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How Al-Shabaab Funds Terror with Far-Reaching System of Tax Collection

A member of a local Somali militia protects a herd from al shabaab

The Somali terror group Al-Shabaab is using an entrenched system of taxation to fund their activities by collecting money and commodities even in areas not under their control.

A new report from the Hiraal Institute in Mogadishu stressed that as ISIS grows in Somalia they're competing for tax collections with Al-Shabaab, which remains the biggest collector.

Al-Shabaab collects non-monetary taxes, such as livestock, through its Zakawaat Office and cash through its Finance Office. The first leader of the Zakawaat office was fired for giving collected commodities to the poor. The Finance Office was built "from a ragtag, informal, highly inefficient office to become the most ruthless collection entity in Somalia."

"AS is financially self-sufficient; however, its expenses are ballooned by recurring payments to hundreds of officials and local influencers, many nominally in charge of areas not controlled by the group. The group has however managed to raise emergency funds to keep itself afloat, and has never failed to pay its fighters and administrators," the report states.

Collection season for the terror group is traditionally the Islamic holy month of Ramadan, with the starting Zakawaat rate one out of every 25 camels or 40 goats. "Collection is done uniformly across all the regions in south and central Somalia, including in the districts that AS does not control. Collectors issue receipts to pastoralists; those who lose their receipts are made to pay the taxes again in the next year."

The livestock that the terror group seizes from farmers is then auctioned for a bit of a bargain to businessmen who are linked to Al-Shabaab.

Monetary taxes collected by the Finance Office are 2.5 percent based on Al-Shabaab's assessment of a business' value before profits. The report notes that this actually goes against Islamic law, which sets taxes as a percentage of net profits at the end of the year. "This has led some of the more idealistic AS members to demand that their salaries be paid from the Zakah and not by taxes collected by the Finance Office," says the study.

Even in territory not controlled by Al-Shabaab, business owners are expected to come to the terror group's territory and pay taxes in cash at the end of each year. Al-Shabaab keeps records of business owners and their estimated net worth, and their intelligence wing stretches far beyond their strongholds to extort cash out of those who refuse to pay up.

"Money is collected at checkpoints by AS collectors. Every day, an auditor calls them to ask for the serial numbers of the receipts they have issued. After ten days, an accountant collects the money from the checkpoints. Each town has a number of checkpoints surrounding it; all these are visited by the accountant, who takes the money to the auditor, who sits at the head office in the town," the report describes. "The auditor makes sure the money collected and receipts match; he gives a stamped letter to the accountant, who takes the money to the bank. At the bank, the accountant is given a slip which he takes back to the auditor. After every two months, the collectors are replaced and sent on leave for a month. After that, they are reassigned."

A big source of income for the terror group is taxing trucks that are ferrying cargo through Shabaab-controlled territory. Semi trucks are taxed $1,150 each time they use the roads. As the economy has grown, so has Al-Shabaab's take.

"AS collects at least $3.6mn from its checkpoints in the Jubba regions, translating at a very conservative estimate to an annual collection of $15mn from all its checkpoints across the country," the researchers assessed.

If a shipment passing through Al-Shabaab territory is stopped, the terror group gathers information on the business owner behind the cargo and the Finance Office reaches out to inquire about the owner's annual revenue. "If the answer is ridiculously low, his shipment is impounded; if the answer is reasonable, it is calculated that he owns up to three times the amount he specified, and is taxed 2.5% of that amount."

Even those who avoid Al-Shabaab territory when shipping their goods get ratted out by Al-Shabaab informants who alert the Finance Office to chase down the taxes.

If Al-Shabaab is facing a budgetary shortfall, they assess an "arbitrary amount that can range from thousands of dollars to tens of thousands per clan, and hundreds to thousands for each trader"; this "outright predatory form of behaviour" is "universally resented by those living in areas under AS control and influence."

"While AS individuals used to receive personal donations from abroad, the group has arrested many members under suspicion of espionage; consequently, remittances, being natural sources of suspicion, are not as used as before the crackdowns," the think-tank study notes. "Large-scale overseas support is reportedly in the form of goods bought in the name of AS-linked businessmen by Al-Qaeda donors, shipped into the country, and the revenues handed back to AS."

Members of Al-Shabaab and the organization itself also run businesses that turn a profit.

"The financial system is tight, with only one known case of a collector who defected with $2,800. The auditors in the districts, who receive the monies from the checkpoints, are rigorously vetted before being employed. They declare all their assets, including land, cars, and cash in the bank. They declare their wealth again after being relieved of their duties; any unaccountable wealth is repossessed," the report continues, noting that auditors for the terror group get paid up to $50,000 a month.

Al-Shabaab divides their funds into a logistics account, an emergency rainy-day fund, and to the terror group's regional offices. "The group has a large expenditure in recurrent payments in the form of salaries to soldiers, policemen, administrators, orphans and the maintenance of loyalties among more than 100 'unemployed' officials of the group. Foot soldiers are relatively cheap, receiving starting salaries of $30 per month with those having wives receiving an extra $30 per wife and $20 per child." They only spend about $2 per day per fighter on food, and have about 5,000 active fighters.

"Al-Shabab has built a resilient and far-reaching financial network that has been able to withstand regular army and Special Forces attacks. With its roots dug deep into the local communities, the group has managed to replace and reposition tax collectors as necessary. On some major roads, the group conducts its tax collection even without having a permanent presence," the report concludes.

The terror group is estimated to usually break even, but not by much as the budget shortfall collections still happen.