Working Paper 217
This paper examines fiscal relations in contexts of fragility. It focuses on the tax relationship between the post-transitional Somali government and advanced businesses in the telecommunications sector, which emerged during the period of state collapse. The paper poses two specific questions. It asks why such dominant economic players would pay taxes to a state that, per standard tax theory, had limited authority, legitimacy, and capacity to deliver ‘reciprocal returns’ or collective goods and services. Secondly, for a sector that had emerged in the context of statelessness, it interrogates whether some level of state capacity had become ‘pivotal for business’? In doing so, the paper assesses the impact of fiscal relations on broader state-building dynamics.
In interrogating these questions, the paper employs a qualitative process tracing approach and draws on recent anthropological research on fiscal exchanges and emerging insights from the fragile state experience. The paper finds that as the sector transformed, becoming more decentralised, technologically advanced and internationalised, there were specific ‘returns’ that the sector required from a formal state, which underlaid the sector’s tax motivations. However, while the Telecom sector demonstrated increasing support for the state project and was willing to make specific tax contributions – regulatory fees for licences and sales taxes – it resisted corporate taxes. Such fiscal dynamics demonstrated that the sector’s level of investment in the state project was tentative. As such, there was still some way to go before the formal state institutions were seen as critical for business.
