Contractors doing reconstruction work in Afghanistan are being intimidated and even arrested by the Afghan government over nearly $1 billion in taxes they’re supposed to be exempt from, according to a new report by the Special Inspector General for Afghan Reconstruction.
The Afghan Ministry of Finance has charged 43 contractors $921 million in taxes and penalties, even though contractors working for the U.S. on are supposed to be exempt from most taxes. Of those, $93 million were in a category that both governments agreed should be exempt, and the SIGAR office said it believes much of the remaining taxes are also illegitimate. Some of the contractors were taxed even though they had certificates of exemption.
“As a result of the outstanding assessments, the MOF has restricted contractors’ freedom of movement and refused to renew business licenses, and the Afghan government has even arrested some contractor personnel. The combined effect is the potential interruption of support to U.S. military operations,” the report said.
Three employees working for one contractor were arrested in January because the company had unpaid taxes. They were released three days later, but the Afghan government still insists the company owes the money.
Since 2009 the government has also delayed shipments critical to U.S. troops by refusing to renew business licenses and revoking “freedom of movement privileges” over unpaid taxes, which prevented contractors from importing goods.
The Afghan government asserts that only prime contractors are exempt, while the U.S. contends that all non-Afghan companies supporting U.S. efforts are exempt. But because U.S. contracting officers don’t fully understand the laws, they reimbursed contractors for costs they shouldn’t have been charged. And taxpayers shoulder the cost of improper reimbursements.
“It’s disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation. It’s even more disturbing that U.S. agencies are letting it happen – all at the expense of American taxpayers, who have already shouldered a heavy burden on Afghan reconstruction. This needs to end,” said Special Inspector General John F. Sopko in a statement.
Even the contracting officers that do understand the tax laws haven’t done enough to ensure subcontractors get tax exemption certificates, the report said.
The inspector general recommended the State Department develop a consistent policy on tax exemption and recover any inappropriately reimbursed taxes. The SIGAR also recommended the various agencies working with contractors ensure contractors and subcontractors get their tax exemption certificates and don’t get reimbursed for improperly assessed taxes.