The Afghan government is ramping up efforts to tax U.S. contractors operating there -- an effort that could raise millions for the cash-strapped government but could also provoke fresh confrontation with the United States, according to U.S. and Afghan officials.
Taxation of U.S. government assistance is barred by U.S. law, as well as by a number of bilateral accords between Afghanistan and the United States. But the wording in the documents is vague, and the two governments disagree on what "tax-exempt" means.
Non-Afghan contractors who have recently received tax bills for work done under U.S. government programs say they have appealed to the Defense and State departments to clarify the matter with the Afghans. But they have been told simply to ignore the bills and "stand up for our rights," said one official of an American company with U.S. defense contracts in Afghanistan.
The Afghan government says no clarification is needed. It has started to send out what it says are overdue tax bills and has threatened some U.S. companies with arrest, loss of licenses and confiscation of aid goods.
"I don't need any new plan [to require a] foreign company to pay tax," Afghan Finance Minister Omar Zakhilwal said in a text message in response to questions. "Whatever is not exempted by law and treaties will not be exempted." Afghanistan, he said, is "serious against tax evasion."
Said Mubin Shah, the deputy minister of finance for customs and revenue, said many of the contractors were using their tax-exempt status to work on non-aid business that should be taxed. He gave the example of fuel oil importers working for the military, who are allowed to bring fuel into Afghanistan without paying tax, but who in many cases sell some to the private market.
The simmering controversy is the latest in a series of run-ins between the Afghan government and the U.S.-led coalition that spends up to $10 billion a year on private contractors in Afghanistan, more than five times the $1.8 billion in total revenue the Afghan government expects to take in by the end of the fiscal year in March.
The most recent public disagreement, over the fate of private security companies, remains unresolved.
