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| Much of $1bn Afghanistan tax bill is bogus, says US | Much of $1bn Afghanistan tax bill is bogus, says US |
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| The Afghan government has charged a tax bill of nearly $1bn (£600m) to foreign firms working for the US military and government over the last five years, but there is no legal basis for many of the charges and levies, a US watchdog has found in a damning new report released on Tuesday. | The Afghan government has charged a tax bill of nearly $1bn (£600m) to foreign firms working for the US military and government over the last five years, but there is no legal basis for many of the charges and levies, a US watchdog has found in a damning new report released on Tuesday. |
| Kabul has ignored agreements with Nato and the US to spare firms supplying the military or involved in development projects from paying national taxes, the Special Inspector General for Afghanistan Reconstruction (Sigar) said. | Kabul has ignored agreements with Nato and the US to spare firms supplying the military or involved in development projects from paying national taxes, the Special Inspector General for Afghanistan Reconstruction (Sigar) said. |
| One in every 10 dollars chalked up towards the $921m bill since 2008 was a clear violation of violated those deals, the auditor said. The vast majority of the rest could not be evaluated because there was no clear description of the taxes or penalties levied, which in itself is a red flag to accountants. | One in every 10 dollars chalked up towards the $921m bill since 2008 was a clear violation of violated those deals, the auditor said. The vast majority of the rest could not be evaluated because there was no clear description of the taxes or penalties levied, which in itself is a red flag to accountants. |
| "Based on our analysis, much of this total amount is likely illegitimate," said the report, which is just the latest in a string of probes by the government-appointed auditor into the finances of the US mission in Afghanistan. | "Based on our analysis, much of this total amount is likely illegitimate," said the report, which is just the latest in a string of probes by the government-appointed auditor into the finances of the US mission in Afghanistan. |
| The rocketing taxes have raised the cost of the war for US taxpayers because the contracting firms contractors have often passed on their extra expenses or asked to be reimbursed, Sigar said. | The rocketing taxes have raised the cost of the war for US taxpayers because the contracting firms contractors have often passed on their extra expenses or asked to be reimbursed, Sigar said. |
| They are also affecting military supply chains, because many of the companies are disputing their bills, prompting a crackdown from the Afghan government. | They are also affecting military supply chains, because many of the companies are disputing their bills, prompting a crackdown from the Afghan government. |
| So far only $67m, or 7% of the total demanded, has been paid. For firms with outstanding bills punishments have included limits on movement, the suspension of business licences and, in one case, arresting three employees, the report said. | So far only $67m, or 7% of the total demanded, has been paid. For firms with outstanding bills punishments have included limits on movement, the suspension of business licences and, in one case, arresting three employees, the report said. |
| "It's disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation," said John Sopko, the special inspector general, in a statement. "It's even more disturbing that US agencies are letting it happen – all at the expense of American taxpayers, who have already shouldered a heavy burden on Afghan reconstruction. This needs to end." | "It's disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation," said John Sopko, the special inspector general, in a statement. "It's even more disturbing that US agencies are letting it happen – all at the expense of American taxpayers, who have already shouldered a heavy burden on Afghan reconstruction. This needs to end." |
| The US embassy said that the report was not clear enough about the different types of contracting arrangements in Afghanistan, which undermined its findings. | The US embassy said that the report was not clear enough about the different types of contracting arrangements in Afghanistan, which undermined its findings. |
| "The report does not carefully distinguish between taxation on contractors working on assistance contracts which are tax-exempt under our bilateral agreements, and taxation of contractors that support the US embassy, such as operations, maintenance, and construction contractors, who are not tax-exempt," said embassy spokesman David Snepp. "Unfortunately, without this distinction, we are not able to draw any reliable conclusion concerning the amount of illegitimate taxation." | "The report does not carefully distinguish between taxation on contractors working on assistance contracts which are tax-exempt under our bilateral agreements, and taxation of contractors that support the US embassy, such as operations, maintenance, and construction contractors, who are not tax-exempt," said embassy spokesman David Snepp. "Unfortunately, without this distinction, we are not able to draw any reliable conclusion concerning the amount of illegitimate taxation." |
| The US government has not managed to present a unified front to the Afghan taxmen, or done enough to help the companies get certificates they need to avoid the levies. Some US officials have also compounded the costs of the opaque system by reimbursing contractors for their tax bill, the report said, citing examples including one from the development agency. | The US government has not managed to present a unified front to the Afghan taxmen, or done enough to help the companies get certificates they need to avoid the levies. Some US officials have also compounded the costs of the opaque system by reimbursing contractors for their tax bill, the report said, citing examples including one from the development agency. |
| "For example, in one USAID contract, the prime contractor was reimbursed nearly $160,000 for sales tax. However, USAID's agreements [with the Kabul government] specifically name sales tax as an exempt category," the report said. | "For example, in one USAID contract, the prime contractor was reimbursed nearly $160,000 for sales tax. However, USAID's agreements [with the Kabul government] specifically name sales tax as an exempt category," the report said. |
| Taxation of contractors is one of the apparently dull, but very thorny, issues on the table as Washington and Kabul try to agree terms for a US military presence after 2014, when the Nato-led mission officially ends. The negotiations have been slow and drawn out. | Taxation of contractors is one of the apparently dull, but very thorny, issues on the table as Washington and Kabul try to agree terms for a US military presence after 2014, when the Nato-led mission officially ends. The negotiations have been slow and drawn out. |
| Afghan officials say commercial firms that reap rich profits from the war are playing the tax system to avoid fair contributions to their country's economy. US critics counter that Afghanistan is trying to benefit twice from development and military aid, by taking the help and then using the contracts to fill government coffers as well, which increases the cost of basic assistance. | Afghan officials say commercial firms that reap rich profits from the war are playing the tax system to avoid fair contributions to their country's economy. US critics counter that Afghanistan is trying to benefit twice from development and military aid, by taking the help and then using the contracts to fill government coffers as well, which increases the cost of basic assistance. |
| The watchdog's findings also raise questions about Afghanistan's financial base at a time when the west is pulling out troops and cutting back on aid and construction projects that have pumped money into the country's feeble economy for years. | The watchdog's findings also raise questions about Afghanistan's financial base at a time when the west is pulling out troops and cutting back on aid and construction projects that have pumped money into the country's feeble economy for years. |
| The government in Kabul and foreign diplomats have touted an improved tax system as one sign that the country was straightening out its own finances and slowly weaning itself off the foreign aid that has paid for anything from schools and roads to hospitals and the police. | The government in Kabul and foreign diplomats have touted an improved tax system as one sign that the country was straightening out its own finances and slowly weaning itself off the foreign aid that has paid for anything from schools and roads to hospitals and the police. |
| A US embassy official earlier this year described Afghanistan's tightened-up tax regime as "a pretty substantial achievement", the Reuters news agency reported. It pulled in $1.6bn, and is more successful than that in neighbouring Pakistan, according to official data, but it was not clear if that figure included the bills that the watchdog claims should not have been sent out. | A US embassy official earlier this year described Afghanistan's tightened-up tax regime as "a pretty substantial achievement", the Reuters news agency reported. It pulled in $1.6bn, and is more successful than that in neighbouring Pakistan, according to official data, but it was not clear if that figure included the bills that the watchdog claims should not have been sent out. |
| The Afghan finance ministry did not respond to requests for comment on the report. | The Afghan finance ministry did not respond to requests for comment on the report. |
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