After regaining its independence, Somaliland made a unitary system of governance in which the constitution establishes central government with regional and local governments. where Local governments provide basic services as per their capacity. The number of districts, their hierarchy, and boundaries were to be [and are still to be] defined by law. Donors and UN Agencies introduced Joint Program for Local Governance and Decentralization (JPLG) which has been operational in Somaliland since 2008, supporting decentralization. Nonetheless, decentralization efforts in Somaliland, particularly those pertaining to fiscal affairs face many challenges. The main aim of this study is to explore key fiscal decentralization challenges and available options for a better fiscal decentralization system. There is unnecessary increase of districts based on tribal political motivations many of them with limited taxable economic base and their dependency on electoral districts in elections. Subsidy allocations to local governments are not based on assessed physical and socioeconomic factors and have not been predictable nor fairly distributed. Districts with custom posts receive municipal tax revenue which raises local government budget over comparable districts. unless addressed with equalization funds such budget inequality among local governments in the process of decentralization will have a negative disparity in the services provided and livelihoods among districts. Other challenges include poor legal framework and limited institutional capacity. However, Somaliland should rethink the type of decentralization to adopt, review policies and regulatory frameworks applied to subnational governments to reflect best practices .
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