x Abu Dhabi, UAE Thursday 20 July 2017

Afghans warned: the taxman is coming after you

Taxes and customs raised 86.23 billion afghanis (Dh6bn) last financial year, a 14-fold increase on 10 years ago.

KABUL // One of Afghanistan's most surprising success stories lies tucked away on a potholed street notorious for suicide bombings and lined with rusting construction equipment.

The work of the country's top tax collector is more inspiring than the view from his office in Kabul. Taxes and customs raised 86.23 billion afghanis (Dh6bn) last financial year, a 14-fold increase on 10 years ago. That means, now, the government can pay just over half of its recurrent costs such as salaries.

Thanks to tougher enforcement procedures, Afghanistan's tax to GDP ratio today stands above 11 per cent - ahead of Pakistan's dismal 9 per cent.

Increasing revenues is vital as donors begin reducing aid ahead of the 2014 drawdown of Nato troops, who have provided the backbone for security since US forces invaded after the September 11 attacks on the United States.

By the end of this year the United States alone will have spent US$100bn (Dh367bn) on Afghan reconstruction. But future pledges are a fraction of that.

"We are largely dependent on international aid. We would like to be independent," said Abdurrahman Mujahid, the new head of the revenue department. "I would like a sustainable Afghanistan for all the children."

Despite rising revenues, the government will rely heavily on donors for years to come. Taxes, customs and mining revenue will only meet 131.45bn afghanis out of a 368.06bn-afghani budget this year.

Most of the revenue comes from large corporate taxpayers, who complain their payments have not improved power cuts, potholed roads or security.

Corporations pay a flat tax of 20 per cent - the same rate for an individual earning more than 100,000 afghanis a month.

But unlike developed countries where personal income tax generates a sizeable chunk of revenue, most Afghans scoff at the idea of giving the government some of their meagre earnings.

"It's not a good government," said money-changer Abdurrahman Arif, 28, as he held a wad of soiled notes and scanned for customers. "I don't pay tax. The rich people don't and the government should go to them before they come to me."

Afghanistan has a similar problem to Pakistan - the very wealthy don't pay their share, and weak institutions often have little way of forcing them.

Authorities admit that taxing the rich isn't easy in a country where the powerful often command militias. But Mr Mujahid promises tax evaders will "be introduced to the law enforcement agencies".

Much of Afghanistan's money is in an undocumented black economy. Corruption is endemic and the country produces 90 per cent of the world's opium. Billions of US dollars in cash leave the country every year in suitcases.

The security situation is discouraging. Taliban and other militias have made gains in many areas as foreign combat forces wind down their missions.

But some Afghans still manage to make money. Many businesses are fuelled by the aid dollars that have poured into the country over the past decade. Luxury supermarkets, travel agencies and stationary shops crowd the capital's streets.

A US embassy official in Kabul commended Afghanistan's ability to raise tax revenues.

"It's a pretty substantial achievement," the official said, but noted the nation still faced a large funding gap, partly because of its huge security bill.

"It's going to continue being a problem until they can get revenues from the extractive industry, and that's going to take some time," the official said, referring to Afghanistan's rich but undeveloped mineral deposits.

Donors currently pay for just under half Afghanistan's operating costs - mostly government salaries - and more than three-quarters of all development projects like roads, dams and electricity equipment.

Rampant corruption means this money is often stolen, angering donors, fuelling anti-government rage and keeping aid from some of the world's neediest families.

Donors hope that if Afghans foot more of the bill for public services they may become less tolerant of graft from their leaders.

Mr Mujahid, the new head of the revenue department, has large shoes to fill. His predecessor Ahmad Shah Zamanzai oversaw much of the department's growth and didn't shrink from confrontation.

When a vice-president refused to pay tax on income from renting out houses he owned, Mr Zamanzai threatened to leak it to the press. Elections were approaching. The vice president paid up.

More than 10 tax collectors - whose basic salaries start at 9,500 afghanis a month - have been fired for corruption in the past two years.

"Corruption is a part of public life in Afghanistan," said Mr Mujahid. "We have the aim to make this department corruption-free."

This year he's planning to finish computerising tax records, usher through a law on Value Added Tax, and strengthen collection in the provinces - more than 90 per cent of government taxes currently come from the capital.

"There's a lot of achievements, but for sure we have problems, and the biggest problem is corruption."