Somaliland’s Ministry of Finance says the Goods and Services Tax (GST) taking effect on August 1 is not a new tax but a modernization of the country’s existing tax system. Officials explain how the revised framework will work and why the final consumer bears the tax
By Saxafi Media Staff
HARGEISA — Somaliland’s Ministry of Finance and Economic Development has sought to reassure businesses and the public ahead of the August 1 implementation of the revised Goods and Services Tax (GST), stressing that the measure is not a new tax but a modernization of a taxation system that has existed in the country for nearly three decades.
The clarification comes as debate intensifies over the rollout of the revised GST framework, with lawmakers, business leaders, academics, and consumers raising questions about how the tax will be applied and whether it will increase the cost of living.
During a televised discussion broadcast by MM Somali TV, senior officials from the ministry explained the legal basis of the reform and sought to dispel what they described as widespread misconceptions surrounding the tax.
Ahmed Abdi Ali Toor, Deputy Director of the Inland Revenue Department, said many Somalilanders mistakenly believe GST is a newly introduced levy, despite its legal origins dating back to 1996.
“The Goods and Services Tax is not a new tax. It evolved from the Sales Tax introduced under Law No. 84 of 1996, which imposed a three percent tax on imported goods,” Toor said.
He explained that the principal difference between the former Sales Tax and today’s GST lies in the structure of collection.
Under the earlier system, tax was collected only once, primarily on imports. GST, by contrast, is designed as a multi-stage consumption tax, allowing it to be collected at different points throughout the supply chain as administrative capacity expands.
“The law allows the government to implement the different stages gradually, depending on institutional readiness,” Toor said.
Tax Reform Began Nearly a Decade Ago
According to the ministry, Somaliland’s transition toward a modern GST framework began in 2016 with the adoption of Revenue Law No. 72, which formally replaced the previous Sales Tax legislation.
That legal reform was followed in 2021 by implementing regulations that enabled service providers—including hotels, electricity companies, and water utilities—to incorporate GST into consumer pricing.
Officials say the latest public debate has been triggered by amendments introduced under Revenue Law No. 72/2025, which expanded the list of taxable services by removing several exemptions.
Toor said those amendments have led many citizens to incorrectly conclude that the government is introducing an entirely new tax.
“Our objective is to improve public understanding of an existing tax system that has now been modernized,” he said.
Transparency and Digital Collection
The ministry outlined two central principles behind the revised GST system: transparency and modernization.
Toor said the first principle ensures clear accountability throughout the taxation process.
“The final consumer pays the tax, businesses collect it on behalf of the government, and the Ministry of Finance is the only institution legally authorized to receive and administer those revenues,” he explained.
The second principle focuses on digitizing tax administration.
Businesses will be able to submit GST payments electronically from their offices or homes using digital payment systems. Revenue will be transferred directly to the Inland Revenue Department before being deposited into the Central Bank of Somaliland.
Officials argue the digital system will improve efficiency, reduce administrative costs, and strengthen financial transparency.
GST Designed as a Consumption Tax
Speaking during the same programme, Abdirahman Mohamed Ibrahim of the Financial Management Reform Department emphasized that GST is fundamentally a consumption tax, not a tax imposed on every commercial transaction.
He warned that legal provisions governing the tax have sometimes been misunderstood by commentators lacking technical expertise.
“Interpretations that are not grounded in the law or technical understanding risk misleading the public,” he said.
Abdirahman explained that if GST were fully applied at every stage of the supply chain, businesses would require tax refund mechanisms to avoid cumulative taxation that could ultimately raise consumer prices.
To simplify implementation during the current phase, he said, the government has opted to reduce the applicable GST rate from the 5 percent provided under the law to 2.5 percent.
The temporary reduction, he noted, reflects a policy decision by President Abdirahman Mohamed Abdullahi (Irro) and senior Ministry of Finance officials aimed at easing the transition for both businesses and consumers.
Tax Paid Only by the Final Consumer
Officials also stressed that GST is intended to be borne only by the final consumer.
Abdirahman explained that transactions between importers, wholesalers, and retailers are commercial exchanges rather than final consumption and therefore are treated differently within the GST framework.
Instead, the tax is collected when goods or services are ultimately purchased for personal use by consumers.
The ministry argues this structure prevents businesses from bearing the tax burden themselves while ensuring government revenue is collected more transparently.
Ministry Urges Public to Rely on Official Information
Concluding the discussion, Ministry of Finance officials encouraged citizens to consult official legal documents and government guidance when seeking information about the tax reforms rather than relying on misinformation circulating through public debate.
They reiterated that GST should be understood as the modernization of Somaliland’s long-standing taxation framework rather than the creation of an entirely new tax.
Officials say the reform is intended to improve transparency, strengthen digital revenue collection, and establish a more efficient and equitable tax system while ensuring that the ultimate tax burden remains with the final consumer.
