Washington Secrets

IG: Afghanistan caught in $1 billion tax ripoff of U.S. firms

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Politics,Paul Bedard,Washington Secrets,Afghanistan,Corruption

The corrupt Afghan government has hit American contractors trying to rebuild their war-torn nation with nearly $1 billion in business taxes despite agreements that the work should be free from local taxes, according to a new inspector general's report. If the administration doesn't fight the money grab, American taxpayers will be on the hook for the bill as contractors pass on the charges.

The new audit from John Sopko, the Special Inspector General for Afghanistan Reconstruction, revealed that 43 contractors face taxes of $921 million, most of which are unexplained by Kabul. They have paid only $67 million, however, prompting Afghan officials to punish the firms by limiting where they can operate and materials they can import, to, in one case, arresting a contractor.

"It's disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation. It's even more disturbing that US 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 Sopko in a statement to Secrets.

Sopko's report details the tax-free agreements cut with Afghanistan. That government, however, claims that only prime contractors, not the many sub-contractors, are exempt. As a result they are hitting sub-contractors with many of the taxes, and when they don't pay, Kabul is punishing the prime contractors.

But in fighting for U.S. taxpayers who would eventually have to pay via higher contract prices to firms rebuilding Afghanistan, Sopko has been challenged by the State Department which has seized on the report's note that the inspector general couldn't determine if $783 million of the assessed taxes are legitimate. The report said that Afghan officials didn't supply details on the taxes, used "mathematic miscalculations," and even in some cases levied the taxes verbally.

What's more, despite the tax agreements cited in the inspector general's report, State officials said they couldn't rewrite the rules more clearly with Afghanistan in the future to support a tax-free situation. "We do not have, and do not believe that we could successfully negotiate, a regime with Afghanistan under which all U.S. government contractors, regardless of for whom they are working or for what purposes, are provided with complete exemption from local taxation. We are unaware of any such treaty regime applicable to U.S. government contractors in any other country of the world," said State's response to Sopko.

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