So much for thanks: As the U.S. accelerates its exit from a decadelong, $100 billion reconstruction effort in Afghanistan, American generosity is getting an unwelcome penalty in the form of taxes and fees imposed by President Hamid Karzai’s government on U.S. contractors supporting the rebuilding effort.
Everything from exiting military equipment and food for troops to new federal contract dollars are facing levies, customs fees and fines — a wave of taxation estimated to slice $1 billion or more off the top of aid that was supposed to go to the Afghan people. Instead, it’s going into the coffers of the Karzai government.
America’s top watchdog in the country said in a recent report that the taxes are legally questionable but that U.S. officials have had little success pushing back, setting up an unnecessarily expensive end to U.S. military operations in Afghanistan.
“Congress’s appropriations for the Afghanistan reconstruction effort are intended to build Afghan security forces, improve governance and foster economic development in Afghanistan,” the special inspector general for Afghanistan reconstruction wrote in a warning letter to congressional appropriators July 1. But “a substantial portion of these funds are being spent not to achieve these important goals, but, rather, to pay the cost of doing business in Afghanistan.”
For nickel-and-diming U.S. efforts to rebuild and defend its country, the Afghan government and its American reconstruction supervisors win this week’s Golden Hammer, an award given by The Washington Times to highlight egregious examples of wasted tax dollars.
The wave of taxation has created confusion among American officials, resulting in even more financial penalties, the inspector general says.
“In addition to levying nearly a billion dollars in business taxes on companies supporting U.S. government efforts in Afghanistan — most of which we believe are improper based on applicable international agreements — the Afghan government is assessing hundreds of millions of dollars in additional fines, fees, and penalties, some of which are also improper, on many of these same companies,” the watchdog wrote.
State Department officials overseeing the Afghan rebuilding effort took issue with parts of the inspector general’s conclusions, warning that questions of who and what are subject to national taxes are complex, with some contractors working with multiple federal, international and nongovernmental organizations.
“Not all work a foreign contractor performs in Afghanistan, including for the U.S. government, is necessarily covered by an agreement with the Afghan government providing for tax exemption,” Ambassador James Warlick, the deputy special representative for Afghanistan and Pakistan, wrote in his reply to the findings.Mr. Warlick added that it is difficult to know whether all fees assessed by the Afghan government are in violation of treaties.
“Any exemption from taxes or customs duty in a country has to be negotiated, and the host country has to be willing to provide it,” he said.
The Afghan Embassy declined to comment on the report, but Najeeb Manalai, a spokesman for Kabul’s Ministry of Finance, told the military publication Stars and Stripes this month that the government was not violating any bilateral agreements.
“These taxes that we ask these companies to pay are according to the laws of Afghanistan,” he told the paper. “Afghanistan loses a lot through that military cooperation agreement. But still we respect that and we follow all the agreements we have made.”
Afghan officials say that many U.S. contractors working for the American government also do private-sector projects in the country, and those operations should be subject to local taxation. Mr. Manalai also disputed the estimate of a $1 billion tax bill, saying the levy was as little as a tenth of that sum.
Though there is an agreement between the two countries exempting military supplies, the Defense Department’s shipments are still getting taxed, the inspector general found.