Friday, October 02, 2009

Tax and nation building in Afghanistan

From Peter Bergen and Sameer Lalwani in the the New York Times:

"Foreign contractors and corporations working in Afghanistan do not pay income taxes there; and if they do pay taxes at all, it is to their home governments."

And this is significant:

"Right now the government’s tax revenues total a paltry $300 million."

The authors offer a suggestion:

Taxing foreign technical assistance alone — an estimated $1.6 billion annually — could double this revenue."

There is another problem it might address:

"The money isn’t the only issue: because it is dependent on foreign aid for about 90 percent of its budget, Afghanistan is fiscally and politically unaccountable to its people.
The government needs to build a taxation bureaucracy or it will never develop many of the abilities critical to governance, like budgeting and allocating resources. Since the taxable Afghan population is now tiny — most citizens are either desperately poor or operate within the large black market economy — the quickest path to developing a working revenue system is by taxing the foreign workers and companies."

Read more about this here. The foreign contractors ought not to oppose it too strongly:

"New tax revenues from foreign contractors should be used, above all, to pay down a substantial portion of the cost of building up the Afghan National Army, which is $1 billion to $2 billion annually. Foreign contractors have a vested interest in helping the army develop, as it will eventually provide the security that will allow them to continue enjoying their lucrative contracts after Western forces eventually withdraw."

And they might consider something else:

"While they face risks, contractors in Afghanistan are also faring quite well financially. It’s time they returned some of that wealth to the Afghan people."

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