Horizontal and Vertical Equity in Somalia’s Tax System: Citizen Perceptions of Tax Fairness and Policy Preferences

Abstract

Somalia's domestic revenue mobilisation agenda is undergoing a significant transformation, shifting from a predominantly customs-based system towards direct taxation of individuals, households and businesses. This transition raises fundamental questions about the fairness, legitimacy and distribution of the country's evolving tax system. In 2025, taxes on goods and services increased by 30.8 per cent, while taxes on income and profits grew by 23.8 per cent, reflecting the expanding role of domestic taxation. However, limited empirical evidence exists on how Somali citizens perceive the distribution of tax burdens and whether these perceptions influence their willingness to support tax reforms.

This working paper examines the concepts of horizontal and vertical equity in Somalia's taxation system, focusing on citizens' perceptions of tax fairness, institutional trust, tax legitimacy and policy preferences. It distinguishes actual tax incidence from perceived fairness and preferences for tax reform, providing a framework for understanding how these dimensions interact within Somalia's federal, fragile and predominantly informal economic environment.

The study adopts a mixed-methods research design combining secondary analysis of the World Bank's Listening to Somalia 2025 survey and the Somalia Integrated Household Budget Survey 2022, distributional analysis of consumption-tax exposure, institutional and legislative assessment, qualitative interviews, and a proposed supplementary household survey. It develops seven research hypotheses and an empirical framework to examine differences in tax fairness perceptions across socioeconomic groups, employment categories and jurisdictions, as well as their relationship with institutional trust, public service delivery and support for domestic revenue mobilisation.

The paper addresses a critical evidence gap in Somalia's fiscal reform agenda by proposing a systematic approach to assessing whether taxpayers perceive the tax burden as fairly distributed and which reforms they consider legitimate. Its findings, once the proposed empirical analysis is completed, are intended to inform more equitable tax policies, strengthen fiscal accountability and enhance public confidence in domestic revenue mobilisation.

Keywords: Tax equity; horizontal equity; vertical equity; tax fairness; tax morale; domestic revenue mobilisation; fiscal legitimacy; fiscal federalism; Somalia.