Afghanistan Compliance Advisor
15 April 2016
This advisory summarizes the changes to the Afghanistan Income Tax Law over the past year.
Increase in quarterly BRT. The Business Receipts Tax (BRT) rate was increased from 2% to 4% on the cost price of all imported goods, in addition to customs duty. This BRT is treated as an advance payment for quarterly business receipts tax payable (Article 64). The standard quarterly BRT rate was increased from 2% to 4% on all gross income received (before any deductions) effective 1 Sunbula 1394 (23 Aug 2015). The 5% BRT rate (for hotels or restaurants earning more than 750,000 Afghani), and the 10% BRT rate (for telecom, airlines and superior hotels/restaurants) remain the same.
New telecom and internet fees. An additional 10% fee is imposed on telephone and internet services, including all types of prepaid and postpaid accounts, effective 1 Mizan 1394 (23 Sep 2015), payable to the Treasury by all telecom companies and Internet Service Providers (ISPs).
Changes in tax administration. Effective 27 Aqrab 1394 (18 Nov 2015), the Ministry of Finance (MOF) replaced 25 articles in the 2009 Income Tax Law (Official Gazette No 976) with 65 new articles (Official Gazette No 1198), which is summarized in four parts below. A copy of the new regulations is available under the “Tax Resources” section here. To convert between Afghan and Gregorian calendar dates, please use this tool. To convert between Afghani and U.S. Dollar figures, please use these exchange rates.
PART ONE: TAX FILING
Licensing of tax accountants (Article 33). The taxation administration shall grant a business license as tax accountant to persons who meet the following conditions:
- upon application by the person
- relevant higher education
- successfully passing tax accountant’s exam
- having an office and specific address
- a fee determined by the Council of Ministers
Tax Filings (Article 7). Taxpayer must file a return by 21 March or within 30 days of receiving notice. Taxpayer must make corrections or provide further information within 30 days of receiving notice from MOF. Taxpayer may petition for an extension of up to 3 months for filing a tax return, and the MOF shall reply within 10 days whether to allow to disallow extension. Tax still has to be paid by due dates regardless of extension for filing.
Tax Assessments (Article 8-10). If a taxpayer fails to file by the deadline, MOF will estimate tax liability and issue an assessment notice. MOF can change its assessment within 5 years from the tax return due date, unless it believes taxpayer has intent to evade tax, in which case can change its assessment at any time. If MOF believes collection is in jeopardy, it can issue an assessment for any previous or current period (even if the tax is not yet due). The MOF can assess what it believes to the correct tax amount, by estimating similar market conditions and disregarding transactions that had “intent to cause reduction of tax”.
Tax Clearances (Article 59). MOF will provide a tax clearance certificate within 21 days of receiving request from taxpayer, provided all filing and payments are up to date.
PART TWO: TAX AUDIT
Tax Objections (Article 11). Taxpayer can submit an objection with justifications within 45 days of receiving an MOF decision notice. Taxpayer may petition for an objection deadline extension of up to 15 days. MOF shall decide on the objection within 60 days of receiving objection and inform taxpayer within 30 days of the decision being made (total 90 days).
Tax Appeals (Article 12). If taxpayer does not receive a decision within 90 days or is dissatisfied with the decision, it can appeal to Tax Disputes Resolution Board (TDRB) within 30 days. If the taxpayer is still dissatisfied with the TDRB decision, it can refer to a Court of competent jurisdiction within 30 days, otherwise the TDRB decision is final and enforceable.
Tax Payments (Article 14-15). Note that “the taxpayer shall prove the incorrectness of the taxation decision at any stage of dispute” and that “initiation of taxation dispute cannot prevent collection of tax.” Taxpayer may petition for an extension of tax payment due dates or an installment plan. If MOF believes collection is in jeopardy, it can order immediate collection of the balance.
PART THREE: TAX ENFORCEMENT
Tax Collection (Article 16-18). MOF can collect unpaid tax from third parties. If collecting from wages, cannot third party cannot deduct more than 20% of wages. Third party may petition the MOF for a change in the amount or due date for collection ordered by the MOF. If third party does not comply, they will be held personally liable for payment.
Tax Enforcement (Article 20-24). For failure to file a tax return or pay tax by the due date, MOF can
- suspend taxpayer’s financial accounts
- suspend importation of goods
- usurp the right of the landlord to receive rent (if rental withholding 15 days past due)
- usurp the right of the landlord to evict the tenant (if rental withholding 30 days past due)
- forcibly affix a sign stating “Closed Temporarily For Not Complying With Tax Obligations” at taxpayer’s business premises (after 10 days notice)
- issue a notice for a taxpayer’s departure prohibition from Afghanistan (if 30 days past due and the MOF has evidence the taxpayer will permanently depart, the MOF can)
- may request the court to order the seizure and sale of the person’s property. If perishable, sell immediately, if not perishable first detain for 21 days and then sell.
Record keeping (Article 25-27). MOF will issue or refuse to issue a taxpayer TIN within 14 days. “If books, records and computer-stored information are prepared in a foreign language and requested by the taxation administration, the taxpayer shall, at their own expense provide a translation by certified translator into one of the official languages.” The MOF may forcibly seize documents, computers or devices if it believes the tax law has been violated, and then return to the taxpayer within 14 working days.
Personal liability (Article 32). “Where a company enters into a transaction or arrangement (contract, plan, agreement or understanding), as a result of which it cannot satisfy its current or future tax liability stipulated by any tax law, all persons who were directors or controlling shareholders of the company at the time the transaction or arrangement was entered into shall as per the circumstances be jointly and severally liable for the tax liability of the company. Where a director of a company does not have a share in financial or other benefit of the company, they shall not be personally liable for the tax liability of the company provided that on becoming aware of such transaction or arrangement, they formally recorded with the company their disagreement and notified the taxation administration in writing; or at the time the transaction or arrangement under subsection (1) of this Article was entered into, they were not involved in the executive management of the company and they had no knowledge of the transaction or arrangement.”
PART FOUR: TAX PENALTIES
Additional taxes (Article 34-44).
- 0.10% per day for each day late after the due date
- 100 Afghani per day for failure to submit a tax return or any other document required by the due date (30 Afghani for individuals)
- 10% of the amount that should have been withheld, for failing to withhold
- 20,000 Afghani for failure to keep records (5,000 Afghani for individuals)
- 10% of the tax collectible for failure by third parties to comply in collection
- 200 Afghani per day for failure to provide information by a set due date in a notice from the MOF (100 Afghani for individuals)
- 25% of the tax shortfall, for making false or misleading statements, or omitting material information that lessons their tax bill
- Two times the evaded tax amount for taxpayers who intentionally evade tax (in first instance)
- Forced business closure based on court order for taxpayers who intentionally evade tax (in the second instance)
- 20,000 Afghani for failure to obtain a TIN (5,000 Afghani for individuals)
- 20,000 Afghani for failure to obtain VAT registration certificate (5,000 Afghani for individuals)
- 40,000 Afghani for falsely uses VAT registration certificate (10,000 Afghani for individuals)
- 25% of the tax shortfall, fails to issue or issues incorrect VAT documentation
- 4,000 Afghani for other VAT non-compliance (1,000 Afghani for individuals)
Court sentences (Article 45-51).
- 20,000 Afghani for failure file an income tax return (5,000 Afghani for individuals)
- 10% of the tax amount that should have been withheld, for failing to withhold
- 20,000 Afghani for failure to comply with liquidation provisions
- 20,000 Afghani for failure to comply with business closure notices (5,000 Afghani for individuals)
- 100,000 Afghani for failure to prepare and maintain books/records (25,000 Afghani for individuals)
- 40,000 Afghani for failure to provide requested information (10,000 Afghani for individuals)
- 100,000 Afghani for knowingly uses a false TIN (25,000 Afghani for individuals)
- 20,000 Afghani for knowingly does not assist with document seizure (5,000 Afghani for individuals
- 160,000 Afghani for knowingly makes a false or misleading statement or omits any material information (40,000 Afghani for individuals)
- 100,000 Afghani for breaches notice served by the MOF (plus up to 1 year sentence)
- 160,000 Afghani for knowingly obstructing MOF in performance of their duties (40,000 Afghani for individuals)
- “Any person who aids, abets, assists, incites, or induces another person to commit an offence under the tax laws shall be tried by a competent court.”
- “If a taxation administration employee misuses their position they shall be punished in accordance with the law.”
Summary. Most urgently, going forward, all entities in Afghanistan (taxable, fully exempt and dormant) are require to report monthly withholdings (from landlords, employees and vendors), quarterly Business Receipt Tax and annual income tax return forms by their due dates, even if there was no activity during that period, or be subject to 100 Afghani per day late penalty. As a reminder, here are major tax rates and due dates in Afghanistan:
From Landlords: Rental Tax Withholding
|When paying a monthly rent of…||Then you should withhold…||And file within…|
|0 Afs to||10,000 Afs||0%||15 days after end of Afghan month in which payment was made|
|10,000 Afs to||100,000 Afs||10% flat of rental amount|
|Over 100,000 Afs||15 % flat of rental amount|
From Employees: Wage Tax Withholding
|When paying a monthly salary of…||Then you should withhold…||And file within…|
|0 Afs to||5,000 Afs||0%||10 days after end of Afghan month in which payment was made to employee|
|5,000 Afs to||12,500 Afs||2% of salary over 5,000|
|12,500 Afs to||100,000 Afs||150 Afs + 10% over 12,500|
|Over 100,000 Afs||8900 Afs + 20% over 100,000|
From Vendors: Contractor Tax Withholding
|When paying a sub-contractor…||Then you should withhold…||And file within…|
|Under 500,000 Afs per year||0%||10 days after end of Afghan month in which payment was made to contractor|
|Over 500,000 Afs per year to a company with a valid license||2% flat of gross invoice|
|Over 500,000 Afs per year to a company without a valid license||7% flat of gross invoice|
Quarterly Business Receipts Tax
|When revenue is from…||Then you should pay…||And file within…|
|A contract with a valid tax exemption on file with the Ministry of Finance||0%||15 days after end of Afghan quarter in which revenue was received|
|Telecom, airline or hospitality with over 750,000 Afs revenue||10% flat of gross receipts|
|Hospitality revenue of
under 750,000 Afs revenue
|5% flat of gross receipts|
|All other contracts||4% flat of gross receipts|
Annual Income Tax Return
|When revenue is from…||Then you should pay…||And file within…|
|A contract with a valid tax exemption on file with the Ministry of Finance||0%||3 months after end of the Afghan fiscal year|
|All other contracts||20% flat of profit after allowable expenses|