A new policy analysis from Mohamed Abdi Hassan Seed, Founder, Chairperson, and President of The Abrahamic Movement Somaliland (AMSL), warns that introducing both a Sales Tax and a Goods and Services Tax (GST) in an overlapping manner could raise consumer prices, strain small businesses, and disproportionately burden low-income households across Somaliland — unless the reforms are carefully coordinated.

The analysis, titled “Potential Negative Effects of Implementing Both Sales Tax and Goods and Services Tax (GST) in Somaliland,” acknowledges that taxation remains essential to financing public services, infrastructure, security, education, healthcare, and national development. But it argues that layering two broad consumption taxes onto the same transactions, rather than designing one coherent system, could create economic and administrative strain that falls hardest on those least able to absorb it.

“Consumption taxes such as Sales Tax and GST are widely used around the world. However, they are generally designed so that one broad consumption tax applies, rather than imposing overlapping taxes on the same transactions.” Mohamed Abdi Hassan Seed, AMSL

How the Two Taxes Would Stack

The analysis distinguishes between the two tax types: a Sales Tax, typically charged once at the point of final sale, and a GST, a value-added tax collected at multiple stages of production and distribution, with credits generally offsetting cascading effects when properly administered. Applied separately and well-designed, either can function efficiently. Applied together without coordination, the analysis warns, their combined weight lands directly on the final price paid by consumers.

The author notes that actual outcomes would depend on the legal design of any final tax framework, but stresses that overlapping taxes “can significantly increase prices if not structured carefully.”

Household Impact: A Rising Cost of Living

The report’s central concern is the effect on ordinary Somaliland households. It estimates that a 10 percent rise in average prices driven by consumption taxes could push a family’s monthly expenditure from USD 400 to roughly USD 440 — an additional cost of about USD 480 over a year, money the analysis says could otherwise go toward nutrition, education, or healthcare.

Goods most likely to be affected, according to the analysis, include food, clothing, fuel, construction materials, household goods, telecommunications, and transport services — categories that make up a disproportionate share of spending for lower-income families.

Business and Employment Pressures

Beyond household budgets, the analysis lays out a chain of business-side effects it argues policymakers should weigh carefully:

• Reduced consumer demand as higher prices lead households to delay purchases of furniture, electronics, vehicles, and construction projects.
• Lower business turnover — the report’s example describes a shop’s weekly rice sales falling from 100 to 85 bags after a price increase.
• Higher compliance costs, including registration, invoicing, recordkeeping, staff training, accounting software, and audits.
• Cash flow strain for businesses required to remit tax on sales before receiving payment from customers on credit terms.
• Disproportionate burden on SMEs, which often lack the financial and administrative capacity of larger firms.
• Growth of the informal economy, as some businesses opt out of formal registration to avoid compliance costs.
• Slower investment and hiring, as businesses facing reduced sales delay recruitment, overtime, and expansion plans.

“Because lower-income households spend a larger share of their income on essential goods, they may bear a proportionately heavier burden.” Mohamed Abdi Hassan Seed, AMSL

Sector-by-Sector Exposure

The analysis walks through how a combined tax burden could ripple across specific sectors of the Somaliland economy:

• Retail trade — reduced customer demand alongside higher compliance and recordkeeping obligations.
• Construction — higher material costs, increased housing costs, and a possible slowdown in private construction.
• Agriculture — increased transport and input costs feeding into higher food prices.
• Transport — increased freight charges and higher passenger fares.
• Hospitality — higher accommodation and restaurant prices, with reduced domestic tourism demand.
• Telecommunications — increased prices for internet and communication services.

What Effective Administration Requires

The report cautions that successful implementation of any consumption tax system depends on institutional readiness — modern digital tax systems, reliable taxpayer registration, skilled tax officers, efficient audit procedures, taxpayer education, and fair dispute resolution mechanisms. Without this capacity, it warns, compliance costs rise and public confidence in the tax system can erode.

AMSL’s Recommendations

Rather than opposing tax reform outright, the analysis frames itself as a call for careful design. It offers ten recommendations for policymakers to consider before moving forward:

1. Conduct comprehensive economic impact assessments before implementation.
2. Consult businesses, consumer organizations, professional associations, and civil society.
3. Avoid overlapping taxation on the same transaction.
4. Exempt or zero-rate selected essential goods and services where appropriate.
5. Introduce reforms gradually to allow businesses time to adapt.
6. Establish reasonable registration thresholds for micro-enterprises.
7. Invest in taxpayer education and digital tax administration.
8. Simplify filing procedures for SMEs.
9. Monitor inflation, business performance, and household impacts following implementation.
10. Publish transparent reports showing how additional revenue supports public services and development priorities.

A Call for Balanced Reform

The analysis closes by affirming that a stronger domestic revenue base remains important to Somaliland’s long-term development, while cautioning that the sequencing and design of any new taxes will determine whether that goal is achieved without unintended harm.

“Well-designed tax reform should aim to balance revenue generation with economic competitiveness, social equity, and administrative efficiency.” Mohamed Abdi Hassan Seed, AMSL

Faith & Freedom News will continue to follow Somaliland’s fiscal policy debate and responses from government officials and the business community.