KABUL: Afghanistan is cracking down on tax evasion to repair its finances as the country’s economy struggles with renewed violence and the withdrawal of the huge coalition presence that fed business for years.
The departure of most foreign troops two years ago allowed the Taliban to take advantage of the security vacuum and escalate attacks on the government, hurting consumer and business confidence. Double-digit economic growth rates collapsed to almost zero a year after the withdrawal. The Pentagon last week said it would redeploy 300 marines in Afghanistan’s Helmand province, which has been on the brink of falling to the Taliban for months.
To plug persistently high fiscal deficits, the Afghan government in the past two years has served notice to scores of companies for tax evasion dating back as far as 2002, targeting both domestic and foreign firms with measures such as operating-licence suspensions, according to the finance ministry.
Afghan and foreign firms say the tax regime has made the business environment even more challenging, citing new fees and uncertainty over arrears, just as the conflict with the Taliban-led insurgency is getting worse. But the new regime, along with anti-corruption measures, has sharply increased the government’s revenue collection, Finance Minister Eklil Hakimi told The Wall Street Journal.
The government collected about 165 billion afghani ($3.4bn) in revenue last year, a 35 per cent jump from 2015, the minister said. New taxes on telecoms, fees on government services and the sale of state-owned land contributed to that rise, analysts say.
Mr Hakimi also fired almost a quarter of the country’s customs officers and imposed strict targets on officials who deal with customs duties, which make up nearly half of Afghanistan’s tax revenue.
Those measures will help Afghanistan secure the billions of dollars in aid that it still needs to keep its economy ticking. The World Bank estimates the country’s fiscal deficit at more than 18 per cent of gross domestic product for 2016 despite the sharp increase in revenue, up from about 16 per cent in 2015.
Afghanistan has largely depended on international aid to plug its deficit since the Taliban were ousted from power in 2001. Donors have pledged about $US4.5bn ($6.2bn) in security and $US3.8bn in civilian aid to Afghanistan each year through to 2020.
The US foots most of the bill for its army and police, while the international community covers the bulk of civilian expenses.
Foreign donors have pledged billions of dollars in additional aid on the condition that the government implements overhauls that eventually make the economy more self-sustainable.
The government’s recent tax and anti-corruption initiatives have been backed by international donors and agencies such as the International Monetary Fund, which in July 2016 approved a $US45 million loan facility for Afghanistan to support its reforms agenda.
