Updates on Afghanistan tax compliance
30 March 2014
Office closure. Two of the four complex attacks this week were in the immediate vicinity of AHG facilities in Darulaman and Karte Seh. Given the ongoing security crisis in Afghanistan, our Kabul headquarters will be closed until 7 April 2014. We will still try to respond via email, and appreciate your patience during this difficult time.
Annual Income Tax Returns due. As you may know, all entities operating in Afghanistan are required to file Annual Income Tax Returns, regardless if they are for profit, not for profit, partially or fully tax exempt, or even State Owned Enterprises. The filing deadlines are as follow:
1392 – 21 December 2012 to 20 December 2013 – due 21 March 2014
1391 – 21 March 2012 to 20 December 2012 – due 21 March 2013
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
Reduction in late filing penalties. Effective 21 March 2014, the Ministry of Finance (MOF) has reduced the Annual Income Tax Return late filing penalty from 500 Afghani to 100 Afghani per business day late. Some may recall that the MOF previously reduced the penalty on 21 March 2009 from 1,000 Afghani to 500 Afghani per business day late. Depending on which return is being filed, the penalty rate applicable to that year applies. Other penalties remain the same, including the 10% penalty for not withholding tax and the 0.1% per day penalty for late tax payment.
MOF staffing changes. Effective 21 March 2014, the MOF announced 74 position reassignments across middle and lower level positions in the Afghanistan Revenue Department. There have been no changes to senior management. This means there may be delays as case files will need to be introduced again to case officers, but there may be positive effects in dislodging some case files previously stuck as fresh perspectives are applied.
New Director of Tax Exemption. For those clients working with their contracting officers to send tax exemption request letters to the MOF, please note that Mr. Osman Wardak has been replaced by Mr. Hakim Naikzad as a Director of Exemption and Ruling Department. Instead of emailing the request letters to Mr. Osman Wardak, contracting officers should email them to email@example.com and copy his backup email address, firstname.lastname@example.org (as sometimes the MOF servers are not functional). All such emails should also copy email@example.com to ensure that we follow-up accordingly as well.
UK contracts tax exemption deadline. The deadline to take advantage of tax exemptions agreed in the Memorandum of Understanding between UK Government and Afghan Ministry of Finance for UK Government prime contracts (such as with DFID), is next week. There have been no changes in the tax exemption status of US Government contracts, and the Bilateral Security Agreement (BSA), if signed, is expected not to have a retroactive effect.
Dividend tax withholding issue. While MOF senior management have written letters halting dividend tax withholding assessments on tax exempt contracts, lower level officials continue to raise dividend tax withholding issues. It is critical to correctly report 1) retained earnings on your annual Balance Sheet, 2) branch office shareholding structure on your AISA Statues, and 3) transfer pricing issues for Afghanistan activities.