Introduction
The recent decision by the Somali government to introduce a 5% digital transaction tax has sparked
significant debate and concern across various sectors of society. As the Somali Congress of Trade
Union (SOCOTU), we believe it is crucial to examine both the potential benefits and the substantial
drawbacks this new tax may pose to Somali workers, businesses, and the overall economy.
The Context of the Digital Transaction Tax
With the directive that telecommunications companies and digital service providers cooperate with
tax officials, the Somali government aims to streamline the collection process of the new tax. Digital
payment solutions, particularly mobile money services like Hormuud’s EVC Plus and Telesom’s ZAAD,
have gained immense popularity due to their convenience and the lack of traditional banking
infrastructure. Currently, over 70% of Somali adults utilize these mobile money services, highlighting
their critical role in our economy.
Potential Benefits
There are undeniable potential benefits to the new tax. According to Abdiqafar Farah, an economics
professor at SOCOTU’s informal Economic Department, the additional revenue generated from this
tax could be channeled into economic infrastructure development. This investment could lead to
increased overall income and a reduced dependency on foreign aid, fostering a more self-reliant
economy.
Significant Concerns
Despite these potential benefits, SOCOTU remains deeply concerned about the immediate and long term impacts on Somali workers and the general public.
- Impact on Low-Wage Workers and Job Insecurity Low-wage workers, who are already
struggling with insufficient earnings and job insecurity, may find the new tax to be an
additional burden. The 5% levy on digital transactions effectively reduces their disposable
income, making it harder for them to make ends meet. - Shift Back to Cash Transactions The tax could also prompt a shift back to cash transactions,
reversing the significant progress made in financial inclusion and economic efficiency
through widespread use of mobile money services. This regression could undermine the
convenience and security provided by digital payments, adversely affecting both individuals
and businesses. - Uncertainty in Non-Commodity Transactions There is considerable uncertainty regarding
how the tax will apply to non-commodity transactions, such as those in education and
healthcare. Clarification is needed to ensure that critical services are not unduly burdened,
which could otherwise hinder access to essential services for many Somalis.
SOCOTU’s Position and Recommendations
SOCOTU urges the Somali government to reconsider the implementation of the digital transaction
tax in its current form. We recommend the following actions: - Consultation and Dialogue Engage in comprehensive consultations with key stakeholders,
including trade unions, businesses, and civil society organizations, to gather diverse
perspectives and address concerns. - Impact Assessment Conduct a thorough impact assessment to understand the tax’s
potential effects on different sectors, especially low-wage workers and vulnerable
populations. - Exemptions and Thresholds Consider implementing exemptions or thresholds for low-value
transactions to protect low-income individuals from bearing the brunt of the tax. - Gradual Implementation Explore a phased or gradual implementation approach to allow
individuals and businesses time to adjust and mitigate any adverse effects.
Conclusion
While the digital transaction tax presents an opportunity for increased government revenue and
potential economic growth, it is crucial to balance these benefits with the immediate needs and
challenges faced by Somali workers and the broader public. SOCOTU remains committed to
advocating for policies that promote economic development while protecting the rights and welfare
of Somali workers. We call on the government to engage in meaningful dialogue and consider the
potential consequences of this tax to ensure it supports, rather than hinders, Somalia’s economic
progress and financial inclusion efforts.
Contact Information: Somali Congress of Trade Union (SOCOTU) Email: info@socotu.org
Kind regards,
Salad Abdullahi Omar
Head of Informal Economy Department
