The recent Special Inspector General for Afghanistan
Reconstruction (SIGAR) report on
Afghan business taxes improperly levied on U.S. contracts confirms many of the
Professional Services Council’s findings on the impacts of such inappropriate
Afghan tax levies on U.S. contractors.
“The report confirms what PSC has long argued in letters,
white
papers and meetings with government officials: The U.S. government’s lack of a unified
position in resolving the Afghan government’s inappropriate taxation of
U.S.-funded contracts has hindered contractors’ efforts to support the U.S.
government in Afghanistan,” said PSC Executive Vice President and Counsel Alan
Chvotkin, in a May 14 statement. “As the IG found, the lack of response increases the costs of U.S.
government projects in Afghanistan and diverts U.S. funding from program
objectives specifically defined by Congress and the contracting agencies.”
Under bilateral agreements between the two governments,
U.S.-funded projects and U.S contractors executing them are generally exempt
from Afghan taxes; however, SIGAR found that the Afghanistan government has
levied nearly $1 billion in taxes against a sample of 43 contractors, a
fraction of those doing business in Afghanistan. As a result of this
inappropriate taxation, and contractors’ unwillingness to pay what is not owed,
Afghanistan has restricted the movement of U.S. contractors, hurting the
ability of contractors to support U.S. missions there, the IG found.
“We agree with SIGAR’s recommendation that the U.S.
government needs to ‘develop a consistent, unified position on what the U.S.
government deems appropriate taxation of contractors supporting the U.S.
government efforts in Afghanistan’ to ensure the Afghan government can no
longer exploit inconsistencies to shake down contractors,” Chvotkin said.
“The government also needs to implement SIGAR’s
recommendations to ‘develop procedures to help contractors obtain appropriate
documentation of tax exempt status,” he said. “PSC also supports SIGAR’s calls
for more guidance and training for contracting officers regarding the Afghan
tax issues.”
“We are encouraged that Defense agencies responding to the
report concurred with the recommendations, but are concerned that the State
Department didn’t take a position on whether a unified front is needed to
resolve these issues,” Chvotkin said. “We hope that the executive branch and
Congress will support a unified approach to Afghanistan on these issues, particularly
as the government continues to negotiate security and cooperation agreements
with Afghanistan in advance of the 2014 drawdown.”
PSC will continue its engagement with SIGAR, the Defense
Department, the State Department, the U.S. Agency for International
Development, and Congress to ensure the Afghan tax issue is addressed to the
benefit of the U.S. taxpayer.
