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Kabul Rejects Report That It Levied $1 Billion In Taxes On Contractors

Afghan Finance Minister Omar Zakhilwal
KABUL -- The Afghan Finance Minister has rejected a report by a U.S. government watchdog that Kabul has levied nearly $ 1 billion in illegitimate taxes on contractors working on U.S.-funded reconstruction projects,

Omar Zakhilwal told RFE/RL's Radio Free Afghanistan May 15 that the audit report by the U.S. Special Inspector General for Afghanistan Reconstruction (SIGAR) was “absolutely false, totally wrong."

"It could be political or it could be pure ignorance,” he said. “Either way it is irresponsible, either way it's very unfortunate and I certainly would want them to correct this."

Zakhilwal also said that the report would “create confusion” and undermine trust between the Afghan government and Washington.

In a report issued May 14, SIGAR said a recent audit found that the Afghan Ministry of Finance levied $921 million in taxes and penalties since 2008 on just 43 contractors supporting U.S. government efforts in Afghanistan.

According to the SIGAR report, taxes were also levied on contractors that both the U.S. and Afghan government had agreed should be exempted.

Special Inspector General John Sopko said in a statement accompanying the release of the audit results that "it's disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation."

But Zakhilwal said the taxes are not unjust and called on SIGAR to meet with his ministry to discuss the differences in their positions:

“We believe that the contractors who still owe billions of dollars in taxes are taking shelter behind the (exemption) agreements that we have but we believe their tax exempt status does not cover the activity that they are involved in, and SIGAR's position is that it probably does,” he said. “But they have to sit down with us and convince us of that.”

The SIGAR report said that in the dispute over tax-exempt status, some contract firms have refused to pay taxes. It charged that, in response, the Finance Ministry "has restricted contractors' freedom of movement and refused to renew business licenses, and the Afghan government has even arrested some contractor personnel.”

The report concluded that "the combined effect is the potential interruption of support to U.S. military operations."

The status of contractors is a pivotal issue in negotiations between Kabul and Washington on a possible long-term US military presence in Afghanistan after the withdrawal of NATO combat forces by the end of 2014.