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US, Afghanistan agree to resolve tax dispute

US, Afghanistan agree to resolve tax dispute

By
On
Oct 23, 2017 - 08:44

KABUL (Pajhwok): The Afghan and US governments have reportedly agreed to resolve the pre-2015 tax dispute, however, it is unclear if the Cabinet has approved the agreement.

The agreement happened on terms included a payment of $52 million to the Afghan government to assist it in meeting food bills of the Afghan National Police.

Subject to the payment being received, subcontractors shall be entitled to the same tax exemptions as prime contractors on pre-2015 revenues.

The parties have agreed on a streamlined procedure for having such tax exemptions confirmed by the Ministry of Finance (MoF).

The settlement agreement is subject to approval by the Afghan Cabinet.

At this stage, it is also unclear who will be paying the $52 million to the GoA – that is, will it be one or more of the USG, the North Atlantic Treaty Organization, contractors or others.

Once formal notice of Cabinet approval is issued, those contractors and subcontractors that wish to have tax exemptions confirmed on pre-2015 revenues need to apply to the MoF in accordance with the new streamlined procedures.

Even after tax exemptions are confirmed, both contractors and subcontractors should still have tax related obligations on their pre-2015 revenues.

Broadly, these obligations are as follows

Obligation to withhold and remit 10% or 15% from rental payments. If housed entirely within a base, then there would be no rental withholding.  If not, the withholding obligation would apply.

Obligation to withhold and remit 2% from payments to properly licensed local national suppliers and 7% from payments to foreign suppliers (who are not exempt from income tax) and 7% from payments to local national suppliers who are not properly licensed.  This only applies to payments made after March 21, 2009.

Obligation to withhold and remit up to 20% from salary and wage payments to local national employees. (Payment to local employees under USG Department of Defense contracts prior to  2015  should also  be exempt from the obligation to withhold but unfortunately the MoF does not always recognise this exemption).

  • Obligation to file tax forms/returns. Obligation to pay penalties. There are penalties for late withholding and remittance and late filing of tax forms. Penalties for late withholding and remittance are capped at 10% of the amount that should have been remitted plus 0.1% pre-day from the date that the money should have been remitted (10th day after the end of the month in which the payment was made) to the date of actual remittance. There is also a penalty of approximately $2 per day for late filing of each form.

A minimum contractors and subcontractors shall be required to apply to have their tax exemptions confirmed and shall also have a range of withholding, remittance and filing obligations on their pre-2015  revenues.

Going forward, contractors and subcontractors should be aiming to achieve full compliance whilst lawfully minimizing risk and liability. However, before making any decisions, given the complexity of the situation, they should consult with qualified advisors.

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