Watchdog: Afghans levy $1 billion in improper taxes on U.S. contractors, IG claims

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Photo - Special Inspector-General for Afghan Reconstruction John F. Sopko testifies before a House committee. (SIGAR Photo)
Special Inspector-General for Afghan Reconstruction John F. Sopko testifies before a House committee. (SIGAR Photo)
News,Watchdog,Taxes,Michal Conger,Afghanistan,Inspectors General,Government Contractors

Repeated requests for explanations of illegitimate taxes levied on U.S. contractors in Afghanistan went unanswered by the Ministry of Finance, forcing the inspector general in charge of overseeing Afghan reconstruction to rely on information from contractors and non-government sources.

The audit, which found the Afghan government has charged U.S. contractors almost $1 billion in improper taxes, was "deeply flawed" and "suspect," according to the Afghan Minister of Finance.

Contractors doing reconstruction work in Afghanistan have been threatened and even arrested by the Afghan government over millions of dollars in business taxes they are by law exempt from, according to the recent report by the Special Inspector General for Afghan Reconstruction.

The SIGAR office didn't seek input from the Afghan government on those allegedly illegal taxes, rendering the audit's findings "suspect," Finance Minister Omar Zakhilwal said in a May 16 letter to Inspector General John Sopko,

The report's reliance on information from contractors and not the finance ministry "unwittingly encouraged legal impunity and undermined the ability of the Government of Afghanistan to become self-sustaining," Zikhilwal said.

He also blamed the improper taxes on the inadequacy of the international agreements that are supposed to exempt U.S. contractors, calling them "legally suspect, poorly drafted, and ill-suited to the complex reality of 2013."

But the ministry's refusal to cooperate in the SIGAR investigation was the real cause of the IG's reliance on contractors for information, Sopko said. Afghan officials did meet with SIGAR inspectors, but didn't respond to multiple requests for data about contractors and taxes.

Sopko dismissed the idea that the international agreements' inadequacy excused the Afghan government from abiding by them.

"Regardless of your opinion of these agreements, they were agreed to by the Government of Afghanistan and are in effect today. Therefore, these bilateral agreements constitute sound criteria for assessing the legitimacy of levied taxes," he said.

He also rejected finance minister's assertion that the report undermined Afghan sustainability.

"On the contrary, SIGAR's audit exposed a serious weakness that must be corrected if the Government of Afghanistan is to achieve self-sustainability," he said.

The original report found that Ministry of Finance charged 43 contractors a total of $921 million in dubious taxes and penalties.

Of those, $93 million were in a category that both governments agreed should be exempt, and the SIGAR office said most of the remaining taxes are also illegitimate. Some of the contractors were taxed even though they had certificates of exemption.

Michal Conger is a member of The Washington Examiner Watchdog investigative reporting team. She can be reached at mgonger@washingtonexaminer.com.

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