An underground directional drilling system can comprise a plurality of elongated dual-shaft segments coupled together end-to-end and forming an inner shaft assembly independently rotatable relative to an annular outer shaft assembly. The dual-shaft drilling system can include a communication segment that comprises an outer shaft having first longitudinal portion, a second longitudinal, and a gap portion that provides electrical insulation therebetween. The communication segment can generate voltage differences between the longitudinal portions that cause electrical pulses to periodically transfer across the gap portion to wirelessly communicate drilling related data to the surface. An inner shaft of the communication segment can comprise electrical insulation to avoid creating an electrical short between the first and second longitudinal portions of the outer shaft. The inner shaft assembly can further comprise various sensors, electronics, and communication components, such as a magnetic sensor system that determines relative rotational orientations between the inner and outer shaft assemblies.