Afghanistan shores up tax revenues,aims at efficiency

One of Afghanistan’s most surprising success stories lies tucked away on a potholed street notorious for suicide bombings and lined with rusting construction equipment

Written by Reuters | Kabul | Published: April 1, 2013 1:11:01 am

One of Afghanistan’s most surprising success stories lies tucked away on a potholed street notorious for suicide bombings and lined with rusting construction equipment.

The work of the country’s top tax collector is more inspiring than the view from his office in Kabul. Taxes and customs raised $1.64 billion last financial year,a 14-fold increase on 10 years ago. That means,now,the government can pay just over half of its recurrent costs such as salaries.

Thanks to tougher enforcement procedures,Afghanistan’s tax to GDP ratio today stands above 11 per cent — ahead of neighbouring Pakistan’s dismal 9 per cent.

Increasing revenues is vital as donors begin reducing aid ahead of the 2014 drawdown of NATO troops,who have provided the backbone for security after the US invasion of the country. “We are largely dependent on international aid. We would like to be independent,” said Abdurrahman Mujahid,the new head of the revenue department.

Despite rising revenues,the government will rely heavily on donors for years to come. Taxes,customs and mining revenue will only meet $2.5 billion out of a $7 billion budget this year. Most of the revenue comes from large corporate taxpayers,who complain their payments have not improved power cuts,potholed roads or security.

Corporations pay a flat tax of 20 per cent — the same rate for an individual earning over $2,000 a month.

But unlike developed countries where personal income tax generates a sizeable chunk of revenue,most Afghans scoff at the idea of giving the government some of their meagre earnings.

Afghanistan has a similar problem to neighbouring Pakistan — the very wealthy don’t pay their share,and weak institutions often have little way of forcing them.

But Mujahid promises tax evaders will “be introduced to the law enforcement agencies”. Much of Afghanistan’s money is in the black economy.

“Corruption is a part of public life in Afghanistan,” said Mujahid. This year he’s planning to finish computerising tax records,usher through a law on Value Added Tax,and strengthen collection in the provinces.

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