Report - United States Department of Defense

UNCLASSIFIED
GIRoA has yet to issue specific plans on how it proposes to meet these indicators and in what
timeframe, although some progress in these areas is anticipated ahead of the Senior Officials
Meeting to be held in summer 2013 under the Tokyo mechanism.
Although there appears to be marginal improvement in execution of the development budget,
execution rates remain low due to a variety of reasons, including delay in budget approval and
disbursements from Kabul, administrative and procurement inefficiencies, and the impact of
differing donor rules and regulations on budget execution. Poor budget execution has a direct
impact on service delivery at the sub-national level, and these obstacles will be addressed under
the TMAF indicator referenced above in order to enhance service delivery at local level.
3.3: REVENUE GENERATION AND BUDGET EXECUTION
Increasing domestic revenues is a main objective of the government as domestic revenues
continue to fall short of expenditures and international assistance is expected to decline in
coming years. The total Afghan national budget for 2012 was $4.9B, with an operating budget
of $2.7B, an 11 percent decrease compared to 2011 (due mainly to the shortened fiscal year).
The development budget was $2.2B, and represents an increase of 41 percent over the previous
year. As transition continues, the necessity to absorb additional expenditures for security, health
and education services, and operational and maintenance costs, as reconstruction/infrastructure
projects are placed on-budget, will further widen the fiscal gap.
With help from international donors such as USAID, revenues collected by GIRoA have steadily
increased by more than 200 percent since 2005. The revenue level at the end of FY2012 was
$2.2B, and essentially equal to the FY2011 level. However, the level can largely be attributed to
shortfalls in custom duties and import taxes and the shortened fiscal year (see footnote thirteen).
In FY2012, the revenue level still equaled 11 percent of GDP (nearly meeting the IMF target). 30
Revenue collected in Q2 and Q3 of 2012 totaled $987M, 16 percent higher than the amount
collected over the equivalent period a year ago, but short of the $1.1B year-to-date target for
FY2012. With the gap between revenue and expenditures increasing, finding new sources of
revenue has become more urgent. To that end, donors have focused on helping the government
improve taxpayer compliance and tax administration. The MoF plans to introduce a Value‐
Added Tax (VAT) in 2014, with support from DFID, USAID, and the IMF. If successful, the
VAT could increase government revenues by 1 to 2 percent of GDP by 2021 (World Bank).
Tax levying and collection is an area that is beginning to show positive results. New taxes and
corresponding administrative implementation are now underway; these include property taxes,
customs tariffs, business taxes, and agriculture surplus taxes. These taxes produce 82 percent of
domestic revenues, with non-tax revenue at 18 percent.
With regards to business taxes, several issues will require time to resolve, including the large
informal economy that has grown over the past decade, corruption, and the remoteness of
portions of the Afghan population.
30 It should be noted that the IMF revenue target for Afghanistan is 12 percent of GDP for 2012 and 15 percent by 2015.
132