Even in Afghanistan taxes as sure as death
Wed May 4, 2005 7:51 AM BST
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By Simon Cameron-Moore
KABUL (Reuters) - Karim Khoja was happy to secure a $45 million (23 million pounds) loan for his firm -- Afghanistan's biggest mobile phone operator. But his mood darkens when asked about government talk of promoting the private sector.
"They are not matching the rhetoric," said Khoja, chief executive officer of the Roshan telephone company.
He rattles off a list of taxes his company is paying in newly democratic, post-conflict Afghanistan under a tax regime he believes is hindering business growth.
There's a 20 percent corporate tax, 12.5 percent tax on gross receipts, a five percent withholding tax on services for imported foreign know-how and five to seven percent to be paid on whatever capital equipment is brought into the country, plus a rental tax.
Stepping in after a quarter century of conflict to help Afghanistan develop an economy to support its fledgling democracy, the International Monetary Fund and World Bank have advised the government how to start a tax regime.
Entrepreneurs already have a list of problems to contend with -- heavy security, off-and-on electricity, extreme weather, bad roads, and buying land can be a metaphorical minefield. Yet Afghanistan's taxes are higher than fast-rising East European economies such as Hungary and Poland.
Roshan, started by the Aga Khan Fund for Economic Development, Monaco Telecom International and U.S.-based MCT Corp., is one of the biggest tax payers in Afghanistan.
Two-thirds of the 600,000 people using mobile phones use Roshan, which shelled out $17 million in tax last year. Khoja reckoned Roshan accounted for six percent of total tax revenues.
Admittedly, only seven percent of Afghanistan's budget is funded from revenues raised internally. The rest comes from foreign aid.
Saad Mohseni, director of Moby Capital Partners, said the current tax regime could prove counter productive.
"Taxation is another hindrance. The more legitimate a business is, the more tax it will have to pay, so the more likely businesses are to try and stay in the illegitimate economy," he said.
Mohseni, who runs several media ventures including the private Tolo TV channel with his brother, Jahid, is among those Afghans who have returned home after being raised in the West.
He believes the government should think in terms of incentives not cash cows, and should start with low taxes to bring more people into the system.
Instead, more taxes are on the way. A payroll tax is being implemented in June.
There is also talk of a 10 percent services tax, which would hit the scratch card business of Roshan and its rival, Afghan Wireless Communication Company.
"You can't keep coming back to the same well. You're inhibiting the growth of business," Khoja said, after signing an agreement with the Asian Development Bank and France's PROPARCO for the largest loan awarded to a private-sector Afghan firm to expand Roshan's network.
LOW BY WHOSE STANDARDS?
Steven Symansky, an IMF adviser attending the Afghan Development Forum earlier this month where there was much talk of enabling the private sector, was unapologetic about the demands put on nascent businesses in an immature economy.
There were taxes before -- just not official ones, he says.
"The problem is not the legitimate taxes. The problem is the illegitimate taxes. In other words, there are nuisance taxes. There are things being collected ... people collecting revenues illegally. That is the real burden."
Moreover, he said donors would probably be less generous if the government did not make some effort to develop sustainable revenue streams.
"It isn't a high rate of tax. The total tax revenue relative to GDP is four percent. It's almost the lowest anywhere," said Symansky.
Custom rates are also among the lowest, if not the lowest, in the region. But business people complain the rates are low to stop smuggling rather than to benefit Afghanistan, which needs to import capital goods and know-how.
The rationale behind hitting big firms, such as Roshan, is that their tax is easy to collect.
"When it comes to domestic tax the thing to do is concentrate on your large tax payers," said Symansky. "The idea is that it's an easy administrative way to do it."
The big firms are also the big employers, hence a payroll tax rather than income tax, though Symansky says it would only apply to higher income employees.
Ideally, a consumption tax would be best, but there are not the resources to collect such a tax for now, which in any case would hurt small- and medium-sized business, he said.
Symansky believes Afghanistan's big, young corporates are overstating their case.
"Yes, 20 percent corporate tax, but accelerated depreciation and loss carried forward. So anyone seriously investing here will pay zero tax."
"We don't even have accountants to work out depreciation. Experts don't exist here. Who's going to say what depreciation you're entitled too -- the official doing the collecting?"
On the Slopes in Afghanistan
By Paula Froelich / April 3, 2014 5:09 PM EDT
Filed Under: Afghanistan
At first glance, things in Kabul look promising. Emirates Air started flying there in January and the city feels like a boomtown: sidewalks full of pedestrians, semi-paved streets full of cars, half-built buildings everywhere—including a very ambitious Marriott Hotel nestled next to the U.S. Embassy. There is even a huge Olympic compound, which houses an arena and a skate park called Skateistan.
But as boomtowns go, Kabul is sort of a bust. What progress there was now seems to be on hold. There are almost no women in public, the lines of people outside the Iranian embassy waiting to emigrate are several blocks long, U.S. Army spy blimps hang menacingly over the city, the Olympic park is virtually empty, and the Taliban is attacking election offices and Western hotels, so that despite sinking millions of dollars into the project, Marriott announced last year it was abandoning its hotel due to security concerns.
Sounds like a great time to go skiing!
Regardless of all the dangers of this war-torn country, or perhaps because of them, a growing sector of Afghan society dreams of a thriving tourism industry, the kind not seen here since the 1970s. Those who want to bring some of the trillions of dollars spent each year on international tourism are looking to the north, in Bamiyan and the steep white slopes of the Hindu Kush and the Koh-e-Baba mountain range.
Bamiyan is to Afghanistan what Kurdistan is to Iraq. Home to the Hazara minority, Shia Muslims who were treated with special harshness by the Sunni Taliban during their years in power, the town offers respite from the tension in the rest of the country. One sign of repose is the newfound recreation of skiing—embodied by the Bamiyan Ski Club and its flagship program, the annual Afghan Ski Challenge.
"In 2009, the Aga Khan was looking into developing a ski project," says Ian MacWilliam, a former communications officer for the Aga Khan Development Foundation. "We hired a mountaineering specialist to be a ski consultant, and he and some others started surveying the parallel valleys in the area and talking to the village elders. We tried to tell them it will be like the 1960s with all the tourists. In 2010, the Aga Khan Development Fund produced a guidebook and set up a shop in a local guesthouse. There was some old equipment from some French people, and our first clients were foreigners living in Kabul who needed a break and spent money."
At the same time, a Swiss journalist, Christoph Zurcher, now a features editor at the Neue Zurcher Zeitung, was dreaming up the first Afghan Ski Challenge. "I came to Bamiyan as a tourist," says Zurcher, "and one day I sat on the roof of my hotel looking at the mountains, and, as [I'm] Swiss, it didn't take long to start thinking of skiing. With the help from my newspaper I contacted some sponsors and in 2011 held the first race."
Initially, there was little interest. Skiing is not native to the area and the first race featured some rather unwilling locals, who had to be talked into participating and then tried to back out. "It was a total catastrophe," Zurcher said. "No one wanted to ski, and they didn't want to tan"—light skin is prized here—and then there was the understandable aversion to possibly breaking a leg in a region without a decent hospital.
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