Afghanistan Compliance Advisory – Issue #23
19 November 2017
The Ministry of Finance (MOF), led by His Excellency Minister Eklil Ahmad Hakimi, has successfully been implementing a long list of reforms in many areas, but particularly relevant to the public are those in the Afghanistan Revenue Department (ARD). We take this opportunity to highlight some of these below.
Highly qualified professional officials have been recruited at all levels of the MOF who are dedicated to integrity and excellence. Afghanistan Holding Group (AHG) works closely with MOF officials who fully understand the complexities of tax accounting in Afghanistan.
Many manual paper based systems have been digitized by mandating the use of the Standard Integrated Government Tax Administration System (SIGTAS) across all MOF departments. SIGTAS automatically calculates tax penalties and liabilities thereby reducing assessment subjectivity. As the largest payroll administration company, AHG processes over 1 billion Afghani every year in taxes to the MOF through SIGTAS.
The MOF has launched a public awareness campaign, including an Annual Best Taxpayers Award and publishing tax information on their comprehensive new website (http://ard.gov.af/) with eFiling and eForm sections. AHG has also assisted with making tax information available by disseminating MOF forms, guides, laws, regulations and changes to them.
The MOF has established CPA Afghanistan which is the first time an independent accountancy board has been established in the country. By developing a specific ACCA exam for Afghan taxation and certifying qualified accountants like AHG, MOF can enforce international accounting standards and dispel charlatans.
One Stop Shop
The Ministry has embraced the one-stop shop model for taxpayer customer service by working with the Afghanistan Central Business Registry (ACBR) and Asan Khedmat to move certain public services to a single location, including TIN and the 3 tax filings offices. Thus, businesses such as AHG would only need to visit one location for government services instead of having to tour an array of offices for some tasks.
The Ministry is working to revise laws and regulations to make taxation easier and more transparent for taxpayers, including clarifying the new Tax Administration Law, obtaining public feedback on the draft new Income Tax Law, as well as auditing and reforming the Ministry of Communications and Information Technology (MCIT) 10% telecom fee collection.
One of the greatest accomplishments was finalizing the agreement last week (available here) to resolve legacy tax issues for military subcontractors under pre-BSA contracts (those awarded prior to 1/1/2015). As for post-BSA contracts awarded after 1/1/2015, the existing Tax Exemption Confirmation (TEC) procedures remains the same. The primary differences between these two procedures are:
- The list of 31 eligible companies attached to the previous cabinet package ruling has been eliminated, now all international military contractors are eligible for TECs and reversal of tax enforcement actions under that ruling (available here).
- For pre-BSA contracts, ARD no longer requires a copy of the contract with TEC application. A cover letter (also called an application letter) and a signed Contracting Officer Request Letter is still required.
- ARD is to issue a TEC within 3 working days of receiving the required documents.
- ARD is to issue a Tax Clearance Letter (TCL) within 5 working days of receiving the completed income tax returns. A TCL allows renewal of an expired business license, and active business licenses are required to apply for visas.
Next steps. In order to take advantage of this opportunity for resolution, we suggest obtaining as soon as possible:
- For all U.S. DOD prime or subcontracts awarded prior to 1/1/2015 with performance in Afghanistan that you haven’t received a TEC for, please have the DOD contracting officer sign a Request Letter (templates available here). We will then work towards submitting for a consolidated tax exemption ruling for all your pre-BSA contracts. If we have already applied and received a rejection because your company wasn’t on the list of 31, we will now try to apply again with a new cover letter.
- For all fiscal years that we haven’t yet submitted an Afghanistan income tax return for, please send us the corresponding financial data in any format to get started on preparing draft returns. In particular, the 1396 income tax returns can be submitted starting one month from today. We will then work towards submitting for a tax clearance letter for each of those years.
For reference, here are Afghan fiscal years:
1396 – 21 December 2016 to 20 December 2017: due 21 March 2018
1395 – 21 December 2015 to 20 December 2016: due 21 March 2017
1394 – 21 December 2014 to 20 December 2015: due 21 March 2016
1393 – 21 December 2013 to 20 December 2014: due 21 March 2015
1392 – 21 December 2012 to 20 December 2013: due 21 March 2014
1391 – 21 March 2012 to 20 December 2012: due 21 March 2013 (9 months, new filing schedule)
1390 – 21 March 2011 to 20 March 2012: due 21 June 2012
1389 – 21 March 2010 to 20 March 2011: due 21 June 2011
1388 – 21 March 2009 to 20 March 2010: due 21 June 2010
For those new to Afghan compliance, previous issues of this advisory and relevant documents are available at https://ahg.af/aca/.
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