Afghanistan Compliance Advisory – Issue #20
23 November 2016
This advisory is an update on tax compliance matters in Afghanistan.
Potential legacy taxes resolution.
Today, the U.S. Embassy Kabul and the Resolute Support mission briefed U.S. contractors on a recommendation, to be submitted by 28 Nov 2016 by the Government of Afghanistan’s Ministry of Finance (MOF) for subsequent Afghan Cabinet approval, to forgive the collection of certain taxes that may (or may not) be due by DOD and NATO contractors and subcontractors for work they performed in Afghanistan prior to 1 January 2015 (called “legacy” tax issues). “Legacy taxes” include business receipts tax, annual income tax, wage withholding tax on income of employees, income from professional services and insurance premiums, dividend taxes and associated penalties. Under the recommendation, Afghan authorities would cease collection efforts and unfreeze bank accounts related to legacy tax issues, remove any other adverse actions e.g. the “No Fly List”, and cease attempts to collect late fees. However, penalties for the failure to file tax forms as required under Afghan law would not be waived. This relief only applies to activities and income associated with DOD and NATO prime and subcontracts; other contracts are not covered by this recommendation.
URGENT ACTION REQUIRED
This tax forgiveness will only apply to DOD and NATO contractors who are included in a list, to be furnished by U.S. Embassy Kabul, that will be submitted to the MOF on 28 Nov 2016 in Kabul. AHG will consolidate one of the list of those companies interested in seeking this relief and provide to the the U.S. Embassy Kabul. Please email firstname.lastname@example.org before 27 Nov 2016 to include your company’s name and business license number on this list.
Exemption of Q4 1394 Late Filing Penalties.
The new Tax Administration Law that passed 18 Nov 2015 included a new penalty of 100 Afghani for companies (or 30 Afghani for individuals) per day for each calendar day a tax form is filed late. Although the law was not widely distributed until Feb 2016, the MOF so far has been retroactively assessing these penalties as of 18 Nov 2015. A new Presidential Order has now been issued to exempt these penalties, but only with regard to late fourth quarter Business Receipts Tax (BRT) filings in 1394. In addition, according to the Articles 60 and 61 of the Tax Administration Law, if anyone already paid these late filing penalties, they may claim a tax credit against their future tax liabilties.
End of fiscal year approaching.
Historically, MOF tax collection efforts heighten towards the end of the fiscal year and efforts to resolve outstanding matters are expedited. The 1395 fiscal year ends 20 December 2016, with income tax returns due by 20 March 2017. Even if you have received a three year business license, Afghan law requires filing income tax returns annually. Even if all of your contracts are tax exempt, Afghan law requires filing an informational income tax return. Please email email@example.com if you have any questions about Afghan taxes.