The Political Economy of Taxation in Somalia: Historical Legacies, Informal Institutions, and Political Settlements

This paper investigates the political economy of weak taxation in Somalia, tracing the historical, institutional, and political factors that underpin the country’s low tax-to-GDP ratio of approximately 2 per cent. Challenging conventional narratives that attribute Somalia’s weak tax capacity solely to state collapse and conflict, the study situates contemporary challenges within a broader historical context of pre- and post-colonial governance structures, reliance on trade taxes, and institutionalised informality. Drawing on qualitative data from the federal government and states and comparative insights from Somaliland, the paper examines how fragmented tax authority, elite bargains, and informal tax negotiations hinder centralised tax systems. It highlights the role of political settlements in shaping the state’s limited capacity and willingness to tax, with elites enjoying limited enforcement of tax laws in exchange for their role in maintaining political stability and support. The analysis argues that technocratic tax reforms often fail in conflict-affected states due to their inability to address underlying power dynamics and informal institutions. Instead, it advocates for politically-aligned reforms that account for entrenched elite interests and historical legacies. By contextualising Somalia’s taxation challenges within a political settlement framework, the study contributes to broader debates on state-building, revenue mobilisation, and governance in fragile states.