Is Somalia’s Al Shaabab better at tax collection than most low-income states?

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.

it is time more districts translated into wider taxation

President Kibaki has created about 180 districts over the last 6 years. The logic behind the creation of the many districts, according to the president and his men, has been that there is a need to bring government services closer to the people. One obvious question then is what government services? Are we talking about registration of births and deaths, motor vehicle registration, licensing, issuance of title deeds, judicial services and all that stuff? Because these services are still mostly highly centralised, requiring one to travel either to Nairobi or to far off provincial headquarters. Critics of the new districts have oftentimes highlighted their high cost and non-viability (The president thinks such critics are “backward”).

It was therefore welcome news when yesterday the president announced the halting of the creation of new districts – citing financial reasons. For some reason this fact (high costs) never crossed the minds of the president’s advisers somewhere between new district # 1 and # 180.

And now that we have over 180 new and expensive districts – most of them dished out for political reasons and “people’s demands” – I think it is time we require the new districts, being local governments, to do what governments do: TAX EVERYONE. Each district should be required to raise a percentage of its expenses from local populations (it is quite unfair for Nairobians to pay for non-viable districts in remote parts of the country created purely for political reasons). This minimum requirement need not be uniform across the board – people in West Pokot need districts too, you know – but should be geared towards making local people bear some responsibility for their local governments. With local funding for local districts, Kenyans may be persuaded to care more about who gets appointed to be DC and what their DC and the many district committees do. And to add to the positives, the DC’s will have an incentive to promote local economic activity to generate revenues.

Eventually, one hopes, this idea of local taxation for local services will make Kenyans demand that they get to elect their local DC’s instead of having State House appoint them.

This may sound like a pipe-dream but there is hope. Given parliament’s increasing assertiveness and power-grab from the executive and judiciary it is conceivable that such an idea can successfully be passed into law by the august House. Does someone know a crafty MP with nothing to lose who can champion this cause?

ps: I never thought I’d ever say this but I am actually missing the Standard online edition. What happened to them? Can’t they afford a website?