taxation in somaliland and ethopia.

1. Joint Programme in MSc in Accounting and Finance
March 27, 2022
Jigjiga University
Jigjiga, Ethiopia
CSI - Civil Service Institute
Hargeisa, Somaliland
Course: Advanced Taxation
Lecturer: Minyahil A. (Assistant professor)

2. Group members
Sno Name
1 Mukhtar Mohamed Ali
2 Abibakar Mohomed Muse
3 Aisha Abdinasir Ahmed
4 Mohamed Abdullahi Bashir
Group Assignment

3. “Comparison between the taxation systems
of Somaliland and Ethiopia”
Topic One (Assignment)

4. Somaliland
Taxation Systems
Ethiopia
Proportional (Flat Tax) Progressive

5. Somaliland
Taxation Systems
Ethiopia
Proportional (Flat Rate) Taxation
System
Progressive Taxation System
Somaliland has Flat (Proportional) Taxation System where almost all of
direct and indirect rates remain unchanged with base change. In opposite
to that, Ethiopia has a progressive taxation policy for most its taxes where
rates change with the bases. Therefore, Ethiopia has more opportunity of
generating huge revenues than Somaliland.

6. Somaliland
Taxation Systems …
Ethiopia
Based on the different taxation systems
adopted by the two countries, the high
income persons and institutions in
Somaliland enjoy lower flat tax rates but
the society suffers from inequitable
distribution and the government
generates less than it should.
The progressive system enables
Ethiopian government to minimize
the gaps between the rich and low
income citizens by charging high
rates to those generating more
income rather than others.

7. Somaliland
Direct Taxes
Taxation Systems …
Ethiopia
Direct Taxes
Payroll Tax 6%
Rental Income Tax 12.5%
Business Profit Tax 12.5%
Employment Income Tax
15% - 35%
Rental Income Tax 10% - 35%
Business Profit Tax 10% - 35%
Flat Rates Progressive

8. Other Direct Taxes Other Direct Taxes
╠ Royalties 5%
╠ Income from Rendering Technical
service 10%
╠ Income from Games of chance 5%
╠ Dividends 10%
╠ Income from Rental of property 15%
╠ Interest Income on deposits 5%
Capital gain on property
• Building 15%
• Shares 30%
╠ Inc. Rendering Technical service 10%
╠ Games of chance (Culturally Prohibited)
╠ Dividends (Not introduced)
╠ Income Rental of property 12.5%
╠ Interest Income on deposits
(Culturally Prohibited)
Capital Gain Taxes
• Building 2.5%
• Shares (Not introduced)
 Royalties 5% - 10%
Taxation Systems …

9. Indirect Taxes Indirect Taxes
╟ VAT 15%
╟ Excise Taxes varies widely
depending on the goods
╟ Turn Over Tax (TOT) 2% for goods
sold locally and 10% for others.
╟ Custom duty large and diverse 5% -
35%
╟ GST 5%
╟ Excise taxes are diverse
╟ Custom duty. There are hundreds of
tariffs for the different items.
Taxation Systems …

10. Somaliland
Ethiopia
╡ Inherit taxes 1% - 5%
Taxation Systems …
NB. Both countries have variety of taxes. Only the key taxes were brought in
presentation

11. Somaliland Ethiopia
But the case for Ehiopia, is more
broader where primary purposes
include revenue generation, market
control and economic stabilization
and others.
Somaliland’s main purpose of
imposing taxes is to fund government
activities.
Tax for what purpose?

12. Somaliland Ethiopia
╠ Taxes from personal earnings,
customs collections and revenues
collected from export goods
represent the key sources of income
╠ Revenues from export goods have
significant share in Ethiopia’s national
budget and even GDP.
╠ Somaliland’s taxes are primarily
generated from imported goods
through the customs and other inland
revenues.
╠ Taxes from the exported goods are
rare apart from the livestock.
╠ In terms of revenue volume, custom
duties mainly for imported goods
represent the largest income source to
Somaliland government
Nature of the taxes

13. Regarding the other direct taxes in the previous slides, the
government of Somaliland is mainly challenged by the following:
Taxation Systems …
 There are religious and cultural prohibitions of many ways used by other
countries such as Ethiopia. For example, taxes on income from game of
chance and deposit interests are forbidden in Islam.
 Somaliland taxes’ diversity is limited compared to Ethiopia. The other
thing to mention is that rates in Somaliland remain flat with base changes.

14. Indirect taxes
Taxation Systems …
To compare the indirect (VAT, TOT and Custom Duties) taxes of the
two states, we need to consider the diversity of taxes, taxation system and
rates. GST (VAT) has been recently introduced in limited sectors such as
hotels while the TOT is totally unknown in Somaliland taxation system.
For the custom duties, comparability becomes complex due to the
large different tariffs. Anyway, Ethiopia’s taxation system and rates are
stronger compared to Somaliland. On the other hand, small businesses and
person generating more incomes relish Somaliland

15. Deductibles, Tax Exemptions and penalties
╟ Each of the two governments has its own deductibles and
thresholds in personal incomes, business profits and so on.
╟ There are items, individuals and institutions offered with tax
exemptions for lawful purposes. For example, All factories are given
tax exemption for the beginning. Also, their raw material the first three
years. Also, there are exemptions to encourage particular activity, service
or goods.
╟ Also, both governments exercise variety of penalties to punish those
violated and not obeying taxation rules and regulations.

16. Strengths and weaknesses of the taxation
systems of Somaliland Ethiopia
╠ Institutional form (Autonomous Inland Revenue
and Customs Authority)
╠ Tax enforcement
╠ Collection simplicity
╠ Psychology of tax payers
╠ Religious and cultural practices
╠ Digitalization (Taxes automation)

17. Strengths and weaknesses of the taxation
systems of Somaliland Ethiopia …
╠ Ethiopia has strengths in institutional form, tax laws
enforcement, psychology of tax payers and taxes diversity over
Somaliland.
╠ Also, Ethiopia has some kind of strengths in collection simplicity
as the largest corporates such Ethiopian Airline, Commercial
Bank of Ethiopia and Ethiopian Telecom owned by the
government and the government itself are the largest employers
in the country where the government collects employment
income taxes with the minimum efforts and transaction costs.

18. Strengths and weaknesses of the taxation systems of
Somaliland Ethiopia …
╟ In similar to Ethiopia, Somaliland may enjoy a kind of collection
simplicity since it practices the flat rate system.
╟ As the people of Somaliland are (100%) Muslims, the constitution and
other laws including tax acts are based on the Islamic practices
prohibiting many taxes accepted by none Muslim communities. In
addition, Somaliland still lacks Autonomous Inland Revenue and Customs
Authority that is pivotal to effective and efficient taxation system.
╟ In general, both Somaliland and Ethiopia did not automated the tax
systems adequately.
╟ For both, Digitalization is still limited in public financial administration.

19. “What is your reflection about the existence
and impact of black money and market on
Somaliland economy”
Topic Two (Assignment)

20. The existence of black money and market in Somaliland cannot be
completely denied. But what remains unknown is the level of that
market and its impact on Somaliland’s economy.
We know that Somaliland uses US dollar beside its local currency
making Somaliland even more vulnerable.
Furthermore, foreign currencies exchange are determined by
institutions other than Somaliland central bank. This could result in
unappreciated impact on Somaliland economy.
Black money and market in Somaliland

21. Although the government uses some good interventions
to fight against illegal supply of goods into/out of
Somaliland, still people may get access to do so.
However, Somaliland economy is relatively stable.
Black money and market in
Somaliland …

22. Thank You For Your Attention
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