State Department refutes report of $1B in 'illegitimate' taxes paid to Afghanistan

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SIGAR said $93 million had been levied on a tax category that both the U.S. and Afghan government agree should be exempt and that based on its audit work, it believed much of the remaining taxes were also “illegitimate.” The report found that at least one contractor was arrested over tax issues and that contractors were inflating their bids for reconstruction bid to account for taxes they shouldn't be paying.

The State Department's deputy special representative for Afghanistan and Pakistan defended his department's handling of the tax-exempt deals and suggested SIGAR was overblowing the figures. In his response to the report, Ambassador James Warlick said the $921 billion figure conflated various work done by contractors, such as providing services to the U.S. embassy or international organizations, some of which would fall outside the purview of agreements on tax exemption.

“Not all work a foreign contractor performs in Afghanistan, including for the U.S. Government, is necessarily covered by an agreement with the Afghan Government providing for tax exemption,” Warlick wrote. “Accordingly, concluding that 'almost a billion dollars in taxes have been levied on contractors who should be exempt' is not supported by SIGAR's analysis.”

 Warlick said the auditor's recommendations appeared to be “singling out” Afghanistan for special treatment. 

“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,” he said. “We are unaware of any such treaty regime applicable to U.S. government contractors in any other country of the world.” 

He also said the annual appropriations process in Congress was the best way for the United States to get its message across.

“The annual provision is worldwide in scope; we would have concerns that SIGAR's proposal would single out Afghanistan for less favorable treatment than we provide to other countries,” he wrote. “We also would have concerns that the legislative proposal's requirement to expand the universe of assistance that must be cut would both hamper U.S. assistance efforts at a crucial time in Afghanistan, and may impose an artificial timeline on USG efforts to work with the Afghan Government to resolve outstanding issues with tax exemptions for foreign assistance.”