[{"bbox": [97, 152, 1136, 206], "category": "Text", "text": "a large informal economy, dependency on international trade taxes (two-thirds of tax revenue), and low tax administration capacity (especially for collection of taxes on income and goods and services)."}, {"bbox": [97, 217, 1136, 325], "category": "Text", "text": "Somalia is also characterised by strong **heterogeneity in collection and tax potential** between FGS (confined largely to the Mogadishu region) and FMS, as well as across FMS (as a function of whether they have ports and can collect trade taxes). **Competition for taxation between FGS, FMS local communities and armed militias** is another feature, meaning that real tax incidence is often higher than what is officially reported."}, {"bbox": [97, 336, 1136, 444], "category": "Text", "text": "In terms of customs reform, while progress has been observed with enacting an **ad-valorem tariff schedule** in 2022 and developing an automated customs administration system (with EU support), acceleration of key reforms is needed to enable the rollout a common valuation table across Mogadishu and the FMS ports (Bosasso and Kismayo), and applying a **single tariff schedule across Somalia** (a HIPC CP trigger)."}, {"bbox": [97, 454, 1136, 616], "category": "Text", "text": "In 2022 a spectrum fee schedule for telecom operators was approved, and while this is expected to yield US$6 million per year, further efforts are required to harness the revenue potential of the highly profitable Somali **telecoms sector**. Other reforms that are being introduced with IFI support are the operationalisation of POS machines at some large taxpayers and **introduction of turnover taxes** with at least 2000 newly registered taxpayers planned in 2023. While the potential to increase revenues may be limited in the short and medium term, the successful development of the petroleum sector is a potential game changer."}, {"bbox": [97, 627, 1136, 840], "category": "Text", "text": "The implication is that **spending increases need to be carefully prioritised**, in line with a viable vision as to the role of the state in Somalia, within the newly established (and still contested) federal framework of governance. Failure to agree on the basic contours of fiscal federalism means that FGS and FMS currently collect and spend almost all revenues pertaining to their geographic area of responsibility. This arrangement places FMS that have access to port revenues at a great advantage, and also limits the potential FGS role in managing revenue redistribution to pursue equalisation goals. Securing agreement between FGS and the FMS on a credible **political framework for managing fiscal federalism** (including revenue management and sharing mechanisms), continues to be a critical PFM challenge and a key constraint to sustainably enhance DRM."}, {"bbox": [97, 851, 1136, 985], "category": "Text", "text": "While PFM has been steadily improving, further efforts are needed to improve **public expenditure quality**, so as to ensure greater growth payoffs from investment and social spending. The FGS approved its first budget in 2013 and has since been enhancing its ability to implement a meaningful budget, which so far essentially covers the recurrent costs of the federal administration and security sector and limited – but growing – fiscal transfers to the sub-federal level of government."}, {"bbox": [97, 996, 1136, 1131], "category": "Text", "text": "The FGS has been building a modern **PFM legal framework**, and the Somalia Financial Management Information System (SFMIS), in place since 2014, has **supported expenditure controls and regular reporting**, boosting in particular efficiency and controls around payroll(s) and payments by the central treasury function. However, a recent assessment has raised as a serious issue that needs to be urgently addressed, the lack of adequate governance policies necessary for ensuring and sustaining the system's integrity."}, {"bbox": [97, 1141, 1136, 1299], "category": "Text", "text": "Domestic arrears are now under control thanks to improved budget preparation and cash management. A Single Treasury Account is being gradually operationalised, with the consolidation of all bank balances of MDAs via the SFMIS, enabling a reduction of cash advances to MDAs for non-salary expenses. Cash planning and revenue management functions are being automated through the SFMIS and the recent introduction of an invoice tracking will strengthen the monitoring of accumulation of unpaid invoices and arrears, and report on these in a timely fashion."}, {"bbox": [97, 1312, 1136, 1526], "category": "Text", "text": "At the same time, significant issues persist with the compensation of civilian temporary workers (outside the formal payroll and civil service pay scale, and not subject to adequate payroll controls enabled by the automated payroll system and electronic payments through the SFMIS). At 22 percent of total compensation in 2021, this issue calls for the urgent **integration of the payroll and stronger payroll controls** to ensure a more affordable wage-bill. Rules and processes for governing **intergovernmental fiscal relations**, notably a credible **fiscal transfers system**, are still at a nascent stage including the arrangements for harmonized fiscal and financial reporting. Implementation of the new **public procurement (and concessions) legal and regulatory framework** is also problematic as compliance is weak."}, {"bbox": [97, 1537, 1136, 1645], "category": "Text", "text": "The **credibility of the budget needs to be improved**: significant in-year adjustments at MDA level, inadequate time given to MDAs to submit proposals after the budget ceiling is issued, and wide variation in donor revenues pose challenges to budget execution. There is also much room for improving cash management and commitment controls, especially through more accurate forecasting and better adherence to forecasts. A recent PFM assessment"}, {"bbox": [1038, 1680, 1144, 1705], "category": "Page-footer", "text": "Page 9 of 26"}]