Afghanistan’s New Income Tax

May 31, 2005

War-torn Afghanistan has announced a new income tax to help wean the central government off foreign aid:

The wage tax is being imposed on all businesses with two or more employees… The new tax will be set at a rate of 10 per cent on income over 12,500 afghanis (US $292) a month. Income over 100,000 afghanis a month will be taxed 20 per cent…

The International Monetary Fund and World Bank are advising Afghanistan how to start a tax regime after a quarter century of conflict and chaos but some business people already say they are facing a tax regime that hinders growth…

[B]usiness people who do pay tax say the tax base is far too narrow and they are already burdened by a list of taxes including a 20 per cent corporate tax and a 12.5 per cent tax on gross receipts.

Currently Afghan tax collections only account for 30 percent of goverment revenue. The rest is foreign aid.

Here is the press release. Here is an overview of Afghanistan’s current tax system. Here is Afghanistan’s entire income tax code — just 31 pages.

The big challenge: Designing a broad-based income tax in a country where an estimated 1/3 of national income derives from illegal heroin sales.

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