Most low-income states rely on trade taxes (at borders) rather than on income taxes. A common explanation for this phenomenon is that these states lack capacity to collect income taxes among largely rural populations that rely on subsistence agriculture.

The idea here is that it is easier to collect taxes in economies with large firms that act as fiscal intermediaries. But as it turns out, the case of Al Shabaab — the Somalia-based terror group — shows that it is possible to raise non-trivial amounts of revenue from rural populations.

This is from the Hiraal Institute:

Zakawaat is collected by troops mobilised from different AS departments, assisted by clan elders; they are put into action during the collection season, which is traditionally the month of Ramadan. The starting rate is one camel out of every 25 camels owned and one goat out of every 40 goats. Collection is done uniformly across all the regions in south and central Somalia, including in the districts that AS does not control. Collectors issue receipts to pastoralists; those who lose their receipts are made to pay the taxes again in the next year. This ensures that pastoralists who were away from AS territory during the preceding year do not escape payment of Zakah.

Amounts collected vary by district. For instance, in Bardale in 2017, AS managed to collect 2200 goats and 171 camels. In the area around Mogadishu in the same period, 100 camels and 1500 goats were collected as Zakah. This is a relatively small amount of livestock because the area is mainly inhabited by non-nomadic farmers as it is close to Mogadishu and surrounded by urban areas. Likewise, Zakah collection in Barawe in 2017 was 600 camels and 8000 goats; in Wanlaweyn it was 700 camels and several thousand goats. The livestock is auctioned to ASlinked businessmen at an amount that is generally just below the market rate, at $400-$600 per camel according to the animals’ age and $30 per goat. The districts named above are not controlled by AS, yet the group managed to collect more than $1mn in Zakawaat in those regions in 2017. This would translate, at a conservative estimate, to about $8mn annually from livestock Zakawaat throughout South and Central Somalia.

Revenue leakages are rare:

The financial system is tight, with only one known case of a collector who defected with $2800. The auditors in the districts, who receive the monies from the checkpoints, are rigorously vetted before being employed. They declare all their assets, including land, cars, and cash in the bank. They declare their wealth again after being relieved of their duties; any unaccountable wealth is repossessed.

Auditors, some of whom receive up to $50,000 a month, are unable to defect with the money for a number of reasons. First, they are on 24-hour watch by the Amniyaat: in their offices, there are four known members of the Amniyaat. Additionally, other hidden Amniyaat operatives keep watch of their movements. Moreover, they are relieved of their duties every few months and sent on leave.

Finally, Al Shabaab regularly balances its budget:

The AS tax revenues are estimated in this paper at $27mn while its expenditures are at around $25.6mn. While our estimates are conservative, the group breaks even on its balance sheet every year. This is shown by the fact that the emergency tax collection is not done on a regular basis, and not in every region. On the other hand, the fact that emergency collection is sometimes needed shows that AS profits are not significant and its income is just enough to cover its expenses.

Read the whole thing here.

H/T N. Lidow.