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Editorial

“Is Taxation Theft?”

The Actors

Consider this intriguing news story, Elaborate Somali insurgent tax system collects almost as much as government.  Al Shabaab  (AS) would be classified in Western terms as a terrorist group and for good reasons.  In Islamic terms, “the group describes itself as waging jihad against “enemies of Islam“; they can reasonably be called “freedom fighters”.  Contradiction?  Maybe.

IN 2006 the Federal Government of Somalia (FGS) emerged as the compromise government of many factions. Ethiopia was the most influential state power in the country until it withdrew.  The West, specifically the United States, recognizes the sovereignty of Somalia government. Islamic states support for Somalia has been reported by the New York Times.

Both groups have one thing in common, taxation/theft.

The Stage

Somalia is a desperate country. Best known to many of us as the setting for Black Hawk Down, the country sits on the gulf of Aden.  The gulf is one of the world’s busiest shipping routes connecting Europe and Asia.  Shipping industry’s morethanshipping.com says the gulf is, “One of the earth’s most dangerous waters”. Although there is a government recognized by many in the West, the country is rife with violence and piracy which seems to be beyond control.

“Taxation or Theft?”

The Hiraal Institute is a research and analysis organization.  Their recent publication “A Losing Game: Countering Al-Shabab’s Financial System”, reports “al Shabab’s tax collectors were bringing in an estimated $15 million per month”.  The term “tax collectors” is the institute’s wording.  Whereas al Shabab is not the government, it is worth noting the term, whereas most would consider them thieves.   Somalia’s GDP was $7.7 billion in 2019.  Simple math, al Shabab’s tax collectors pulled in $180 million a year, or 4% of the GDP. 

Somalia is governed by the Federal Government of Somalia (FGS).  Not much of a governing body whereas it has little control over the country, but nonetheless, it has enough authority to tax.  It brought in $141 million in 2017.  Slightly less than al Shabaab’s collection.

Methodology

Both FGS and AS tax similar activity.  “One senior Somali military commander told Hiraal that he had to pay the insurgency (al Shabaab) $3,600 in taxes to finish building his house”. The FGS collects taxes on rental income after construction and the property is leased.  Because it is not moveable, real estate has always been the object of taxation and enforce penalties for non-compliance are easy to prosecute.  Whether it is FGS or al Shabab, to use property in a productive manner there is a tax to be paid. Likewise, whether it is to travel on roads or irrigate crops, both will collect from you.

Construction certainly does sound a little ominous though for contractors. “The first contractor he had hired quit after al Shabaab threatened him because the commander had not paid taxes.” Sounds like an old fashion “stick-up” from the wild West.  The FGS doesn’t seem to be any better at legitimizing their efforts. According to the World Bank, “Somalia’s tax system is characterized by outdated legislation, poor enforcement, and almost nonexistent administration”.  The FGS method seems to “make it up as you go along”.

The same institute reports “Businesses confidently pay AS (al Shabab) taxes because they expect AS to heed its part of the deal as it has always done; those that pay taxes are free to go wherever they want, while those that refuse are punished and their lives are endangered. The punishment, before any death threats are made, ranges from fining them hefty amounts to restricting their access to markets.”  The Rift Valley Institute in May of 2020 published “Tax and the State in Somalia”.  They concluded about the FGS, “Under this system (multiple tax entities), the government levies taxes that are known as canshuur, meaning ‘restriction’ or ‘burden’, signifying a system imposed and regulated by force.”  How much force, when it is applied and who applies it is not well documented; the World Bank’s characterization is probably the definitive observation.

Good Works?

Both the FGS and AS make claims to provide much need services and relief to the citizens of Somalia.  The official Somalia government website promotes the government’s efforts in education, health care and central banking.  The AS according to the Rift Valley Institute, “In this system (Islamic law), the individual is part of the global ummah (community of believers) and subject to relevant religious laws enshrined in the Qur’an. This calls for compulsory charitable contributions called zakat. As one of the five pillars of Islam, it carries religious authority and sanction.”  Both argue that they are helping society thru taxation/theft that pays for “good works”.

So, which is it?

Both FGS and AS have determined that they know what is best for their fellow citizens.  Taking wealth from one individual and giving it to another is the practical end of their taxation/theft program.  But, how does society benefit when one member of society has their property taken from them?  It does not.  The best way to help individuals material wellbeing is for the protection of private property.  Once laws and the enforcement of laws demonstrate a commitment to the protection of property, humans begin to act in such a way as to build wealth for themselves through producing a surplus that simultaneously provide goods and services for their neighbors.

Property

Using property (labor, intellect, wealth etc) to produce a surplus of a good or service and then exchanging with another who provides a different good or service is the best way to provide for individuals.  It is the responsibility of civil authority to insure the protection of property for the creation of surplus and the voluntary free exchange. Individuals are the only entity that can possibly know how to best order their individual resources in such a way as to produce a maximum benefit.  It is not possible for another individual to gather resources and redistribute them in a manner that is consistent with the desires of those who have had their wealth appropriated and given to another. Definitively stated, but rarely believed, “Omniscience is denied to man” (Ludwig Von Mises – Human Action). 

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