million in 2024. Yet, Somalia’s revenue-to-GDP ratio remains low at 3.0 percent, well below the East African Community’s 25 percent target. Although Somalia’s Ministry of Finance (MoF) developed a Medium-Term Revenue Roadmap (MTRR) in 2024, which sets out the FGS’s revenue mobilization strategy for 2025–27. The core target is for the FGS to be able to cover all operating expenses from domestic revenues by 2027. Although tax collection has improved, it has not kept up with the FGS spending needs. In 2024, FGS collected US$369.4 million but spent over US$485 million on operating costs (excluding donor funded projects), resulting in a fiscal gap of over US$116 million. Most of this spending goes to operational costs including salaries and other non-income generating expenditures, leaving little for capital expenditure. Encouragingly, digital sales tax collection and outsourced rental income management have boosted revenues in Mogadishu, showing what is possible when reforms are well implemented. To move forward, Somalia needs to broaden the tax base and enhance taxpayer compliance by adopting the Medium-Term Revenue Roadmap-2024-2027 strategy, bringing informal sectors into the system, fully digitizing tax processes, de￾escalating political tensions, and improving coordination between the FGS and FMS fiscal reforms. Equally important is aligning spending with actual revenue, increasing transparency, and building public trust in the system. With sustained commitment and targeted reforms, Somalia can create a fair, more effective, and self-reliant fiscal policy. The paper outlines three strategic policy recommendations:

1. Improve Tax Policy and Broaden the Revenue Base: The FGS should implement the 2025–2027 Medium-Term Revenue Roadmap by enforcing the new Income Tax Law, expanding the tax net to informal and under-taxed sectors, and reducing exemptions. Strengthening legal frameworks and tax policy is critical to achieving the 4% revenue-to-GDP target by 2027 and reducing fiscal dependency.
2. Establish a Solid and Digitally Enabled Tax Administration: The FGS should scale up investment in digital systems such as ETAS, RITS, ITS, and SOMCAS to improve compliance, audit capacity, automate collection, enhance taxpayer registration, and improve real-time monitoring, especially in high-volume sectors like telecom and trade in goods and services.
3. Promote Fiscal Federalism and Customs Harmonization: Enhancing coordination of fiscal governance between the FGS and FMS is vital to unify tax policy, reduce fragmentation, establish a fair revenue-sharing formula, and establish a functioning Somali Revenue Authority. Scaling up customs reform, especially the nationwide rollout of SOMCAS at key ports will strengthen cross-border enforcement and support sustained domestic revenue growth.

3 Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

1. Introduction and Context Somalia’s fiscal sector is entering a critical phase of transformation following the achievement of debt relief under the Heavily Indebted Poor Countries (HIPC) initiative in 2023. With the launch of the National Transformation Plan (NTP 2025–2029) and the ambition of Centennial Vision 2060, the Federal Government of Somalia (FGS) is prioritizing domestic resource mobilization as the backbone of state affordability, legitimacy, and resilience. However, the country’s revenue￾to-GDP ratio remains among the lowest globally and regionally, currently standing at just 3 percent of GDP. In response, Somalia’s Ministry of Finance (MoF) developed a Medium-Term Revenue Roadmap (MTRR) in 2024, outlining the FGS’s revenue mobilization strategy for 2025–2027. The aim for the roadmap is to increase domestic revenues by 0.3 percent of GDP annually, with the goal of reaching US$602 million by 2027, equivalent to 4 percent of GDP. At the same time, Somalia’s fiscal reform efforts are critical to achieving macroeconomic stabilization, enhancing domestic resource mobilization, and progressing toward budgetary self-reliance. In response, the FGS introduced a set of tax policies and administrative reforms between 2023 and 2025 to modernize Somalia’s strategic fiscal framework, improve compliance, and reduce dependency on foreign aid by expanding the domestic revenue base. These reforms included the introduction of the Turnover Tax regime in 2023, the launch of a 5 percent electronic transaction tax (sales tax on digital payments) in 2024, and the enactment of the Income Tax Law in 2025. Simultaneously, the government rolled out the Somalia Customs Automation System (SOMCAS) at both the Mogadishu and Kismayo ports and airports, along with an Invoice Tracking System, aimed at enhancing tax compliance, audit capacity, and taxpayer registration. 1 Republic of Kenya. National Tax Policy. Nairobi: The National Treasury and Economic Planning, 2024. https://www. treasury.go.ke/wp-content/uploads/2024/05/7.05.-2024-National-Tax-Policy.pdf. Over the last five years, cumulative domestic revenue has surpassed US$1.4 billion, consistently exceeding targets in the past three years. In 2024 alone, the government achieved a revenue performance rate of 106.7%, domestic fiscal receipts registered US$369.4 million, a 12 percent increase from the previous year. Despite this progress, the revenue-to-GDP ratio has stagnated at just 3.0 percent in both 2023 and 2024, well below the East African Community’s benchmark of 25 percent1 . This highlights the structural challenges within Somalia’s fiscal system and underscores the urgent need to modernize and optimize the various revenue streams. The MTRR (2025–2027) sets an ambitious target of increasing the revenue-to-GDP ratio to 4 percent by 2027, with the aim of enabling the Federal Government of Somalia to fully finance its operational expenses through domestic resources. Achieving this goal will require the implementation of a comprehensive package of tax policy and institutional reforms. Key priorities include expediting the establishment of the National Revenue Authority, ensuring effective enforcement of the newly enacted Income Tax Law, enhancing administrative capacity, harmonizing customs systems, and investing in digital infrastructure to strengthen compliance and expand the tax base. This policy brief provides an in-depth analysis of key strategies for strengthening Somalia’s fiscal foundation. It emphasizes the critical need to enhance domestic revenue generation through diversified tax systems and improved collection mechanisms. The brief also highlights the importance of ensuring equity in resource allocation to address disparities across regions and communities, thereby fostering social cohesion and economic stability. Additionally, it argues for the alignment of fiscal governance structures with systemic reforms that promote transparency, accountability, and citizen participation. By implementing these strategies, Somalia can create a more sustainable fiscal environment that supports long-term development and economic resilience.

Policy Brief, June 2025 4 1.1 Somalia’s Revenue Mobilization Gap: Regional Lag and Structural Challenges Somalia remains significantly behind its East African Community (EAC) counterparts in domestic revenue mobilization. While EAC countries such as Rwanda, Burundi, and Kenya consistently collect between 15% and 22% of GDP in government revenue, Somalia’s revenue-to-GDP ratio has remained extremely low—rising only from 2.3% in 2018 to 3.0% in 2024. This substantial gap highlights the urgent need for Somalia to strengthen its revenue generation and optimization strategies. By prioritizing reforms in tax policy, enforcement, and digital systems, Somalia can work toward closing this gap and fostering sustainable economic growth and fiscal resilience. Table 1: Government Revenue, Percentage of GDP in EAC (2018-2024) Year Burundi Uganda Rwanda Tanzania Kenya Somalia 2018 19.4 13.2 23.8 15.3 17.5 2.3 2019 22.4 13.5 23.1 15.2 17.0 2.7 2020 23.1 13.7 23.9 14.9 16.7 2.4 2021 25.1 14.0 24.6 14.9 16.8 2.4 2022 23.0 14.2 23.9 15.2 17.1 2.6 2023 20.7 14.3 22.3 15.5 16.9 3.0 2024 20.7 14.2 22.4 14.9 16.8 3.0 Source: IMF Portal, 2025 The above table shows that FGS’s recorded a revenue-to-GDP ratio (excluding grants) of just 3 percent in 2024 significantly lower than regional peers such as Rwanda (22.4), Kenya (16.8%) and Uganda (14.2%). This relatively low ratio reflects Somalia’s continued dependence on external grants and highlights the urgent need to expand the domestic tax base. A narrow revenue base constrains the government’s capacity to fund development priorities, sustain essential public services, and manage fiscal risks effectively. On the expenditure side, reforms targeted payroll efficiency through the Civil Servant Law and the Public Service Pension and Gratuity Act (2024). Despite these initiatives, expenditure remains skewed toward recurrent costs, with limited allocations for capital investment. Intergovernmental fiscal coordination also remains a challenge. While most of the Federal Member States (FMS) have aligned with national tax frameworks, some are yet to integrate fully, complicating harmonization and equitable revenue sharing. 2. Key Domestic Revenue Mobilization Reforms Improving domestic revenue mobilization remains a core fiscal priority for the FGS. In 2024, total domestic revenue reached over US$369 million, representing a 12 percent increase from US$329 million in 2023. Despite this growth, the revenue-to-GDP ratio remained unchanged at 3.0 percent, underscoring the need for deeper tax base expansion and efficiency gains. Significant improvements in the mobilization of domestic revenue have been made by the federal government. The FGS has implemented new tax measures, including a turnover tax that was previously absent, as well as the extension of sales tax to the service sector. Additionally, there are plans to modernize the income tax law to better align with the country’s current economic realities. These new taxes and improved tax administration are expected to raise domestic revenue in 2025 to US$430.3 million, equivalent to 3.18 percent of GDP.

5 There are also increased automation efforts in tax collection. The Somali Customs Automated System (SOMCAS) is operationalized in Mogadishu and Kismayo ports and Airports, thus facilitating the implementation of tariffs. The custom taxes collected in 2024 were US$168.88 million against a target of US$164.52 million2 , implying that the automation had increased efficiency. The FGS is formulating a comprehensive revenue strategy, supported by the IMF, to guide revenue collection over the next three years with a target of getting the revenue to GDP ratio to over 4 percent by 2027. This includes implementing a new Income Tax Law to replace the outdated 1966 income tax legislation. The revenue growth was largely due to improved income and sales tax collection. In early 2024, the FGS outsourced the collection of rental income tax on public properties in Mogadishu to a private contractor. The contractor introduced an electronic database of rental properties and stepped-up enforcement that saw rental income rise tremendously by Q3 2024 (Figure 5). The corporate and personal 2 3 income tax compliance improved, as more firms were registered and complied with income tax requirements. In Q3 2024, the government collaborated with telecommunications companies to introduce a digital system that automated sales tax collection via merchant accounts, significantly boosting sales tax receipts in Q4. Additionally, utility providers, including electricity and water companies, were integrated into the digital sales tax system, broadening the tax base further. Despite these gains, revenue estimates remained insufficient to finance operations fully. While over US$369 million collected in 2024 was enough to cover FGS salary obligations (Figure 1), it fell short of covering operational expenditure, which stood at US$485 million. The resulting fiscal gap of US$116 million3 highlights the persistent mismatch between domestic revenue performance and expenditure needs, reinforcing the urgency of continued reform and improved budget discipline. Source: MoF, 2025 2 FGS, 2024 End-Year Budget Performance Report, 16 March 2025. https://mof.gov.so/sites/default/files/ Publications/2024%20END%20YEAR%20BUDGET%20PERFORMANCE%20REPORT_0.pdf 3 Federal Government of Somalia. Somalia Financial Governance Report 2024: Strengthening Petroleum Revenue Sharing for State Building and Economic Development. Mogadishu: Ministry of Finance, April 2025. https://mof. gov.so/sites/default/files/Publications/Somalia%20Financial%20Governance%20Report%20%20 2024%20.pdf Figure 1: FGS Domestic Revenues, Salaries, and Total Operational Costs,2020–2024 Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

Policy Brief, June 2025 6 3. Recent Developments in FGS Domestic Revenue Trends (2018–2024) Somalia’s domestic revenue mobilization exhibited notable and consistent growth in domestic revenue mobilization over the past seven years, cumulative domestic revenue has surpassed US$1.8 billion, consistently exceeding targets. This progress reflects the impact of ongoing fiscal policy reforms focused on expanding the tax base, improving taxpayer compliance, and strengthening public financial management systems. Source: MoF, 2025 Figure 2 presents annual domestic revenue collected by the FGS during this period. In 2018, actual domestic revenue stood at approximately US$183.4 million, surpassing the initial budget estimate of US$156 million. The upward momentum continued into 2019, with revenue reaching around US$230.3 million. In 2020, collections declined to US$211.2 million, primarily due to the adverse economic effects of the COVID-19 pandemic. Despite this temporary setback, the recovery was swift: domestic revenue rebounded in 2021 and has continued on a rising trend through 2024. By 2024, total revenue collections reached an all-time high of US$369.4 million, exceeding the budget estimate by over US$23 million. Notably, both 2023 and 2024 saw actual revenues outperform projections, signaling improved forecasting, enforcement, and revenue mobilization efforts. Overall, the strong performance in recent years demonstrates Somalia’s growing fiscal capacity and lays a solid foundation for achieving the medium￾term goals outlined in the National Tax Plan and broader public finance reform agenda. 4. FGS Rental Income and Sales Tax Trends Table 3 presents the Federal Government of Somalia’s (FGS) quarterly rental income and sales tax performance from 2022Q1 to 2024Q4. The data highlights a steady increase in rental income collection and a dramatic surge in sales tax revenue beginning in late 2023. Figure 2: Domestic Revenue Trends (2018–2024) with YTD Performance

7 Table 3: Quarterly Rental Income and Sales Tax Trends (2022Q1-2024Q4) Year Quarter Rental Income Sales Tax Total 2022 Q1 $ 168,675 $ - $ 168,675 2022 Q2 $ 136,539 $ - $ 136,539 2022 Q3 $ 162,077 $ - $ 162,077 2022 Q4 $ 163,989 $ - $ 163,989 2023 Q1 $ 211,779 $ - $ 211,779 2023 Q2 $ 275,351 $ - $ 275,351 2023 Q3 $ 403,846 $ - $ 403,846 2023 Q4 $ 279,996 $ 214,738 $ 494,734 2024 Q1 $ 937,963 $ 160,435 $ 1,098,398 2024 Q2 $ 1,842,219 $ 219,075 $ 2,061,294 2024 Q3 $ 2,069,831 $ 93,883 $ 2,163,714 2024 Q4 $ 1,815,424 $3,851,666 $ 5,667,090 Source: MoF, 2025 The data illustrates a significant upward trajectory in both rental income and sales tax collections throughout 2024, with sales tax revenue peaking in Q4 at nearly US$4 million. Between 2022 and 2023, revenue was primarily driven by rental income, while sales tax remained uncollected until Q4 of 2023, highlighting its phased rollout. A notable turning point occurred in Q4 of 2024, coinciding with the formal launch of the 5 percent electronic transaction tax, targeting digital payments. This policy shift led to a dramatic increase in tax revenue, with total collections in 2024Q4 reaching over US$5.6 million. This growth was significantly enabled by the deployment of digital tax administration systems, namely the Rental Income Tax System (RITS) and the Electronic Tax Administration System (ETAS). While RITS facilitated streamlined rental income collections, ETAS played a transformative role by enabling the government to monitor real-time sales through merchant accounts and automatically deduct applicable taxes directly into government accounts. These two systems collectively enhanced compliance, transparency, and efficiency in revenue mobilization. This growth in tax revenue can be attributed to three key drivers:

1. Digitalization of Tax Administration: Tools such as ETAS and RITS significantly enhanced taxpayer registration, monitoring, and compliance enforcement.
2. Policy Enforcement: The notable revenue jump in 2024 indicates stronger enforcement of tax policy, including digital invoicing, and the successful onboarding of vendors into the formal tax net.
3. Urban Tax Base Development: Rental income has shown consistent year-on￾year growth, positioning it as a stable and scalable source of domestic revenue tied to Somalia’s urban development. The overall trend underscores Somalia’s transition toward a more formalized and tech￾enabled fiscal environment. The exponential growth in sales tax revenue underscores the untapped potential of digital taxation, particularly in urban and service sectors, while the consistent rise in rental income signals a stable and scalable base for urban-focused fiscal policy. Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

Policy Brief, June 2025 8 This evolution in revenue performance marks a pivotal moment in Somalia’s public finance trajectory, laying the groundwork for greater fiscal self-reliance, improved domestic resource mobilization, and more sustainable public service delivery. 5. Key Notable Issues Somalia’s low domestic revenue is largely a consequence of several interrelated factors. First and foremost, institutional deficiencies play a critical role; many government institutions lack the capacity, resources, and transparency necessary to collect and manage revenue effectively. Additionally, the country struggles with a fragile governance system, which undermines public trust, leading to poor compliance with tax regulations. The presence of a significant informal sector further exacerbates the issue. Many businesses operate outside the formal economy, making it difficult for the government to tax them and capture potential revenue. This informal economy provides livelihoods for many, yet its lack of regulation hinders economic growth and the state’s ability to generate income. Finally, ongoing security concerns also contribute to Somalia’s revenue mobilization challenges. The instability caused by persistent conflict and the threat of violence undermines both domestic and foreign investment, weakens the government’s capacity to increase its fiscal base. Together, these factors create a complex environment that severely limits the effectiveness of domestic revenue generation efforts in Somalia A) Improving Tax Policy and Revenue Mobilization: Expanding the tax base, strengthening fiscal sustainability, and improving revenue design

1. Low Revenue-to-GDP Ratio • Despite steady growth in domestic revenue—from US$262.8 million in 2022 to US$369.4 million in 2024—Somalia’s revenue-to-GDP ratio remains critically low at just 3.0 percent. This is far below the East African Community benchmark of 25 percent and well behind regional peers such as Rwanda (22.4%), Kenya (16.9%), and Uganda (14.3%). The persistent underperformance of the domestic tax base has left the government heavily reliant on external grants.
2. Persistent Fiscal Gap In 2024, while domestic revenue reached US$369.4 million, the Federal Government’s operational expenditure (excluding donor￾funded projects) totaled US$485 million, resulting in a fiscal deficit of over US$116 million. Revenue growth has not kept pace with the government’s expenditure needs, particularly for non-wage recurrent expenses and essential capital investments.
3. Limited Impact of Revenue Growth on Fiscal Space • Although income and sales tax revenues have improved, driven largely by digital tax initiatives, Somalia’s broader fiscal space remains constrained. Untapped tax streams and continued tax avoidance undermine fiscal sustainability. Most of the revenue gains have been absorbed by wage payments, limiting investment in public service delivery and infrastructure.
4. Skewed Expenditure Toward Recurrent Costs • Reforming Public Expenditure and Tax Instruments. Despite the launch of civil service and pension reforms, the government’s budget remains dominated by recurrent spending, especially public sector wages. This imbalance continues to crowd out allocations for development projects and infrastructure, which are essential for long-term growth and state￾building.
5. Underutilized Tax Instruments and Compliance Systems • Revenue from rental income and electronic sales tax has shown encouraging growth following the digitization of business processes. However, full implementation

9 and enforcement remain at an early stage, especially across informal and rural economies, limiting the revenue potential of these tax streams. Weak compliance systems also hamper the effectiveness of existing tax instruments. B) Establishing Solid and Cohesive Tax Administration: Institutional capacity, automation, taxpayer compliance, and operational efficiency: 6. Delays in Establishing the Somali Revenue Authority and Revenue Allocation Committee • Although the creation of the Somali Revenue Authority (SRA) and Revenue Allocation Committee was agreed in principle at the March 2023 National Consultative Council (NCC), both institutions remain non-operational. Progress has stalled due to the absence of clear legal, institutional, and governance frameworks. These entities are critical for enhancing federal revenue collection and ensuring transparent and predictable intergovernmental fiscal transfers. The absence of enabling legislation and weak institutional coordination undermines trust and slows progress on nationally integrated revenue systems. 7. Multiple Taxation and Jurisdictional Overlaps • Inconsistent tax policies and a limited Customs harmonization across Federal Member States (FMS) create significant challenges for businesses and taxpayers. The resulting duplication and jurisdictional confusion reduce tax compliance and increase administrative costs. C) Harmonization through Fiscal Federalism and Customs Reform: Federal-member state alignment, intergovernmental trust, and customs coordination. 8. Delayed SOMCAS Rollout • The SOMCAS has not been fully rolled out across all FMS. • The absence of a standardized valuation framework and inconsistent application of ad valorem tariffs undermines customs efficiency. • Several FMS have implemented turnover taxes targeting Small and Medium-sized Enterprises (SMEs), but poor coordination with the Federal Government tax system leads to duplication and disincentivizes business formalization. • The politicized resistance stems from concerns over FGS overreach and potential loss of revenue control by FMS. 6. Policy Recommendations A) Improving Tax Policy and Broadening the Revenue Base

1. Expedite Implementation and Enforcement of the New Income Tax Law • Implement regulations for the 2025 Income Tax Law, ensuring uniform implementation across all federal member states (FMS). • Strengthen income tax collection from corporate entities and high-potential sectors.
2. Strengthen Budget Discipline and Align Expenditures with Revenue Capacity • Implement a Medium-Term Expenditure Framework (MTEF) to ensure that public spending is based on credible, multi-year revenue projections, in line with the targets set in the Medium-Term Revenue Roadmap (MTRR). • Re-balance expenditure priorities by gradually increasing allocations to capital investments while introducing controls to curb the growth of recurrent expenditures, especially non￾essential administrative costs. Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

Policy Brief, June 2025 10 B) Establishing a Solid and Digitally Enabled Tax Administration 3. Modernize and Digitize the Administration of Taxes • Implementing technology-driven tax administration systems across all sectors will reduce human errors and increase efficiency in tax administration. The FGS should scale up ETAS and Invoice Tracking System (ITS) across all economic sectors, including utilities, transport, wholesale/ retail, and telecoms. Ensure adoption of common digital tax tools by all FMS to harmonize systems and reduce evasion. 4. Improve Taxpayer Compliance and Public Trust • Increase taxpayer education programs, especially targeting SMEs and informal operators. • Launch comprehensive anti-corruption and audit reforms to ensure transparent use of tax revenues and reduce resistance to taxation. 5. Strengthen Legal and Institutional Frameworks • Establish an independent tax appeals tribunal to handle disputes, ensuring fairness of the tax system and due process. This will build the confidence of the taxpayers in the tax system and enhance overall compliance. C) Harmonization through Fiscal Federalism and Customs Reform 6. Strengthen and Improve Customs Administration • The new customs laws have attempted to standardize customs across all ports; however, this requires effective enforcement to ensure compliance. Ensure that all entry points, including those operated by Federal Member States (FMS), apply the same customs laws and tariffs. • The Federal Government should expand the use of SOMCAS and risk-based inspections. Full deployment of the Somali Customs Automated System (SOMCAS) across all ports and border entry posts is necessary to maximize revenue collection from customs. 7. Establish a Somali Revenue Authority (NRA), and the Independent Revenue Allocation Committee, Promptly • Accelerate efforts to establish and operationalize the Somali Revenue Authority, as endorsed by the National Consultative Council (NCC) in the Baidoa Agreement of March 2023. • Enact enabling legislation and Institutional Frameworks for the National Revenue Authority with clear roles, transparency, and intergovernmental oversight mechanisms. • Establish a transparent, legally binding framework to clarify revenue assignments and administration roles between FGS and FMS. 8. Strengthen IGFF Mandate, Coordination, and Accountability • Empower the Intergovernmental Fiscal Forum (IGFF) to lead the development and enforcement of a federal tax administration code, with defined dispute resolution mechanisms. • Institutionalize regular technical working groups and reporting frameworks to improve coordination and mutual accountability between FGS and FMS. • Enact a legally binding framework for fiscal federalism, with a clearly defined revenue￾sharing formula, and compliance incentives to foster cooperation and predictability in intergovernmental transfers.

11 References CEIC Data (2025). “Kenya Tax Revenue: % of GDP”, CEICDATA.com. https://www.ceicdata.com/ en/indicator/kenya/tax-revenue--of-gdp. Federal Government of Somalia (2024), “2025 Budget Policy Framework Paper.” Ministry of Finance. https://mof.gov.so/sites/default/files/Publications/FGS%20Budget%20Framework%20 Paper%20for%20FY%202025%20revisedv15.pdf Federal Government of Somalia. Somalia Financial Governance Report 2024: Strengthening Petroleum Revenue Sharing for State Building and Economic Development. Mogadishu: Ministry of Finance, April 2025. Accessed May 30, 2025. https://mof.gov.so/sites/default/files/Publications/ Somalia%20Financial%20Governance%20Report%20%202024%20.pdf FGS (2025). “2024 End-Year Budget Performance Report.” Ministry of Finance. https://mof.gov.so/ sites/default/files/Publications/2024%20END%20YEAR%20BUDGET%20PERFORMANCE%20 REPORT_0.pdf IMF (2023). “IMF and World Bank Announce US$4.5 billion in Debt Relief for Somalia.” International Monetary Fund. https://www.imf.org/en/News/Articles/2023/12/13/pr23438-imf-and-world￾bank-announce-us-4-5-billion-in-debt-relief-for-somalia IMF (2024), “Statement by Mr. Mahmoud Mohieldin, Mr. Ali Alhosani, and Mr. Abdulqafar Abdullahi on Somalia.” International Monetary Fund. https://www.elibrary.imf.org/view/ journals/002/2024/158/article-A004-en.xml Republic of Kenya (2024). “National Tax Policy. Nairobi: The National Treasury and Economic Planning, 2024.” The National Treasury. https://www.treasury.go.ke/wp-content/uploads/2024/05/7.05.- 2024-National-Tax-Policy.pdf. Trading Economics (2024). “Uganda - Tax Revenue (% of GDP) - 2023 Data.” Trading Economics. com. https://tradingeconomics.com/uganda/tax-revenue-percent-of-gdp-wb-data.html. Evolution of Somalia’s Fiscal Sector: A Journey Towards Modernization and Optimization of Revenue Collection and Tax Administration

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