analysis of income tax in afghanistan
TRANSCRIPT
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Table of Contents
CHAPTER # 01 .................................................................................3
1.INTRODUCTION .............................................................................3
1.1 Who must pay Business Receipts Tax? .............................................................4
1.2 Treatment of BRT for income tax purposes........................................................4
1.3 Tax Rates & Application....................................................................................4
1.4 Gross Receipts Subject to 5% Business Receipts Tax..........................................5
1.5 Services defined...............................................................................................5
1.6 When is BRT Paid?............................................................................................6
1.7 The Tax Form and Calculation of Tax.................................................................6
1.8 What if a business doesnt have income during the quarter?..............................7
1.9 Enforcement Provisions....................................................................................8
2.0 Where to find information?...............................................................................8
2.OBJECTIVES OF STUDY ..................................................................9
2.1 REGISTRATION AND TAX EXEMPTIONS IN AFGHANISTAN...............9
2.1.1 February 9, 2010 ..........................................................................................9
2.2 Taxes.............................................................................................................10
2.3 LIMITATION .............................................................................13
2.3.1 Soag tax exemption provision......................................................................14
2.3.2 Section B.4. Taxation...................................................................................14
CHAPTER # 2..................................................................................14
1.Literature view .................................................................................................15
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CHAPTER # 03................................................................................23
1.METHODOLOGY ..........................................................................23
1.1 Introduction ..................................................................................................24
1.2 Data collection Method& Data source plan:......................................................24
1.3 Data analysis methods: ..................................................................................24
1.4Assumption & Limitation:.................................................................................25
1.5 Time scale:.....................................................................................................25
CHAPTER # 4 .................................................................................26
4.1 Results and discussion ...................................................................................26
4.2 Status and nature of business...........................................................................4
4.3 Basis of preparation.........................................................................................4
4.4 Summaries of significant accounting policies.....................................................4
4.5 ENTERPRICE IN AFGHANISTAN .......................................................................8
4.6 RISK MANAGEMENT.......................................................................................14
CHAPTER # 05 ...............................................................................16
CONCLUSION AND RECOMMENDATIONS...........................................16
5.1. Discussion ....................................................................................................16
5.1 .Conclusion ...................................................................................................16
5.1.1 Tax Laws....................................................................................................17
5.1.2 Tax Exemptions ..........................................................................................17
5.2 Recommendation ...........................................................................................18
5.3 Reference ......................................................................................................18
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Chapter # 01
1. Introduction
Commerce and trade have been the lifeblood of Afghanistan since the nation was born in the
eighteenth century. Afghanistan sits at the crossroads of major trade routes that link Asia and
Europe and have shaped the course of world history. The fabled Silk Road passed directly through
Afghanistan and was the chosen route for caravans bringing goods from China, India, and the
Arabian Peninsula.
As Afghanistan emerges from three decades of violent conflict, commerce and trade are once again
the keys to its future. Economic development will help bring stability, peace, and prosperity to
Afghanistan. But economic growth does not occur in vacuumit is closely linked to the
establishment of the rule of law. A clear and effective framework of laws and independent tribunals
facilitates commerce and encourages economic growth. Commercial laws and institutions, in
particular, are crucial for sustained economic development because they regulate commercial
transactions.
Commercial law and institutions empower commercial actors and enable them to expand, compete,
resolve disputes, access markets, and trade with relative ease. Good commercial law enables
landowners to tap into their propertys value, facilitates access to capital, streamlines procedures
for registering a company, and ensures the enforcement of contracts and debt. Good institutions are
also crucial because illogical and inefficient bureaucracies, unreasonable administrative costs,
and widespread corruption undermine commercial law. Broad-based economic development
requires institutions and individuals, such as the courts, judges, registries, lawyers, the private
sector, and non-governmental organizations (NGOs).
Thesis will explore the linkages between commercial law and economic development in both
theory and practice. It begins with a brief overview of Afghanistans economy, including major
macroeconomic indicators. Next, it analyzes the business environment in Afghanistan. It then
provides an overview of Islamic commercial law, which has shaped commerce in Afghanistan for
centuries. The second part of the Chapter focuses on the empirical connections between rule of law
and economic growth. This section will explore the role of commercial law and institutions in a
countrys economic development.
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1.1 Who must pay Business Receipts Tax?
A legal person (corporation, limited liability company, partnership, etc.) must file a quarterly
return and pay tax for the quarter.
A natural person having gross receipts of AFN 750,000 or more per quarter must file a quarterly
return and pay tax for the quarter.
However, a natural person who owns a hotel, restaurant, or guesthouse, and whose quarterly gross
receipts are less than AFN 750,000, still must file a quarterly return and pay tax for the quarter.
1.2 Treatment of BRT for income tax purposes
BRT paid is considered to be an ordinary and necessary expense of doing business and is
therefore deductible from gross income when computing taxable income for the year.
1.3 Tax Rates & Application
There are three rates for Business Receipts Tax: two percent, five percent, or 10 percent with
rates applied on gross receipts based on business type as specified in the Income Tax Law 2009.
Gross Receipts Subject to 2% Business Receipts Tax
All gross receipts are subject to two percent with the following exceptions:
Hotel services
Restaurant services
Telecommunications services
Airline services
Halls and clubs services as related to events
The income of a hotel, restaurant, or guesthouse with gross receipts less than AFN 750,000 per
quarter is subject to two percent BRT.The gross value of imports (including any customs duties
paid) is subject to two percent BRT. The two percent BRT paid on imports will be allowed as anadvance payment for business receipt tax payable. If the amount paid at the time of import is more
than the business receipt tax for that year the excess amount is not allowed as credit in the
subsequent year.
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1.4 Gross Receipts Subject to 5% Business Receipts Tax
Gross receipts from halls and clubs where events are held
(such as wedding halls).
Gross receipts from restaurants, hotels, and guesthouses
with gross receipts of AFN 750,000 or more per quarter
Gross Receipts Subject to 10% Business Receipts Tax
Gross receipts of restaurants and hotels considered luxury hotels and
restaurants.
Gross receipts or income for telecommunication and airline services regardless of whether the
taxpayer has passed the tax onto the customer
1.5 Services defined
A legal person (corporation, Limited Liability Company, partnership, etc.) or a natural person
operating as a sole proprietor providing a service as defined in categories listed below must file a
return and pay tax on a quarterly basis.
Hotel services means the provision of sleeping accommodation and related services, including
the provision of meals, beverages, laundry and communications services, to persons who occupy
such accommodation as transient guests.
Restaurant services means the provision of food or beverages by an establishment that provides
facilities for immediate consumption at that establishment, or catering services of prepared food; or
sales of cooked foods that were prepared on the premises.
Telecommunication services means the provision of any kind of telephone, internet, or fax
service.
Airline services means passenger air services where the flight originates in Afghanistan.
1.5.1 How might these rates vary for a single business?
Applicable BRT rates can vary based on the business activity generating income as documented
by relevant gross receipts.
Example 1: Kabul Nights Restaurant, a legal person, is a fine dining restaurant taxed at 10 percent
on its restaurant services. The restaurant also sells traditional handicrafts, which are taxed at a 2
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percent rate.
1.5.2 How might these rates vary for by quarter?
Example 2: Ahmad, who is a sole proprietor, recently opened a restaurant in Kabul. Monthly gross
sales of the restaurant for the first three months (Mizan, Aqrab and Qaus) were AFN 274,000.
Since sales for the quarter were less than AFN 750,000, the business (although a sole proprietor)
will have a business receipts liability at two percent of gross receipts for the quarter, or AFN
5480.
Example 3: Ahmads restaurant has become well known and business has increased significantly.
His gross receipts for Hamal, Saor, and Jowza were AFN 970,000, which exceeds the AFN
750,000 threshold. Therefore, Ahmad must pay BRT for the quarter at 5 percent, or AFN 48,500,
1.6 When is BRT Paid?
Tax forms and payments are due on a quarterly basis using the solar calendar. Tax payments shouldbe made in afghani at Da Afghanistan Bank no later than the 15th day following the end of thesolar quarter in which the sales were made.
Quarter Due Date Hamal Jowza 15Saratan Saratan Sunbala 15 Mizan Mizan Qaus 15Jeddi Jeddi Hut 15 HamalExample 4: During the 3rd quarter (Mizan-Qaus) of the solar year, ABC Company received
AFN 200,000 in commissions and AFN 100,000 from the sales of products. ABC Company has
calculated its tax due on the receipts from commissions and from sales of products as AFN 6,000
[AFN 200,000 + AFN 100,000) x 2%]. ABC Company would file this return and pay the amount
due at Da Afghanistan Bank no later than 15 Jeddi.
Example 5: From Example 3 above, Ahmad has calculated his tax due on the AFN 970,000 for
Hamal, Saor, and Jowza as AFN 48,500. Since the return and tax are due on a quarterly basis, he
would complete his form and file this return and pay the tax at Da Afghanistan Bank no later than
15 Saratan.
1.7 The Tax Form and Calculation of Tax
The four part BRT form requires name, address, taxpayer identification number (TIN), business
type, gross receipts for each type of BRT, total tax for each type of BRT and total tax payable.
One copy is filed with the cashier at Da Afghanistan Bank when the tax is paid. The bank will
send two copies of the form to the Ministry of Finance. Taxpayers retain a fourth copy for their
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records.
If BRT has been withheld and paid during the quarter, for example, BRT withheld from
payments for fulfilling government contracts, it needs to be included in the calculation of tax on the
BRT form.
Example 6: From Example 1 above, Kabul Nights Restaurant has receipts from restaurant services
(food, beverages, etc.) subject to 10 percent BRT and receipts from sales of handicrafts subject to
two percent BRT.During the second quarter of 1389 Kabul Nights had gross receipts from sales of
handicrafts of AFN 320,000 for the quarter. Kabul Nights paid AFN 2,000 BRT on some items it
imported for its business in the first week of the quarter. It also had gross receipts from restaurant
services of AFN
1,050,000 for the same three months. Kabul Nights wouldreport this income by 15 Mizan 1389 as
follows:
Quarterly Tax Period From Saratan To Sunbala
2% Business Receipts Tax
Line 11 - Gross receipts of goods and services 320,000
Line 14 - Total for Quarter 320,000
Line 15 - Quarterly Tax (multiply by 2%) 6,400
10% Business Receipts Tax
Line 20 Gross receipts of luxury or premium hotels and
restaurants 1,050,00
Line 22 - Total for Quarter 1,050,00
Line 23 - Monthly Tax (multiply by 105,00
Line 24 - Total Tax Due For Quarter 111,40
Line 25 - Total BRT paid during 2,00
Line 26 - Total Payment Due 109,40
1.8 What if a business doesnt have income during the quarter?
If a business meets the tests for the BRT categories discussed in this guide, but has no receipts
for the quarter, the taxpayer must still file a return with a statement attached explaining that the
business had no gross receipts during the quarter.
Remember that BRT is applied to gross receipts and not net profits. If the claim is accepted, the
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business will not be subject to BRT for the quarter. If,however, the claim is found to be false,
the business willincur additional tax as a penalty (under Articles 100 and104 of the Income Tax
Law) in addition to the tax owed.
1.8.1 Income exempt from Business Receipts Tax
a) Income received from Interest Export of goods and services Rent or lease of
residential property to a natural person providing that the tenant uses the property for residential
purposes for more than six months of the tax yearSale of the property by a natural person outside
of the ordinary course of the natural persons business. A sale is considered to be outside the
course of the natural persons business when such sales are not regular and continuous.
b) Fees earned from the exchange of currency, operation of savings or other bank
accounts, transaction from deposits or withdrawals, issuance of checks and guarantee letters, internet
banking, provision of mortgages or loans, provision of lines of credit
c) Issuance of cash-settled contracts pending a specificdate in the future
d) Future contracts settled by physical delivery
e) Premiums for the provision of insurance or re-insurance
f) Distributions received by a shareholder from a corporation, limited liability
company or partnership with respect to the shareholders stocks or partnership interest
g) Salary or wages
1.9 Enforcement Provisions
Failure to comply with the requirements of the Income Tax Law may result in the Ministry of
Finance using administrative powers within the tax law to ensure compliance.
2.0 Where to find information?
Afghanistan Revenue Department tax offices and Mustufiats provide forms, instructions, and
guides to taxpayers free of charge, available both as printed and as downloadable versions from a
new website http://www. ard.gov.af. The website also provides locations, contact numbers and
hours of operation for Afghanistan Revenue Department tax offices and Mustufiats. Taxpayersalso can download other useful information including various public announcements and rulings,
questions & answers regarding wage withholding tax, the Income Tax La 2009, and an
Income Tax Manual. The manual discusses separately each article of the law, along with
relevant regulations, often with helpful examples.
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2. Objectives of study
2.1 Registration and tax exemptions in Afghanistan
2.1.1 February 9, 2010
The purpose of this information sheet is to provide guidance to partners on how to register to legally
operate in Afghanistan and to provide guidance on applicable tax exemptions. The information provided
in this document should not substitute for each implementing partner seeking its own registration and
tax advice. USAID expects each of its implementing partners to fully comply with the laws of the Islamic
Republic of Afghanistan (IRoA)
Questions related to USAID tax exemptions and problems encountered with registration and the payment
of taxes where exemptions apply should be brought to USAIDs attention immediately
2.1.2 REGISTERING AS AN NGOThe Afghanistan NGO Law was enacted on June 7, 2005, for the purpose of regulating the activities
of domestic and foreign NGOs in Afghanistan. It p r o v i d e s the t e r m s of
establishment, registration, administration, activity, internal supervision, dissolution and liquidation of
property of domestic and foreign NGOs. The law may be found in the Official GazetteNo.857/2005.
2.1.3 What is an NGO under the laws of Afghanistan?
An NGO is a domestic or foreign nongovernmental, nonpolitical and notforprofit
organization.1 A foreign NGO is established outside of Afghanistan according to the laws of a foreign
government.
2.1.4 How to Register an NGO in Afghanistan?
NGOs are registered by the NGO Department within the IRoA Ministry of Economy (MoE), which is
responsible for both registering and supervising NGOs. There are two key laws that govern the
establishment, registration and operations of civil society organizations: the Law on Social
Organizations enacted November 2002 and the Law on NonGovernmental Organizations enacted
June 2005
Reference
1 Article 5.1.2.3.4.5 Afghanistan NGO Law2 Articles 11, 18 & 27 Afghanistan NGO
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For NGOs receiving USAID funds, the entity must first proceed to the Ministry of Foreign Affairs
(MoFA) with a letter from USAID3
introducing the organization as a USAIDfunded organizationto the MoFA for registration. The MoFA then sends the information to the MoE to register the
entity as an NGO. According to the Afghanistan NGO Law4
, an NGO must submit a semiannualactivity report and an annual activity report to the MoE. Failure to submit the reports could result in
the dissolution of the NGO. The semi
annual report should be prepared in one original and threecopies for submission to the central and regional offices of the MoE. In addition, an NGOmust provide its annual financial statements/reports, prepared in accordance with internationalauditing standards, to the MoE.
2.1.5 How to register For Profit Entities?
In order for a forprofit entity to register and begin work in Afghanistan, it must first register with the
Afghanistan Investment Support Agency (AISA). AISA issues licenses for investors in manufacturing,
health services, construction and the service sector such as consulting and security services.There
are several forprofit entities (not NGOs) which are USAID partners/contractors implementing
USAID funded programs in Afghanistan. These entities are registered at AISA as
consulting/advisory services organizations implementing foreign donor assistanceprograms.
To register, the forprofit entity must first proceed to the MoFA with a letter from USAID
introducing the organization as a USAIDfunded organization to the MoFA for licensing at AISA.5
The MoFA then sends the information to AISA to license the entity as a forprofit entity. The
implementing partner collects and completes the AISA forms and submits them to the licensing
department of AISA. AISA then sends a letter to the Ministry of Finance (MoF) requesting
information on whether the organization is exempt from taxes in
accordance with our bilateral agreement with the GIRoA.
Once the AISA forms are completed, information on the organization is also sent to the CentralBusiness Registry (CBR) for registration. The CBR is a one stop shop to register businessescombining all of the functions previously done by the Commercial Court, the Ministry of Justice(MoJ) and the MoF. The CBR facilities the registration process for all businesses. The CBR issues
the partner a Tax Identification Number (TIN)6
, registers the business and publishes the informationin the Official Gazette of the MoJ.
2.2 Taxes
2.2.1 Tax Exemptions under Afghanistan
Tax Law
Afghanistans Income Tax Law, enacted in 1965 and amended in 2005 and most recently in
2009, was modeled on the U.S. tax law. Article 10 of the IRoA Income Tax Law defines a category
of "Tax Exempt Organizations similar to a charitable organization under Section
501(c)(3) of the U.S. IRS Code. To qualify as an exempt organization under Article 10, an
organization must be (1) established under the laws of Afghanistan, (2) organized and operated
exclusively for educational, cultural, literary, scientific, or charitable purposes and (3) contributors,
shareholders, members or employees either during the operation or upon dissolution ofthe organization
must not benefit from the organization. The contributions and income received from the necessary
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operations of qualifying organizations are exempt from taxation.
2.2.2 Annual Tax Filing
The 2009 amendments to the Income Tax Law provide details of on the legal requirement for annual
tax filing. Even though an entity may be exempt from taxes, the organization is still required to file atax return if they fit the criteria as outlined in Article 87, regardless of the fact that they may owe no
tax. Failure to file a return may result in penalties for failing to file. Annual income tax returns, as
well as all other tax returns, are available at the Medium Tax Office.
2.2.3 Tax Exemptions for USAID Partners
The Point Four General Agreement for Technical Cooperation, dated February 7, 1951, is the framework
bilateral agreement for all USAID activities in Afghanistan. It includes a provision that statesthat:
Any funds, materials and equipment introduced into Afghanistan by the Government of the
United States of America pursuant to such program and project agreements shall be exempt
from taxes, service charges, investment or deposit requirements, and currency controls.
Subcontractors, subject to this Article are required, upon signing the subcontract, to send a copy of the
subcontract to the Medium Tax Office. Natural persons who earn taxable salaries are excluded
from this provision. Under the USAID Tax Exemption language in our SOAGs, the withholding only
applies to national subcontractors, i.e. Afghan subcontractors.
Foreign subcontractors are exempt from such withholding. However, USAID prime
contractors/partners are not exempt from withholding this tax on their Afghan subcontractors.
The SOAG ex em pt s nonnational organizations and persons from the withholding not
Afghan organizations or Afghan citizens.
Foreign/International subcontractors to USAID prime contractors are exempt from taxes under the
SOAGs, similar to their prime contractors. However, the legal division of the Afghanistan Revenue
Department (ARD) must issue a letter (exemption certificate) to each exempt subcontractor in order to
effect the exemption for administrative purposes under Afghan law.
3The MoFA normally requires a letter of introduction from the Consular Office of the US Embassy in Kabul. However,
the Consular Office has delegated the authority to provide introduction letters to USAID/Afghanistan. The delegationletter, Attachment 2, must be attached to the USAID introduction letter.4
Articles 27 & 31 of Afghanistan NGO Law5 The same delegation letter referenced in footnote 3 and found at Attachment 2 must also be attached to the
USAID introduction letter to the MoFA for for-profit entities.6
TIN: Individuals, companies and organizations which are, according to the Income Tax Law and the CustomsLaw, required to pay taxes or customs duties; social, non profit and welfare organizations which are required to withholdtaxes from the salaries or wages of their employees are required to have a TIN.
In other words, each subcontractor must have an official exemption letter from the ARD. To obtain the
exemption certificate, the prime contractor submits a letter to the ARD Legal Department on behalf
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of its subcontractors requesting the exemption, i.e. a private ruling. A copy of the subcontractors
cover sheet to its contract must be included with the request The Legal Department of ARD has copies
ofthe SOAG, so it is not necessary to provide the SOAG as an attachment. The letter howevershould
reference that the prime and the subcontractor are implementing a USAID activity under the applicable
SOAG. The Legal Department will review the documents and issue a letterconfirming exemption. If
the exemption letter is not issued by ARD, the subcontractors will not be exempt fromtax.
2.2.4 Scope of study
Question 1: Do the Tax Exemption Provisions in the Bilateral Agreement and SOAGs
Provide a Blanket Tax Exemption for All USAID Implementing Partners for All Taxes in
Afghanistan?
No. For USAID implementing partners, the tax exemptions described here only apply to funds
provided by USAID. For funds received from any other source, including other U.S. Government
agencies, implementing partners should check with those donors to determine whether any such non
USAID funds also benefit from a tax exemption. In addition, there are different tax exemptions for
national and nonnational organizations.
Question 2: How do the Tax Exemptions Affect Payment of the Rental Property Tax in
Afghanistan?
The rental property tax imposes a withholding tax on landlords for real property as follows:
If the monthly rent is more than Afs.10, 000 ($200) and less than Afs.100, 000 ($2000)
10percent.
If the monthly rent is more than Afs.100, 000 ($2000) 15percent.
The law requires the renter to withhold the tax on behalf of the landlord. The rental property
tax is a tax on the landlord not on the renter. The withholding is merely
transferring a part of the landlords income (the rent) to the GIRoA to cover the tax.
Whatever the arrangement between landlord and renter, the USAID tax exemption is not applicable
since the tax is on the landlord.
Question 3: How do the Tax Exemptions Affect Payment of the Income Tax in
Afghanistan?
In Afghanistan, there is an income tax on organizations and individuals. There is also a business
receipts tax (BRT) which is a type of income tax on gross receipts of forprofit organizations.
The tax exemption described above exempts all nonAfghan national implementing partners (both
organizations and individuals) from paying taxes on their income, profits, or property. This includessocial security or other similar type of taxes. The exemption does not extend to Afghan nationals.USAID implementing partners are required to withhold income tax on their Afghan national
employees7
and subcontractors including BRT8, The BRT is a tax which
is collected from total gross income (sales) before any deduction. The exemptions are not applicable
to Afghan organizations even though they are receiving USAID funds. Once again, however, it should
be noted that the exemption only applies to USAID funds. Funds received
by organizations or individuals that cannot be tracked back to USAID is not subject to the exemption.
If organizations or individuals are receiving funds for assistance activities from other donors or other
U.S. Government agencies, they should check with those donors or other U.S. Government agencies
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to see if any tax exemptions are applicable to such funds.
Question 4: How do the Tax Exemptions Affect Payment of Customs Duties, Tariffs,
Import Taxes or Other Levies on the Importation, Use and ReExportation of Goods into or out
ofAfghanistan?
The tax exemptions apply to all goods brought into the country for use on a USAID
financedassistance project. The exemption applies to such goods whether they are brought in by Afghan
national or nonAfghan implementingpartners.
In addition, nonAfghan implementing partners may bring in personal belongings and effects for the
nonAfghan national employees (including personallyowned automobiles, for example) for
personal use (not for resale, however) and for the personal use of their family members.
Question 5: How do the Tax Exemptions Affect Payment of the VAT, Sales Taxes, Taxes on
Purchases or Rentals of Real or Personal Property or other Taxes Levied on the Last
Transaction for the Purchase of Goods or Services
Financed by USAID in Afghanistan?
To the extent that such taxes are imposed, the tax exemption will apply for goods and services
purchased for use in activities financed by USAID. To the extent the purchase of a good or service
would not be an allowable cost under an implementing partners agreement with USAID, the exemption
would not apply (for example, individual employees purchases of personal effects are not
allowable costs under USAID assistance agreements and therefore would be subject to the sales tax
should one be instituted in Afghanistan).
Question 6: What Happens if the GIRoA Collects a Tax Despite the Existence of an
Applicable Tax Exemption?
USAID will work with the GIRoA through the MoF to try to ensure that, when exemptions apply, no
taxes will be collected. However, it is likely that there will be cases where taxes will be collecteddespite the best intentions of all parties to comply with the terms of the Bilateral Agreement and
SOAGs. USAID agreements with implementing partners should contain a provision related to
reporting of foreign taxes. If an implementing partners agreement does not contain such a
provision, it should contact its USAID Contracting Officer or Agreement Officer and request inclusion
ofsuch standard provision. USAID will then seek reimbursement of reported taxes from the GIRoA.
7The income tax of legal persons is 20 percent of its taxable income in the fiscal year
From Afs.0 to Afs.5,000 monthly - 0% From Afs.5,001to Afs.12,500 - 2%
From Afs. 12,501 to Afs. 100,000 - 10% + Afs. 150 fixed amount
From Afs. 100,000 above - 20% + Afs.8,900 fixed amount
8BRT is imposed on natural persons who provide goods or services in exchange for consideration and whose revenue from such sales is 750,000
Afghanis or more per quarter of the year
2.3 Limitation
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2.3.1 Soag tax exemption provision
2.3.2 Section B.4. Taxation
(a) General Exemption: The Agreement is a program agreement under the terms of the Point Four General
Agreement for Technical Cooperation, dated as February 7, 1951, between the grantee and the USG, and
the assistance thereunder is free from any taxes imposed under laws in effect in the territory of the
grantee.
(b) Except as provided otherwise in this provision, the General Exemption in subsection (a) applies to
, but is not limited to 1) any activity, contract, grant of other implementing agreement financed
by USAID under this agreement, 2) any transaction or supplies, equipment, materials, property or
other goods (hereinafter collectively goods) under (1) above, 3) any contractor, grantee, or other
organizations carrying out activities financed by USAID under this agreement, 4) any employee of such
organizations, and 5) any individual contractor or grantee carrying out activities financed by USAID under
this agreement.
(c) Except as provided otherwise in this provision, the General Exemption in subsection (a)
applies to , but is not limited to the following taxes:
1) Exemption 1. Customs duties, tariffs, import taxes, or other levies on the
importation, use and reexportation of goods or the personal belongings and effects (including
personallyowned automobiles) for the personal use ofnonnational individuals or their family
members. Exemption 1 includes, but is not limited to; all charges based on the value of such
imported goods, but does not include service charges directly related to services performed to
transfer goods orcargo.
2) Exemption 2. Taxes on the income, profits or property of all 1) nonnational
organizations or any type, 2) nonnational employees of national and nonnational
organizations, or 3) non
national individual contractors and grantees. Exemption 2 includes
income and social security taxes of all types and all taxes on the property,personal or real, owned
by such nonnational organizations or persons. The term national refers to organizations
established under the laws of the grantee and citizens of the grantee, other than permanent
resident aliens in the US.
3) Exemption 3. Taxes levied on the last transaction for the purchase of goods orservices
financed by USAID under this agreement, including sales taxes, valueadded taxes (VAT), or
taxes on purchases or rentals of real or personal property. The term last transaction refers to
the last transaction by which the goods or services werepurchased for use in the activities finances
by USAID under this agreement.
(d) If a tax has been levied and paid contrary the provisions of and exemption, USAID may, in its discretion,
1) require the Grantee to refund to USAID or to others as USAID may direct the amount of such tax withfunds other than those provided under the agreement, or 2) offset the amount of such tax from amounts to
be disbursed under this or any otheragreement between theparties.
(e) In the event of a disagreement about the application of an exemption, the Parties agree to promptly meet
and resolve such matters, guided by the principle that the assistance furnished by USAID is free
from direct taxation, so that all of the assistance furnished by USAID will contribute directly to the
economic development of the country of the Grantee.
Chapter # 2
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1. Literature view
1.1 Taxation and Governance
The fundamental purpose of taxation is to raise revenue for financing public goods and services. An
effective tax system therefore strikes an appropriate balance between public and private needs toachieve national development goals, given the prevailing structural and social conditions and
political priorities (European Commission 2010a, 2).
Developing countries, in particular, need to establish a tax system that is not only effective in
mobilizing resources, but also one that distributes the tax burden fairly and minimizes tax
distortions that can deter productive investment, spur costly resource misallocation, and impair
growth. As the OECD (2008b, 21-2) points out, low-income countries face special challenges that
affect the feasibility of raising taxes, including widespread poverty and illiteracy; hard-to-tax groups
in subsistence agriculture and the informal sector; problematic accounting in the private sector; and
a lack of skills for tax administration (including control of international tax leakages).Beyond these economic fundamentals, donors and development practitioners are deeply concerned
to promote Good Governance in tax matters (EC 2010a, 2). The governance perspective focuses
on how taxation affects state capacity, responsiveness, and accountability, the political drivers of tax
reform, and governance constraints on the effectiveness of donor-supported tax programs.
Four themes are prominent in the literature on taxation and governance. First, taxation is a central
feature of the social contract on the role of the state, as defined by political institutions, influence
networks, economic interests, social relationships, and government capabilities in each country. An
effective program to strengthen a countrys tax system has to take into account the commitment of
national leaders, the influence of interest groups, the political incentives for sustainable reform, the
role for policy dialogue, and the quality of information available to decision makers and
stakeholders on the effects of tax decisions. As Prichard (2010, 323) concludes from detailed case
studies for Kenya, Ethiopia and Ghana, domestic political factors ultimately determine the course of
tax reforms. Aid programs to support the tax system can only work when reforms are consistent
with the domestic political agenda and they work best when accompanied by high-level political
support. Hence, an understanding of the political economy of reform can be just as important as the
technical analysis.
A second theme is that taxation itselfalong with effective expenditure managementis a corecapability for state-building and a basic component of good governance. Tax reforms can also be a
point of entry for fostering broader improvements in state capacity (Brautigam 2008, 15). Any
serious program for strengthening revenue performance creates a need for strengthening related
functions like budget management, fiscal policy analysis, courts and the judiciary, and the agencies
responsible for.
The IMF (2011) points out that the combined impact of the tax system and the government
expenditure program is what matters for equity and poverty relief. Nonetheless, an equitable tax
system imposes a minimal burden on the poor and ensures that everyone pays their fair share.
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This two-way interaction between taxation and governance suggests that there can be a virtuous
circle in which tax reforms lead to governance improvements that in turn facilitate revenue
mobilizationleading to more financing for essential public services, stronger government
legitimacy, and faster progress towards ending aid dependency.
1.2 Afghanistan
The Afghanistan case also highlights important political economy issues concerning tax reform in a
low-income/post-war context. Afghanistan has one of the weakest tax collection capacities in the
world. According to IMF estimates, government revenue as a percentage of non-drug GDP will be
5.4 percent in 2005-6, the lowest figure for any country in the world (Rubin, 2006: 26). James
Boyce (2003: 7-8; forthcoming) suggests that fiscal capacity has been crucial for the viability and
sustainability of the state, particularly given the short attention span and shifting priorities of
external donors. What seems clear in the Afghan case is that the states command over legitimateforce and legitimate fiscal capacities are closely interlinked, once again highlighting the limits of a
purely technical approach to taxation.
There are several insights on the relationship between state-building and public finance that are
highlighted in Boyces work. First, there were three main principles that were important as
foundations of sound revenue collections: a) the methods chosen should be easy to handle
administratively; b) they should honour progressivity in order to reduce rather than exacerbate
distributive tensions by taxing those with ability to pay; and c) they should be underpinned by
legitimacy.
Second, there is a need to re-think the policy of exempting high-income expatriates from paying
taxes despite the fact that they often earn 100 times the national average salary. This exemption
creates a demonstration effect to high-income nationals that it is legitimate for upper income groups
not to contribute to tax collection. Boyce points to three tax measures which would help the
international community to play a catalytic role in the revenue area, analogous to its potential role in
the expenditure and security arenas:
a) the introduction of an income tax on high income expatriates, voluntarily paid and a measure of
high symbolic value;
b) the introduction of income and urban property taxes on high income citizens because the influx
of external resources is a major source of a considerable increase in income for some well-placed
Afghan citizens; and
c) a customs duty on imported luxuries that is backed up by the willingness of international actors
to forego exemptions and immunities. Such measures could easily be put into practice
administratively and work as a nucleus of revenue collection capacity while at the same time would
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enhance legitimacy. It would also set the stage for state-elite bargains over tax collection to become
an institutionalized feature of the polity.
Given the weak state capacity to collect tax in Afghanistan, trade taxes will inevitably be the most
feasible source of tax collection. However, raising the level of import taxes is not simply a question
of trade policy. The inability of the Afghan state to control much of the territory outside the capital,
Kabul, including border areas, impedes the collection of trade taxes. The presence of entrenched
warlords weakens the states monopoly not only on revenue collection but also on the legitimate
exercise of force (Boyce, forthcoming). In this sense, raising trade taxes will require increased
military and security presence of the central state in border regions, a feat unlikely to be achieved
without international military assistance. Clearly, in post-war economies, capacity to collect even
the easiest taxes is closely linked to issues of security and the legitimate monopolisation of
violence on the part of the central state.
Carnahan (2007) argues that it makes sense for donors to enter into a multi-year compact with post-conflict host government to provide matching funds for direct budget support purposes. The current
arrangement in many post-conflict countries is that donors provide budget support when the
government specifies its expenditure needs and calculates what its financing gap is. Donors then
promise-with varying degrees of commitment, promises to finance the revenue shortfall. This
system can create several problems. First, the incentive for the government to raise revenue may be
diminished. Second, the capacity of the government to identify and assess macro-level expenditure
revenue trade-offs are reduced as ministers are not forced to prioritise spending based on what
revenues they can collect; instead they simply present a wish list. Third, there is considerable
uncertainty and volatility in the actual aid flows that are dispersed creating problems for
macroeconomic management and planning.
The literature suggests that economic development is expected to bring about both an increased
demand for public expenditure (Tanzi, 1987) and a larger capacity to meet these demands
(Musgrave, 1969). Musgrave argues that the lack of availability of tax handles might limit revenue
collection at low levels of income and these limitations should become less severe as the economy
develops. Effectiveness of measures for increasing tax revenue must be estimated in order to
identify their success. Analysis of buoyancy rate is a means for evaluating the effectiveness of
policies for improvement in tax revenue. Since gross investment is one of the components of
aggregate demand therefore tax buoyancy with respect to investment should also be estimated.
There is a consensus in the literature on the use of per capita income as a proxy for the overall level
of development. (Bahl, 1971 and Ansari, 1982). A higher per capita income reflecting a higher level
of development is held to indicate a higher capacity to pay taxes as well as a greater capacity to levy
and collect tax revenue (Chelliah, 1971). But it is also possible that per capita income cannot reflect
the real impact on tax buoyancy due to uneven income distribution in the economy. Therefore in
this study income per capita is not selected as an independent variable. Today the human
development index (HDI) is sometimes considered to be a better indicator of welfare than income
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per capita. However due to non-availability of timely HDI data, HDI is also not taken into account
in this study.
Tanzi in a study emphasizes that trade taxes have historically been a major source of government
revenue during the early stages of economic development because they are easier to collect than
domestic income and consumption taxes when tax administration is rudimentary and tax handles are
limited, (Tanzi 1989). This is also supported by a study by Linn and Weitzel (1990) which shows
that the administrative ease with which trade taxes can be collected makes them an attractive source
of government revenue when administrative capabilities are scarce (Linn and Weitzel, 1990).
Therefore volume of trade has been given importance as a determinant of tax revenue specially in
developing countries at early stages of development.
The existence of a large public debt has important implications for the taxation potential of a
country. With a large debt, the government needs to raise revenues necessarily. When the interest on
the debt exceeds net borrowing plus the possible reduction in non- interest expenditure, the level oftaxation must go up unless the rate of growth of the economy is high enough to neutralize this
increase. Therefore public debt and government spending play a role in determining the extent to
which countries may take advantage of their taxable capacity (Tanzi, 1987). Therefore this study
also considered debt as a determinant. Public debt may be financed through inflationary financing,
which results in acceleration of inflationary pressure. As a result the real value of tax collection falls
because of the inevitable lag between the date the tax is due and its date of collection (Tanzi, 1988,
1989, Blejer & Cheasty, 1989; Linn & Weitzel, 1990). Therefore, the size of the public debt is
expected to be a positive determinant of the buoyancy rate.
A countrys economic structure is one of the factors that could be expected to influence the level of
taxation (Tanzi, 1992). An economy with a large GDP share of agriculture value added is expectedto generate low tax revenues. Due to political reasons, it is usually difficult to directly tax the
agricultural sector in Afghanistan, though it is often very heavily taxed in many implicit ways, e.g.,
through import quotas, tariffs, controlled prices for output, and overvalued exchange rates (Bird,
1978; Ahmad and Stern, 1991).
Tax evasion is considered to be of serious concern to those dealing with taxation issues of a country
because of several reasons, the major being that it results in the loss of revenue. Pyle (1989) points
out that one of the implications of the existence of the underground economy is that some income
goes untaxed and also certain indirect taxes are also evaded. Thus in this study a short fall in tax
revenues (SFTR)1 will be considered as a proxy to represent tax evasion. These shortfalls in tax
revenues are normally inclusive of those shortfalls that are due to tax avoidance but not tax evasion.
The expected sign of buoyancy rate for tax revenue due to SFTR is negative.
Estimating income tax elasticity is useful for determining the extent of the sensitivity and response
of the tax system to the changes that take place in the composition and value of GDP. Moreover, a
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quantitative measure of the effectiveness of tax policy in terms of stimulating public resources, is
given by the relationship between the proportional changes in tax revenue and those of national
income (Harvey, 1993), and this relationship is measured by income tax elasticity. The elasticity of
yield is an important aspect of the tax structure (Goode, 1984), and overall measures of elasticity
and buoyancy may be useful as a descriptive tool, which may lead to further questions and point to a
more detailed examination of particular taxes in certain countries (Ahmad and Stern, 1991).
There is a large literature on public finance policies and systems in developing countries that
explores various options for raising revenue (collecting taxes, fees, and rents, foreign borrowing,
expanding the money supply), various criteria for allocating expenditure (equity, efficiency), and
optimal means for managing and executing expenditures (autonomous revenue authorities,
tax/customs administration, financial management and treasury systems, etc.). Several handbooks
summarize these lessons for policymakers (see, for example, World Bank 1998, McLaren 2003).
This literature also discusses how fiscal policy impacts and is impacted by macroeconomic
stabilization, economic liberalization, poverty reduction, fiscal sustainability, etc. (see, for example,Bird and de Jantscher 1992, Patel 1997, Toye 2000).
There is little discussion of the unique challenges faced by post-conflict countries (i.e., post-war
crime waves, implementation of costly peace agreements, war economies, political and social
polarization, low absorptive capacity and dramatic spikes in international aid) and the extent to
which this larger literature is still applicable in post-conflict settings. Fafo organized one meeting on
post-conflict public finance at the World Bank in 1999 at which considerable interest was expressed
in developing new research in this area (Fafo 1999). Addison and Ndikumana (2001) argued that the
new state agenda in Africa is both ambitious and essential and generating additional revenues to
address the fiscal crisis of the African state is a precondition for statebuilding in Africa.
These fiscal crises are most severe, they argued, in conflicted and post-conflict countries, calling for
reduced military spending; more grant aid, and more debt relief to free up additional resources for
core spending. They did not address cases outside Africa nor examine how to prioritize non-defense
expenditures. While Addison and Ndikumana cast fiscal policy as a precondition for statebuilding,
Bird et al. (2004) argue that a more legitimate and responsive state is a precondition for improving
fiscal policy, bringing in societal factors often overlooked in the public finance literature (but not
looking specifically at post-conflict countries). Addison and Roe (2004) examine the fiscal costs of
conflict and explore strategies for revenue mobilization in post-conflict recovery, exploring the
strongly criminal dimension that many conflicts take on and the particular challenges this raises for
public finance, as well as other ways in which conflict may impact the motives of key actors.
They did not specifically evaluate the effectiveness of various international interventions, nor how
to prioritize expenditure. Gupta et al. (May 2004) analyzed the types of fiscal advice provided by
one institution (the IMF) to post-conflict countries and concluded that additional research is need
to ascertain the track record of countries in implementing these recommendations and what progress
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has been made toward more permanent improvements in the operations of fiscal institutions.
Finally, Collier (forthcoming), in contrast to research by Addison and Ndikumana, argues that taxes
should be kept low in post-conflict countries to avoid choking off economic recovery (Collier
forthcoming).
International financial institutions (IFIs) policy in this area is key given their strong intellectual
leadership. In 1998, the Banks Operations Evaluation Department produced a five-volume report
on The World Banks Experience with Post-conflict Reconstruction, analyzing all Bank operations
in El Salvador, Bosnia, and Uganda, and an overview of experiences in Cambodia, Eritrea, Haiti,
Lebanon, Rwanda, and Sri Lanka. This study concluded that if tax effort and the pattern of public
expenditures have a direct bearing on post-conflict reconstruction, as they did in El Salvador, it is
legitimate to include these parameters in the conditionality agenda (Kreimer et al. 1998). However,
it was not until 2003 that the World Bank acknowledged officially that, in post-conflict settings,
the main objective over the short to medium term must be to consolidate peace. (World Bank,
2003) This represents a break with the previously held view that these were political mattersbeyond the Banks purview. After 9/11, the Banks Low-Income Countries Under Stress or LICUS
Initiative began to study how standard approaches to institution-building need to be adapted to fit
low-capacity countries (i.e., identification of zero-generation reforms) and an evaluation of this
initiative will be produced by the World Banks evaluation office in 2006.
The International Monetary Fund (IMF) has also modified some of its normal policies and practices,
but has not introduced institutional changes comparable to those at the World Bank. At the level of
formal policies, the main innovation has been the expansion of the Funds emergency assistance
window to cover specifically post-conflict assistance. In addition, Fund staff members have played
key roles in re-establishing monetary, financial, and fiscal systems in places where they must bebuilt more or less from the ground up, as in Bosnia, East Timor, Kosovo, and Afghanistan. Boyce
(2004) reviews these openings for policy change within the IFIs and makes several
recommendations for more conflict sensitive approaches, several of which relate directly to public
finance (i.e., greater attention to horizontal inequalities, revenue mobilization, rethinking
macroeconomic stabilization, and tackling the legacy of odious debts).
Post-conflict Transitions: The second literature is the literature on post-conflict transitions which
focuses on distinct types of transitions, critical risk factors, and various strategies and elements to
strengthen peace and prevent a relapse into conflict.
The peace literature has emphasized the importance of security (i.e., demobilization, disarmament
and reintegration of combatants, police reform, civilian control of reformed militaries, international
peacekeeping and constabulary forces), justice (i.e., criminal justice systems, transitional justice and
truth commissions, international criminal courts), political reform (i.e., constitutional reform and
elections), and building conflict management capacities throughout society. Within this literature,
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public finance issues have received very little attention and, as a result, there is little awareness
among policymakers of the links between the states ability to manage public resources and its
ability to manage conflict. Woodward argues that no international or local action in support of
peace can occur without a budget or donor to tap and yet economic aspects of peace agreements
tend to take a backseat to security concerns (Woodward 2002). Exceptions include case studies on
El Salvador (Boyce) and also Guatemala where the fiscal pact was closely linked to
implementation of the peace accords (Stanley and Holiday 2002).
CICs research on post-conflict public finance will undertake a series of country case studies
focused explicitly on public finance and its links to building states and building peace. Drawing on
these case studies, it will develop a set of recommendations for improving international assistance in
this area, making an important and unique contribution to knowledge in both the public finance and
post-conflict transition fields.
Line Ministries in Kabul and Provincial Mustofiats ( provincial offices of the Treasury) andthe development of Payroll Systems; (iii) to develop capacity of Treasury Department civilservice staff in the areas of basic skills (English language, basic computer literacy and officeskills); technical skills (public finance management theory and advance informationtechnology); and job-specific skills, including the development of training curriculum. MOF IT
Systems Overview2
1.4 Capacity Development Background
Currently, the majority of key civil service positions are filled and civil service personnel domost of the day-to-day work of the Treasury Department. Although the staffing situation hasimproved, attraction and retention of suitably skilled and qualified staff remains the key
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support such as the re-design of business processes, training of users and guidance and helpdesk operations.
2Control menu is used for Chart of Accounts, system configuration and user management.
Financial reporting includes standard basic reports for users (frontend) and advanced reports,which are produced by custom means (backend). There is no electronic interface betweenFree Balance and other systems at the moment, except SDU database, which reads data fromAFMIS. Treasury has 500 user licenses for existing Free Balance modules at the moment.Users from Line Ministries and Provinces use Terminal servers to access AFMIS.
1.3 Selected Bibliography
Tony Addison, Alemayehu Geda, Philippe Le Billon, and S. Mansoob Murshed, Financial
Reconstruction in Conflict and Post-Conflict Economies, Discussion Paper No. 2001/90.
Tony Addison and Leonce Ndikuman, Overcoming the Fiscal Crisis of the African State, WIDER
Discussion Paper No. 2001/12, June 2001.
Richard M. Bird and M. Casanegra de Jantscher (eds.), Improving Tax Administration in
Developing Countries, Washington, DC, International Monetary Fund, 1992
Richard M. Bird, Jorge Martinez-Vazquez and Bennon Torgler, Societal Institutions and Tax
Effort in Developing Countries, ITP Paper 04011, 2004
James K. Boyce (ed.), Economic Policy for Building Peace: The Lessons of El Salvador, Boulder,
CO: Lynne Reinner, 1996
James K Boyce, Investing in Peace: Aid and Conditionality after Civil Wars. Oxford: Oxford
University Press, 2002
Paul Collier, Post-conflict Economic Recovery, draft chapter submitted to the International PeaceAcademy, November 2004
Bird, R.M. (1978), Assessing Tax Performance in Developing Countries: A Critical Review of the
Literature, in Taxation and Economic Development.
Blejer M.I. and Cheasty A. (1989), Fiscal Implications of Trade Liberalization, in Fiscal Policy in
Open Developing Economies, ed. By Vito Tanzi, IMF.
Chelliah R.J. (1971), Trends in Taxation in Developing Countries, IMF Staff Papers, Vol. 18, No.
2, July, pp. 254-325.
Choudhry, N.N. (1979), Measuring the Elasticity of Tax Revenues: A Divisia Index Approach,
IMF Staff Papers, vol. 26, March 1979.
Linn F.J. and Weitzel D. (1990), Public Finance, Trade and Development: What Have WeLearned? in Fiscal Policy in Open Developing Economies, ed. By Tanzi, pp. 9-28.
Boyce, J. 2003. Fiscal Reconstruction of the State, Symposium on State Reconstruction and
International Engagement in Afghanistan, sponsored by the Centre for Development Research,
University of Bonn, and the Crisis States Programme, Development Research Centre, London
School of Economics, 30 May- 1 June, Bonn.
Carnahan, M. 2007. Options for Revenue Generation in Post-Conflict Environments, Center on
International Cooperation and Political Economy Research Institute.
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Rubin, B. 2006. Afghanistans Uncertain Transition from Turmoil to Normalcy, Council on
Foreign Relations Paper No. 12, March
Chapter # 03
1. MethodologyEach sectors major stages are identified and examined. The key players arerecognized and their roles analysed to better understand the sectors dynamics. Special
attention is paid to market irregularities, barriers to entry, and businessenvironment. Access to finance, distribution networks, and transportation are all
scrutinised to seek out opportunities forleveraging orimprovement.
This initial analysis forms the basis for an overview of the current state of the sector, from
which market trends and shifts can be forecast. This knowledge is crucial tounderstanding how each sectors potential can be optimised. The following analyses are thenperformed to synthesise the findings and form a comprehensive picture of the
sectors and the opportunities theypresent.
1. Ma r k e t S tu d y : For each sector, the market potential is determined by looking at thenational market, and where relevant, the international market. Given the scarcity of
existing data on the Afghan market, interviews and market surveys are used to establish
consumption patterns, estimate market sizes, and identify opportunities. Theregional/international market potential is established primarily through secondary
research.
2. Ma p pi n g of V a lue Ch a in s : Each sector's value chain is defined and described along
with its main components, mainly through interviews with key stakeholders at all levels of
the value chain. Where appropriate, interviews are conducted in a variety of
provinces, to ensure that regional differences across Afghanistan are taken into
consideration. These interviews allow us to understand the main components of each
sector's value chain, the types of players in each component, distribution of value along
the value chain, synergies between different levels, main
drivers of cost and quality in the sectors, international comparisons of cost, and quality
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and variety ofproducts.
3. D e ta il e d S ec tor A n a l y sis a nd S WO T An a l y s is : The detailed sector study and SWOT
analysis synthesize the demand-side (market study) and supply-side (value
chain mapping) studies. Key support activities that may act as either enhancers of
growth or bottlenecks in the value chain are incorporated into the SWOT analysis.4. O v e rvi e w of F in a n c i a l S uppo r t: Access to financial support is addressed in detail.
The aim is to understand what financial support is available to Afghan
entrepreneurs, what variations e x i s t a c r o s s sectors, and how thee x i s t i n g structures can be leveraged or improved. The main issues addressedconcern what financial support exists in Afghanistan, which channels entrepreneurs
and SMEs go to for financing, and if certain sectors or certain types of players aremore affected by the lack of access to finance. This overview is based on a series of
interviews and secondary data.
1.1 Introduction
This section presents the area of study, sampling that sample size, and sampling techniques,
research design, research strategy, data collection methods, data analysis methods and limitation
of the study.
1.1.1 Research design plan:
In development of this research paper we conducted Descriptive type of research in order to
elaborate how is the financial performance and performance of Pashtany bank.
1.1.2 Sample design plan:
As our paper is technical in nature, therefore we took a set of economist which was ranging from
2 to 4 people working as professors in universities or as key positions holders in Pashtun banks
1.2 Data collection Method& Data source plan:
Both primary and secondary collected for this study. The techniques for data col lection method, which are
applicable to the qualitative research process, were therefore use.
Primary data techniques used include:
The archived data of the interview
Self-Completion Questionnaires.
1.3 Data analysis methods:
The study used qualitative methods to analyze the collected data. Tables and figures present the results. The
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researcher combined the information from all sources of information that is interview, Questionnaire , observationand secondary sources.
Moreover, the study integrated the evidence in the study site with the lessons from other studies relating Pashtany bank activities, and its sustainability.
1.4Assumption & Limitation:
It is assumed that that respondents have enough information about the subject matte
(Assumption is based on their professional background).
It is assumed that the asked question from the participant group really address th
subjected issue.( Question are prepared with greater focus and logical linkage)
It is assumed that the gathered data from the various related source are reliable. Due to absence of proper research conducting system in Afghanistan there isnt an
referring source for technical and professional support.
Fewer and probability unverifiable data in Census office.
Shortage of time
1.5 Time scale:
The initial work starts at 1st
September and the final work will be finished at 15th
Mar in the above given time linethe following task will be performed:
1st -15th September : Focus groups interview of (10) participants in two groups and (3) participants
individually.
1st_ 15thSeptember: Checking out the web sites of concerning ministries, study and exploration of
required data from journal official magazines and other related sources.
15th
-25th
September:preliminary data analysis, editing and coding. 25th-7th October: Data cleaning and secondary Analysis.
7th -15th October: Research report writing and review.
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Chapter # 4
4.1 Results and discussion
Enterprise (Afghanistan) BALANCE SHEETAS AT DECEMBER 31, 2010
PROPERTY, PLANT &EQUIPMENT
NOTE 2010
2009USD
USD
FIXED ASSETS - TANGIBLE 4 6,600,0045,307,204
At Cost less: Acc. Depreciation
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CURRENT ASSETS
Stock in trade 5 696,542
Store, Spare and Loose Tools 6 16,175
Trade Receivable 7 486,622
Advances, Deposit and Prepayments 8 214,729Cash and Bank balance 9 8,673
1,422,741
TOTAL ASSETS 8,022,744 6
LESS: CURRENT LIABILITIES
Trade Creditors 10 535,294
Accrued and Other Payable 11 6,287
541,581
NET ASSETS 7,481,163 6
REPRESENTED BY:
Owners' equity 12 7,481,163 6
TOTAL EQUITY 7,481,163 6
Auditors' report is annexed thereto.
The annexed notes form an integral part of thesefinancialstatements.
KA
BULPRESI
DENT
FINANCE
MANAGER
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NOTE 2010 2009
USD USD
Revenue
Sale of Goods 13 24,562,009 19,800,451
Cost of Revenue 14 23,243,923 18,594,356
Gross profit 1,318,086 1,206,095
Operating expenses
Administrative and Selling 15 169,508 157,451
Finance charges 16 - -
169,508 157,451
Operating Profit 1,148,578 1,048,644
Add; other Income 17 - -
Net profit/ (Loss) for the year 1,148,578 1,048,644
- -
Net Profit (Loss) for the Year 1,148,578 1,048,644
Accumulated profit/(loss) brought forward 1,048,644 -
Accumulated profit/(loss) carried forward 2,197,222 1,048,644
The annexed notes form an integral part of these financialstatements.
KAB UL
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PRESI
DENTFINA
NCE
MAN
AGE
R
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2010 2009
USD USD
CAS H F L O W F R O M OP E RA T IN G AC T IVI T I ES
Profit/(loss) before Taxation 1,148,578 1,048,644
Adjustment for:
Depreciation 327,000 355,208
1,475,578 1,403,852
(Increase) in stock/Inventory 89,990 (786,532)
(Increase) in stores and Spare (4,266) (11,909)
(increase) in Receivables 114,486 (601,108)
(increase) in Advances, Deposit and prepayments (82,856) (131,873)
(decrease) in Trade & other payables 43,983 491,311
Increase in others 1,055 5,232
Cash generated (used in) from operations
Tax paid
162,392
-
(1,034,879)
-
CASH INFLOW/(OUT FLOW) FROM OPERATING ACTIVITIES
CAS H F L O W F R O M INV EST IN G AC T IVI T I ES
1,637,970 368,973
Purchase of fixed assets (1,619,800) (5,662,412)
CASH OUT FLOW FROM INVESTING ACTIVITIES
CAS H F L O W F R O M F INANCIN G AC T IVI T I ES
(1,619,800) (5,662,412)
Capital introduced
Drawings
-
(15,641)
-
(7,652)
CASH IN FLOW FROM FINANCING ACTIVITIES (15,641) 5,299,581
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,530 6,142
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEA 6,142 -
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 8,673 6,142
KABUL PRESIDENT FINANCE MANAGER
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4.2 Status and nature of business
M/s Surat Zada group is registered with the Afghanistan Investment Support Agency under
registeration number D - 31355. The company is engaged in the business of Trading of Mobile
Cards,Sims, Wheat, Marble, flour manufacturing and other General Trading.
4.3 Basis of preparation
4.3.1 Stement of compliance
These financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as applicable in Afghanistan.
4.3.2
4.3.3
B
a
si
s of
Meas
ureme
nt
these financial statemnts have been prepared under the historical cost,
except monetary assets and liabilities in currancy other than reporting
currency which are stated as per accounting policy of foreign currency
transactions.
Use of estimates
and Judgements
The preparation of financial statements in cdonformity with
approved accounting standards require managements to make
judgtements, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and
expense. the estimates and associated assumptions are based on
historical experiance and various other factors that are believed to be
reasonable under the circumstances, the result of which from the
basis of making the judgements about carrying value of assets andliabilites that are readily not apparent from other sources.
4.4 Summaries of significant accounting policies
4.4.1 Basis of measurement and accountingconvention
These financial statements have been prepared under thehistorical cost convention.
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The preparation of financial statements in confirmity with approved
accounting standards require management to make judgements,
estimates and assumptions that effect the application of policies
and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to be
reasonable under the circumstances, the result of which form the
basis of making the judgements about carrying value of assets and
liabilities that are readily not apparent from other sources. Actual
result may differ
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4.4.2 Property, plant and equipment
These are stated at cost less accumulated depreciation and impairment losses, if any,
except land which has been stated at cost. Cost comprises acquisition and other directlyattributable costs. The asset is capitalized on the basis of probability of future economic
benefit and the reliability of the cost. Some fixed assets has been purchased by the owners
of the Company but has been recognized in the accounts because economic benefits is
being utilized by the Company in the present and probably in the future by considerng the
intention of the owners.
Depreciation is provided on reducing balance method and charged to profit & loss account
to write off the depreciable amount of each asset over the useful life at the rates specified
in the note 4. Depreciation is calculated on the annual basis. Full year depreciation is
charged in the year of acquisition and no depreciation is charged in the year of disposal.Maintenance and normal repairs are charged to income as and when incurred; major
renewals and improvements are capitalized. Gains or losses on disposal or retirement offixed assets, if any are taken to the profit and loss account for the year.The Company reviews the useful life and residual value of property, plant & equipment on
regular basis. Any change in estimate in future years might effect the carrying value of
thasset alongwith the depreciation value.
4.4.3 Impairment
The carrying amounts of assets are reviewed at each balance sheet date for impairment,
whenever events or changes in circumstances indicate that the carrying amounts of the
assets may not be recoverable. If such indication exists, and where the carrying value
exceeds the estimated recoverable amount, assets are written down to their recoverableamount. The resulting impairment loss is taken to the profit and loss account.
4.4.4 Trade debts
Receivables are measured at original invoice amount less an estimate made for doubtful
receivable, if any, based on review of all outstanding amounts at the year end. Bad debts
are written off when identified.
4.4.5 Trade and other payables
Liabilities for trade and other amounts payable are measured at cost which is the fair value
of the consideration to be paid in future for goods and services received.
4.4.6 Transactions in other currencies
Transactions in currencies other than the reporting currency (US Dollar) are accounted for
at the exchange rates prevailing on the date of transactions. All monetary assets and
liabilities denominated in currencies other than the reporting currency at the year end are
translated at exchange rates prevailing on balance sheet date. Non monetary items that are
measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of transaction, if any. Exchange differences are included in the
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4.4 6 Revenue recognition
Sales revenue are recognised when goods are sold and the significant risks and rewardsregarding ownership are transferred to the customer. Revenue from sales is measured at
fair value of the consideration received or receivable, net of returns and trade discounts, if
any.
4.4.7 Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at banks. Cash equivalents are
highly liquid investments that are readily convertible to known amounts of cash and which
are subject to insignificant risk of changes in value.
4.4.8 Financial instruments
Financial assets and liabilities are classified and stated at values determined according to
substance of contractual arrangements. Financial instruments include receivables, cash
and bank balances, creditors and other liabilities. The particular recognition methods
adopted are disclosed in the individual policy statements associated with each item.
4.4.9 Loans and Borrowings
Loans and borrowings are initially recognized at the proceeds received, subsequent to initial
recognition, these are stated at amortized cost.
4.410 Borrowing cost
Mark up, interest and other charges on borrowing are recognized as an expense in the period in
which it is incurred.
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4.5 ENTERPRICE IN AFGHANISTAN
NOTES TO THE ACCOUNTS
FOR THE PERIOD ENDED DECEMBER 31, 2010
4. PROPERTY, PLANT &
EQUIPMENT C O S T D E P R E C I A T IO N
W . D. V.
As at As at Rate As atFor the
Adjust
As at As at
PARTICULARS 01-Jan-
09
Add
Dell
31-Dec-10 % 01-Jan-09
Period
ment 31-Dec-10 31-Dec-10
.
..USD
Land 540,000 1,355,200 - 1,895,200 - - - -1,895,200
Building 2,024,600 264,600 - 2,289,200 2 40,492 44,974 - 85,466
2,203,734
Plant and Machinery 3,025,000 - - 3,025,000 10 302,500 272,250 - 574,7502,450,250
Vehicles 45,600 - - 45,600 15 6,840 5,814 - 12,65432,946
Furniture and fixture 15,670 - - 15,670 10 1,567 1,410 - 2,97712,693
Computer and equipments 11,542 - - 11,542 33 3,809 2,552 - 6,3615,181
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USD 2010 5,662,412 1,619,800 - 7,282,212 - 355,208 327,000 - 682,208
6,600,004
USD 2009 - 5,662,412 - 5,662,412 - - 355,208 - 355,208
5,307,204
2010 2009
4.1 Apportionment of depreciation expense USD USD
Depreciation charged to cost of sales 261,600 284,166
Depreciation charged to general and administrative expenses 65,400 71,042
Total 327,000 355,208
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4. PROPERTY, PLANT &EQUIPMENT
Fixed Assets Schedule attached atend.
NOTE 2010
2009
USD
USD
5. STOCK IN TRADE
Stock in Trade 5.1 696,542786,532
696,542
5.1 Stock in Trade
Closing Stock- Flour Mil 5.1.1 204,497Closing Stock- Marble Factory 5.1.2 104,481
Closing Stock- Mobile Cards and Sims 303,979
Closing Stock- Other Goods 83,585696,542
5.1.1 Closing Stock- Flour Mil
Finished goods - Flour 132,923
Raw Material - Wheat 71,574
204,497
5.1.2 Closing Stock- Marble Factory
Finished goods - Marbel Tiles etc 67,913Raw Material - Marbel 36,568
104,481
6. STORE, SPARE AND LOOSE TOOLS
Store, Spare and equipment 15,609
Stationary Items 56616,175
7. TRADE RECEIVABLE
Trade receivables 470,992
Other Receivable 15,630486,622
8. ADVANCES, DEPOSITS AND PREPAYMENTS
Advance to Parties - Director (for purchase) 208,481
Advance to employees 5,680
Advance for exp. 568214,729
9. CASH AND CASH EQUIVALENTS
Cash in hand 9.1 8,664
Cash at bank - NBP 98,673
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9.1 Cashin hand
NOTE 2010
2009
USD
USD
Cash in hand Afs 3,5661,561
Cash in hand USD 5,0984,563
8,664 6,124
10. TRADE CREDITORS
Trade Creditors 500,762445,621
Other Payable 34,532
45,690535,294 491,311
11 ACCRUED AND OTHER PAYABLES
Audit fee 700700
Salaries and wages 3,1342,972
Other accrued 2,4531,560
12 OWNER EQUITY
Schedule attachedat the end:
13. REVENUE
6,287
5,232
Sale of Goods 13.1 24,562,00919,800,451
13.1 Saleof Goods
24,562,009
19,800,451
Sale of Goods - Wheat/Flour 6,015,1173,954,329
Sale of Goods - Mobile Cards and Sims 15,915,15011,789,000
Sale of Goods - Marbel etc 1,228,1001,782,041
Sale of Goods - Others 1,403,642
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2,275,081
24,562,009 19,800,451
14. COST OF REVENUE
Cost of Sale 14.1 23,243,92318,594,356
14.1
Cost of
Sale
23,243,923
18,594,356
Opening Stock 786,532
Purchases 14.1 22,172,452 1
Direct Cost 14.2 719,881
Depreciation 4.1 261,600
23,940,465 1
Less: Closing Stock 696,542
23,243,923 1
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14.1Purchas
es
NOTE 2010
2009
USD
USD
Purchase of Goods - Wheat/Flour 4,812,0943,558,896
Purchase of Goods - Mobile Cards and Sims 15,198,96811,258,495
Purchase of Goods - Marbel etc 1,105,2901,603,837
Purchase of Goods - Others 1,056,1001,240,774
22,172,452 17,662,00214.2 Direct Cost
Salaries and wages 525,513
1,047,345
Transportation 107,982215,208
Other Direct Cost 86,386
172,166
719,881 1,434,720
15. GENERAL AND ADMINISTRATIVE EXPENSES
Salaries, wages & benefits 39,10135,671
Repair and maintenance 12,48711,892
Internet 18,00012,000
Communication 1,2141,156
Traveling exp. 4,7594,532
Food Exp. 6,0505,762
Entertainment 2,2172,111
Staff welfare exp. 2,6252,500
Stationery exp. 2,4132,298
Mic. Exp. 14,5437,787
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Mark - up / Interestbearing
Non mark - up /Non interest bearing
TotalMaturity
Within One year
one year to 5 year
Maturity
Within one One year
year to 5 yearUSD USD USD
18. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
18.1
FINANCIAL
ASSETS
AND
LIABILITIES
2010
Financial assetsStock in trade - - 696,542 -696,542
Store, Spare and Loose Tools - - 16,175 -16,175
Trade Receivable - - 486,622 -486,622
Advances, Deposit and Prepayments - - 214,729 -214,729
Cash and Bank balance - - 8,673 -8,673
- - 1,422,741 -
1,422,741
Financial liabilities
Trade and other payables - - 541,581 -541,581
- - 541,581 -
541,581
Net financial assets /
(Liabilities)
2010
- - 881,160 -
881,160
OFF BALANCE SHEET ITEMS
CONTINGENCIES 2010 - - -- - COMMITMENTS
2010 - - -- -
Effective interest rates for the monetary financial assets and liabilities are
mentioned in the respective notes to the financial statements.
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4.6 RISK MANAGEMENT
4.6.1 Liquidity Risk
Prudent liquidity risk management Implies sufficient cash andmarketable securities, the availability of funding to adequate amount of
committed credit facilities and the ability to close out the market position due
to dynamic nature of the business. The company follows an effective cash
management and planning policy to ensure availability of funds and to
take appropriate measures for new requirements.
4.6.2 Concentration of credit risk
The management monitors and limits the company's exposure to credit risk
through monitoring of client's credit exposure. The company's credit risk is
primarily attributable to its contract receivables and its balances at banks.
The credit risk on liquid funds is limited because the counter parties are bank
with reasonably high credit ratings.
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4.6.3 foreign exchange risk
foreign currency risk arises mainly where receivable and payables exist due to
transaction in foreign currencies. As the company's reporting currency USD is itself a
foreign currency in Afghanistan, so its risk is restricted to the bank balances, trade debts
and payables and all other transactions in the local currency and foreign currency (other
than the reporting currency USD)
4.6.4 Interest rate risk
Interest rate risk arises from the possibility that changes in interest / mark up rates will
affect the value of financial instruments. In respect of interest / mark up bearing financial
assets and liabilities, the respective notes indicate their effective interest / mark up ratesat the balance sheet date tand the periods in which they re-priece or mature. The
management regularly monitors inter