When the United States and its allies began to withdraw their troops from Afghanistan in December 2014, Afghanistan’s economy collapsed, unemployment soared, and hundreds of thousands of Afghans fled the country. The government had no functioning fiscal policy: corruption and mismanagement plagued its tax and revenue collection efforts, and its budget was disorganized, unbalanced, and opaque. Budgetary shortfalls and economic instability were especially hard on the most vulnerable—the poor and the unemployed, who together make up the majority of the population.
But recently, Afghanistan’s National Unity Government has adopted several significant reforms as part of its so-called self-reliance agenda in an attempt to jumpstart the country’s economy. In July, at the NATO summit in Warsaw, world leaders, including U.S. President Barack Obama, lauded these reforms.
They were right to do so. In 2015, the government introduced a new law, the Tax Administration Law, which provides a legal framework for a centralized taxation administration. At the same time, it conducted an assessment of small taxpayers in Kabul to deepen the tax base and formalize tax obligations. This assessment was the first step in the digitization of a tax registration system for thousands of small taxpayers, which also records the GPS coordinates of businesses to create a Geographic Information Map for future years of tax collection. The government doubled the Business Receipts Tax, which applies to all businesses with gross receipts of over $8,500, from two to four percent. The government also increased levies on imported fuel and gas, imposed a ten percent tax on the top-up of mobile phones, and raised the overflight fee for commercial airliners, all adding to the government’s revenue base.
Meanwhile, Kabul has taken on the customs system, which contributes 46 percent of domestic revenue but has become a center of corruption. The government has sacked a quarter of customs officials and revenue directors, established strict oversight led by younger technical staff, automated the system for customs data and payments, and moved toward digitizing tax administration.