Executive Summary
This was a relatively unique “development” event in that it brought together a high caliber group of conferees for an interactive exchange, a classic roundtable discussion, focused specifically on tax policy and business investment issues as they relate to doing business and achieving economic growth in Afghanistan. There were two underlying premises:  first, that the present tax system, the legacy of several past regimes is anti-business and inappropriate for sustained private sector development, and second that Afghanistan should seize this chance to start over, shedding the old system and rapidly constructing a state-of-the-art, broad-based tax regime that fosters a market economy and provides both the needed growth in the private sector and tax collections necessary to fund the public sector.

All considerations started with the premise that wealth must be created to be able to generate revenue from it.

Participants: speakers, presenters, discussants and attendees focused broadly on three issues. One concerned the non-revenue benefits of tax reform. If government expenditures are initially kept low to reduce pressure for more revenue, a fair, transparent and efficient administrative network could be developed that would expose residents to the effective application of the rule of law and good governance, thus building trust in the Government.

A second focus concerned how a good tax regime can help investment and investors, domestic and foreign to contribute to economic growth and wealth creation. Several elements were aired, based on familiarity with Dubai, Malaysia Thailand, Hong Kong, Ireland, Chile and other countries with pro-private sector tax regimes.

One key element is to tax capital minimally, certainly to no greater extent than consumption or income are taxed and preferably less. This means that investment-friendly taxation must fall mainly on those non-savings and investment components of wages and salaries; consumption expenditures and land.

Third, there was extensive discussion of the specifics of developing a state-of-the-art tax regime. Since speed is desirable, tax reform should be a “fast tracked” and made a priority when allocating aid. A key goal of this “fast-track” reform should be to extend the tax system’s reach to all residents. This will require significant investment in institutional and human capacity building.

Consensus was reached that the major concern of this new administrative system should be to apply very modest, flat rate taxes on consumption expenditures and on income/wages. Refinements can be added later, after the administrative apparatus is fairly, efficiently and transparently collecting these two taxes.   

I.                  Introduction: An Interactive Strategy to Evaluate Tax Policy

A classic roundtable/workshop on the above theme took place in Washington DC on January 25, 2005. It was held in Overseas Private Investment Corporation (OPIC), in their main conference room and was attended by about 75 invited participants, mostly Afghans of prominent affiliation with the Afghan private and public sectors. Participants also included prominent personalities from the US government, World Bank, IMF, OPIC, major think tanks like AEI, ILD, IRET and other US-based institutions interested in Afghanistan. The roundtable/workshop was organized by the Afghan American Chamber of Commerce (AACC) in conjunction with the Afghan International Chamber of Commerce (AICC).

It was composed of some 50 Presenters and Discussants, carefully selected from government, business, think tanks and academe sitting around a table facing one another and some 25 invited Attendees who were also given the opportunity to engage in Q & A, sitting away from the table. Participants engaged in a substantial amount of discussion and e-mail traffic with one-another and the organizers prior to the actual event. M Background materials and an AACC “think piece” were distributed weeks before the 25^th, that reflected on the thrust of the event, and largely consisting of documents reflecting AICC and business community tax issue communications with the previous Ministry of Finance and Kabul businessman Saad Mohseni-developed documentation that was taken up by AICC and the business community and also shared with AACC..

Presenters delivered remarks and then engaged with the Discussants and one another in dialogue. Presenters and Discussants plus Attendees were active in three separate Segments: I - Introduction to Tax policy and its Impact on Investment in Afghanistan;    II – Investment as a Choice: and III – Going Forward.

Before the Segments began, the event opened with welcoming remarks by Ms. Dulce Zanheiser, of (OPIC). Then Mr. Atiq Panjshiri, President of AACC presented opening remarks, setting out the objectives of the roundtable/workshop. Dr. Omar Zakhilwal welcomed the participants on behalf of AICC and put tax policy in the context of the Institution- and State-Building processes in Afghanistan.

Two Segments preceded and one followed, a working lunch. Each segment was followed by a vigorous debate and discussion. The event was moderated by former Congressman, AACC Founding Board member and current Senior Advisor to AACC/AICC, Don Ritter. The Hon. Jack Kemp, a pioneer in the issue of tax policy and economic growth delivered the keynote address at lunch and at the end of the Going Forward Segment, concluding remarks were given by Prof Ishaq Naderi, the leading economic advisor to the President of the Islamic Republic of Afghanistan.

Segment I of the roundtable was on the “Introduction to the Tax Policy Issue in Afghanistan”. The four panelists in that segment provided a background to the existing and proposed tax policies. They also examined the Afghan tax policy in a comparative context. Dr. Aslami explained the current tax system from a business perspective and an eye towards which taxes will help or hurt economic growth; Dr. Sunley looked into it from an IMF view and what IMF was currently doing with the government to come up with a tax system; Dr. Stern set out tax policy in the context of a post-conflict setting; Dr. Hassett examined it in the context of greater potential for success with nation building with greater economic freedom; political success as well, given the powerful correlation between free markets and free people.

Segment II of the Roundtable/Workshop was titled “Investment as a Choice”. The four panelists discussed different angles with respect to private investment promotion. Mr. Larry McDonald, Director of the Task Force on Economic and Financial Stabilization, presented the views as well as the current work of the US Department of Treasury with respect to the tax issue in Afghanistan; and IRET economist, Steve Entin focused on the sensitivity of the relationship between taxes, capital, jobs and economic growth; Dr. Ata Ghaznawi (small business) and Mr. Karim Khoja (corporate business) spoke of their experiences as private entrepreneurs in Afghanistan and how the current tax system was not private investment friendly.

Segment III, “Going Forward”, was opened by the Hon. William Lash III, Assistant Secretary of the Department of Treasury for Middle East and South Asia. He spoke of the importance of the tax policy debate in Afghanistan and also of his Department’s keen interest in boosting economic growth in Afghanistan. Ambassador and businessman Ishaq Shariyar talked about the importance of an economic policy road map for Afghanistan and also making Afghanistan into a model state, in terms of economic revival, for the Islamic world. Dr. Robert Myers (AACC economist) spoke of the importance of CLBC (Curtailing the tax system, Limiting the size of the government, Bond issuance for deficit financing and a Consumption tax as the preferred choice). Duke Prof. Bob Conrad stressed the need at the moment for simplicity, not modernity (VAT too complicated), of the tax system and recommended some form of tax on consumption.

Timing and Report Distribution of the Roundtable/Workshop

The timing of the event was deemed extremely important. It was held while the IMF “monitoring program” (SMP) for Afghanistan was ongoing from the 22nd of Jan. to the 3rd of Feb and reflections and recommendations of the workshop delivered to the SMP are therefore very timely. Copies of “Reflections and Recommendations” will also be made available to all major concerned parties in the GoA, IMF, the World Bank and the relevant agencies of the US government: Treasury, State, Commerce and TDA and USAID.

Significant interaction took place during and after the presentations. This report is based both on presentations and interactive discussions.

Compilation and Production of Report

AICC supported the travel to the U.S. of Kabul-based Economist, Dr. Omar Zakhilwal to lead a report drafting team involving AACC Board member and Economist, Dr. Robert Myers and drafting coordinator, AACC Board member and AACC/AICC Senior Advisor and former U.S. Congressman, Don Ritter.

II.               Roundtable/Workshop Objectives

Objectives of the AACC/AICC Roundtable/Workshop:

1. To initiate an open dialogue on the role that tax structure should play in Afghanistan’s national policy on investment and economic growth with an emphasis on foreign investment but also mindful of domestic investment, and;

2. To achieve some reasonable input prior to any new tax policies being crafted by the Afghan government.

AICC/AACC hopes that the Reflections and Recommendations of the Roundtable/Workshop that are put together in this report can contribute to policy development both in Afghanistan and in the US. For the Afghan government, information and a high level of discussion on tax policy impact on foreign and domestic investment should prove helpful. For the U.S., the lead foreign investor, most likely in private investment as well as governmental, it would be a helpful exercise to evaluate potential tax policy in order to optimize the effectiveness of assistance, investment and economic development programs. AACC/AICC also envisions a follow up event convening  appropriate parties in Kabul sometime in the near future.

III.           Reflections  

A.   Current Taxes  

There was consensus that the existing tax policy and also the one currently proposed were not private sector friendly. There are multi-layers of taxes that are detrimental to private sector. Karim Khoja of Roshan Connection argued that the current tax system and collection precedents make it difficult for private businesses to operate successfully in Afghanistan. Businesses are subject to interventions by significant numbers of officials, each empowered by the present tax laws and precedents to collect modest fees.

He listed at least seven different direct and indirect taxes that were impacting corporations:  Turnover Net Revenue Tax (10% of net revenue), Universal Service Fees (2.5% of net revenue), Business Receipts Tax (10% on scratch card sales), Withholding Tax (5% on services purchased by non-Afghan companies), Customs/Duties (5-7% on imported equipment), Corporate Tax (20% on  net income) and  Real Estate Tax (15-20% withheld from Landlords).

Atiq Panjshiri had mentioned earlier that it was unfair to go to the larger corporate entities for the bulk of tax revenues simply because it was possible to do so and that such a policy would have the effect of curtailing investment from such firms and indeed would curtail the very entry of new such firms into the Afghan market.

Dr. Myers added that despite being high, the present tax system, because of its complexity, garners only modest revenue for the Government. Instead, most revenue collections from private businesses go astray rather than helping finance public sector expenditures.

Hon. William Lash, III, Assistant Secretary of Commerce for the Middle East and South Asia argued that capital is scarce and there are many in the world competing for it. Afghanistan, coming out of 23 years of war, would perhaps not be the first choice for many investors unless it was for tax policies that put Afghanistan on a competitive edge vis-à-vis its neighbors and others.

Steve Entin agreed that capital is sensitive to risk and must be treated carefully and preferentially in a newly emerging market economy like Afghanistan. It can be attracted to, and kept in, a location if the government is careful to protect property rights, refrains from imposing multiple layers of tax on capital income, keeps tax rates reasonably low, collection simple and treats saving and capital formation no more harshly than consumption.

Dr. Aslami noted that a tax reform by itself was not a guarantee for increased foreign direct investment. There were other underlying factors such as security, rule of law, transparency, accountability, the provision of basic public utilities that also were important components in an investor’s investment decision making. Afghanistan needed to make progress towards these underlying factors as well, before it could expect noticeable foreign investment. He stated that tax policy should not be considered the be-all and end-all for investment BUT with human and physical infrastructure in Afghanistan being what they are, low taxes are exceedingly important to both domestic as well as foreign investment in the country. He preferred taxing consumption and property but not capital and its formation.

Dr. Ghaznawi, speaking from his past three years of experience as a private investor in Afghanistan acknowledged those difficulties, but did not consider them as enough a reason for the lack of significant interest in foreign direct investment in Afghanistan. He argued that the main reason has been foreign investors’ excessive risk-aversion. He argued that profit prospects for investment in Afghanistan are very high even after factoring out risk and tax calculations. The abundance of raw materials, rich natural resources and cheap labor and certain traditional Afghan values are assurances for sure profitability for investment in Afghanistan, of which the international investors have not taken any advantage so far.

B.   Tax Reform Efforts

Speaking for IMF, Dr. Emil Sunley reported that the IMF-led tax reform in Afghanistan was progressing well, however, he pointed out that the reform was following the course of post-conflict case that calls for a phased restoration of the tax system and efforts that indicate government recurrent cost, funded at present by donors, could be put on a sustainable basis.

Progress on tax reform pertaining directly to private investment included Customs reform and the introduction of Tax Holidays, and efforts towards developing a fiscal regime for Natural Resources. Afghanistan Customs now use the official market exchange rate for levying taxes, has integrated various fees and charges into the customs tariff, has reduced the number of tariff bands from 25 (with rates ranging from 7 to 150 percent) to 6 (with rates ranging from 2.5 to 16 percent) and phased out the role of the Chamber of Commerce in customs valuation.

For Tax Holidays, a relevant Investment law has been designed to attract foreign investment. In addition, domestic revenue as a percentage of GDP has been on the rise: from 3.2 % in 2002/03 to 4.0 % in 2003/04 and to 5.5 % of GDP projected for 2004/05. Dr. Sunley admitted that despite these achievements, many challenges lie ahead. For example, broadening the domestic tax base, simplifying and redrafting the existing tax laws and funding the operating budget entirely by domestic revenue in 9 years are some of the goals that are jointly pursued by IMF with the Afghan government. 

Larry McDonald, of the US Treasury Department said that his department was supporting the IMF with respect to tax policy reform in Afghanistan. He said that fact and observation about public finance in Afghanistan suggest that great progress has been made with respect to generating and capturing revenues; however, he agreed with that there is still a long way to go. He explained that right now 42% of government current expenditure and 60% of salaries were covered by domestic revenues. Tax revenue as a percentage of GPD was the lowest in the world and thus inadequate to meet Afghanistan’s basic need.

The challenge, he stated, with respect to tax policy is, on the one hand, to raise revenue but on the other to attract investment. For a better collection of tax revenue there was a need for an overhaul of tax policy and tariff system. IMF is currently providing assistance in a number of different ways. For example, establishment of a Tax Revenue Unit; consolidation of tax policies; introduction of tax holidays; reduction of the over-reliance on custom duties which currently accounted for some 80% of the tax revenues.

Discussions are also underway with respect to a wage withholding tax, rent tax, corporate tax reduction and a move to abolish nuisance taxes that are not only extremely inconvenient for businesses but insignificant for tax revenues.  Mr. McDonald said that the reform was being guided by three important objectives of the tax policy: fairness, simplicity and growth.

Objections by the members of the group to the IMF-led reforms were made on the grounds that the process was not inclusive. For example when the Business Receipts Tax (BRT) was introduced, Mr. Khoja claimed that not one investor was first made aware beforehand. There was no public consultation with large taxpayers and they only found out about it by way of an advertisement in the Afghan Scene Magazine.

An important factor for business development, according to Mr. Khoja, was predictability with respect to taxes, whereas these sorts of announcements eroded that necessary sense of predictability. He recommended a consultative approach with the Private Sector on the issue of taxation. He suggested that the process by which a tax becomes law must be clear and public knowledge thorough where draft legislation is subject to a public consultation period.

Government engagement in private business: In context with Mr. Khoja’s presentation, there was a discussion of the new government-engaged entry into the telecommunications field, in particular, in building a fiber network, Dr. Aslami mentioned that his company, specializing in optical fiber, had proposed such a network to the government nearly three years ago and then raised the question of “what is the government now doing in the telecomm/fiber business anyway”? Mr. Khoja also questioned whether the new government-involved company would be paying the new Business Receipts Tax.

AACC/AICC Aside: AACC and AICC have been consistently and staunchly against the government getting into private sector businesses. The pace of Privatization is one thing and perhaps it needs to proceed in an appropriate fashion given the exigencies of unemployment.  But new business involvement by the government is not in line with the whole concept of a market economy

Consensus on Openness and Public-Private Consultation: There was significant consensus amongst participants that a successful tax policy requires open public-private consultation indeed. In addition, it was felt that the process by which a tax becomes law must be clear and that public knowledge is gained about draft tax legislation through a public consultation period.

The “beauty of Afghanistan”: Many participants agreed that because it was starting anew, Afghanistan had a unique opportunity to get its tax policy right. It had the option of adopting a policy that could attract investment, foster economic growth, create jobs and put the country on a rapid development path of the type experienced by successful cases such as UAE. Such a policy could best be achieved through a close collaboration and partnership between the government and the private sector, as shown by the experience of successful economies elsewhere.

Also, it was pointed out many other post-conflict countries vying for investment have infrastructure such as trains, planes, roads and phone systems that are extensive. They have electricity. Afghanistan is unique in that it has very little of the above so that in a comparative sense, the tax incentive right now looms much larger in Afghanistan than elsewhere.

The Hon William Lash III also supported close interaction and dialogue between the business community and the Afghan government with respect to taxes and said was personally keenly interested in tax and investment issues in Afghanistan. On his recent trip to Kabul he met with many of the Afghan private business leaders, trying to foster a partnership between his department, the Afghan private sector and the Afghan administration for investment promotion in Afghanistan.

Dr. Robert Myers set out a four point set of principles for tax reform. (1) Curtail the number of (nuisance) taxes, as called by Larry McDonald, and reduce the number of collection points and collectors. This would help remove the anti-business bias of the present tax system. (2) Finance deficits with tradable domestic currency bonds rather than foreign borrowing. This would provide liquid domestic saving instruments, spawn financial services businesses and start up asset markets. (3) Tax consumption expenditures and have a modest, flat rate income tax. The goal would be to get every household and business to file annual tax returns.  (4) Limit the size of the public sector by adopting two targets: A maximum government expenditure/GDP ratio of 15% and a deficit/GDP ratio of 3%.

Dr. Myers argued that big governments were crowding out the private sector, adding to deficits and debt and thus in a position to cripple growth and job creation in the long run. Prof Naderi responded by saying that big government expenditures were needed in Afghanistan for both political stability and also for some major important public projects that needed rebuilding. 

There was overall consensus that if government were to become too strong in the economy, it could easily dominate the private sector role and keep it from emerging. The great majority felt that the government should not be doing what the private sector does better (a central tenet of AACC/AICC). Another area of concern was the government’s direct involvement in businesses.

Yet there was agreement among some participants including Prof Naderi that the billions of dollars allocated for reconstruction in the past three years have not done enough both for reconstruction and creating jobs. As a result they felt that the common Afghans have to date benefited little and therefore some are feeling disenfranchised. Dr. Myers, Peter Schaefer and others felt that this is precisely why a broad-based domestic private sector needs to step in by the thousands, indeed millions of persons who in the elegant yet simple interchange of the marketplace will deliver the goods and services so needed by the Afghan people. 

Ambassador Ishaq Shariyar pointed to the lack of an economic development road map for Afghanistan as reason for reconstruction deficiencies. He pointed out that Afghanistan has had enough political revolutions and it is now time for an economic revolution. He said that with the right economic policies, Afghanistan could be made into a model for the Islamic world. In order for this to happen what is needed is a Marshall plan as was initially promised to Afghanistan.

Dr. Aslami supported the creation of a perpetual trust fund or revolving loan fund (something like the Marshall Plan which was focused on the private sector) that is operated by the private sector to spur investment in businesses and in certain forms of infrastructure and could speed up reconstruction. It was pointed out that Bill McCampbell working in the Afghan Reconstruction Group (ARG) had been investigating the feasibility of just such a mechanism when he was taken ill.

Dr. Richard Stern warned that time was of the essence for tax reform. Afghanistan needs international assistance for its transition but the continuation of the international assistance at the level it is now should not be taken for granted. The current interest and assistance of the international community should be utilized to the fullest for fast tracking the transition. The experience from Kosovo, that was able to achieve self-sustainable operating budget in 3 years, is shows that fast-tracking is possible. The key to Kosovo fast-tracking were building capacity, corruption containment and better accounting standards. It was pointed out that Kosovo was far more advanced than Afghanistan and that the per capita assistance figures were far higher.

C.   Tax objectives

The Hon William Lash III proposed that the initial discussions between the business community and the Afghan government on tax issues should focus on what they want to accomplish with their r tax policy: The objectives should not be in the narrow interest of the business community but rather for the wider benefits of Afghan society. Such wider interest requires that the tax policy is fair; is weighted towards the rich paying more; is uncomplicated  and most importantly making sure make sure that tax policy fosters growth and promotes traditional values such as home ownership,  charity, etc. In addition it should be a system that does not promise what it cannot deliver. Good examples for Afghanistan to follow are Chile, Ireland and Hungary where they have managed to get rid of all unnecessary tax loopholes – the so called nuisance taxes.  

Dr. Richard Stern argued that the Afghan tax policy should be viewed in the context of a post-conflict setting where the capacity and infrastructure to administer a tax regime, the lack or loss of information base to use to administer taxes, movement of firms to the informal sector during conflict and the fact that firms learned to operate in a lawless society, are what make post-conflict countries different and harder to tax. Objectives of tax policy in post-conflict countries are also different, with the establishment of the rule of law as the primary objective and raising revenue as a secondary one. Tax policy also is used as an instrument for moving firms from the informal to the formal sector.

Dr. Aslami and Prof Naderi agreed that to put the large informal sector that makes up some 80 % to the economy on a transition to the formal sector or real economy was a great challenge. Dr Kevin Hassett said that a tax system, if designed properly, could serve as an instrument for that transition as has been done in some other countries. Prof. Naderi cautioned about comparing Afghanistan to other post-conflict countries and about using their experience as lessons for Afghanistan. He argued that the situation in Afghanistan was unique and so should be the response to it. Tax policy that relies on lower taxes could be one instrument that could help with transition from informal to formal sectors and broaden the tax base for government domestic revenues, but there needs to be other features imbedded in the system that makes it more attractive for political support.

D.   Tax Options

There was a consensus on the excessive sensitivity of capital to risk in a post-conflict country like Afghanistan. Tax policy, therefore, needed to go an extra mile in order to attract private investment to Afghanistan.  Dr. Stern said that in post-conflict countries, in addition to having lower rates, good tax policies are ones that are simple (so that it is easy to enforce and comply with); easily monitored; transparent with clear rules and regulations, focused on a wide base; self-policing; open to allow for small firms to participate in.  

An overly burdensome tax regime will keep firms in shadow economy. It also will result in tax evasion and corruption, and ultimately, low receipts. Sierra Leone and Zambia were mentioned as examples for having such systems where informal sector was estimated to be 80 percent of GDP; there was low tax compliance and revenue collection and high incidence of corruption and tax evasion.

Dr. Conrad concurred that because of corruption as the biggest problem with the current Afghan tax system, simplicity should be an important feature of the new tax policy. Modernity of the tax system is not what Afghanistan should opt for at the present. Modernity often suggests VAT type of taxes which are difficult and corrupting to implement. Simplicity as a feature of the tax policy was coming up again and again in both presentations and discussions. Peter Shaffer argued that the reason for Afghans not paying taxes was not tax avoidance but rather bureaucracy avoidance. The overall system for the current highly layered and multitudinous tax regime is both complex and corrupt as a result.

There are a number of options for the government with respect to taxes for revenue collection. Taxes on: Export, Income, Import, Property and Consumption. However, Dr. Aslami proposes that as it stands, it makes sense for Afghanistan to consider taxes only on the latter three, imports, excluding equipment and Machinery, property, and consumption for a starter as they are easily collected and could also be made investment and job friendly. An export tax was deemed harmful for jobs and an income tax was argued to be complicated and difficult to execute except on the easy targets like foreign investors and employees of the larger companies.

Steve Entin pointed out that the tax base should be consumption or consumed-income, and not the broad-based measure of income used in typical income taxes. In addition, there should be no double taxation of corporate income at the corporate and shareholder level and that there should be no tax on estates and inheritances. An income tax imposes heavier taxes on income used for saving and investment, and on the formation of human capital, than on income used for consumption. These disincentives cause people to save and invest less, to work less, and to be less tolerant or risk. They retard capital formation and economic growth. They are in particularly disadvantageous for nations that need to encourage capital formation in risky environments like Afghanistan.

Flat neutral taxes such as the VAT and retail sales taxes were therefore the preferred option for a country like Afghanistan. In the neutral taxes expenditures on plant and equipment, structures and inventory are expensed, or written off immediately, rather than depreciated or amortized over time. This way businesses are assured that they will not be taxed until their sales have exceeded their costs. Cost recovery comes first, the tax collector comes second.  The investment-friendly “Tax Holiday” of Malaysia and job-friendly “Tax Holiday in Low Job Areas” of Thailand were mentioned as examples of such a tax system. Dr. Conrad, however, suggested that Value Added Taxes are difficult to implement in practice, especially in a place like Afghanistan. A consumption tax is what he proposed for starters. As the momentum of a formal system builds, income tax can be added subsequently. 

Ms. Mina Sherzoy, speaking on behalf of Afghan women suggested that they not be forgotten in the new tax policy. Women have realized some progress in private entrepreneurship in the past three years but they still face many challenges -- not least is the lack of a tax system that favors women participation in the investment and trade sectors. She favored a tax system allows for greater women participation in the private sector such as deductions in childcare expenses, medical expenses and education expenses. 

                 IV.       Conclusions  

Event Participants generally agreed that, for the foreseeable future, Afghanistan must be a low tax location and have a substantially higher after tax reward for investment (domestic as well as foreign) than its neighbors and others in the tough global competition for capital. Marginal comparative tax benefits will probably not do since these other countries have much less of a risk factor, and far more infrastructure, interpreted broadly, at all levels of society. This fact of business life must be included in any policy which contemplates the raising of revenue to run the government and provide services.

It was the consensus of the group that the key issue is one of how to grow the very earnings that will then be available for the government to tax. The wrong tax policy now will not raise sufficient revenue because there will not be a private sector fast-growing and large enough to raise desired revenues….and those who don’t pay at this time are even less likely to pay when rates are increased.

                    V.      Recommendations

The conference was attended by a significant number of high-caliber businessmen, relevant, government officials, IMF, World Bank, IFC and tax and economic development experts from important Washington tanks. Their Reflections and their consensus on a set of Recommendations carry considerable weight.

A number of recommendations/suggestions were put forward by presenters, as set out in the following sub-sections III A. Current Taxes, B. Tax Reform Efforts, C. Tax Objectives and D. Tax Options. Among these, there was significant, substantive discussion and agreement on four Recommendations. These four are set out below.

The first three, concerning taxes, are grouped under the heading of a consensus call for exceptional and immediate emphasis on obtaining and using Donor aid for “fast-start” tax reform. Such fast-start aid was advocated by tax experts, who have seen it succeed in other countries, and by Afghan businessmen who see the capricious and onerous nature of the present tax system as being a significant deterrent to new investment.

Taxation -- Use “fast-start” public sector aid to rapidly reform the tax system as follows:

1.      Expunge nuisance taxes and reduce the number of tax collectors.  

Such taxes suppress investment/production while raising paltry amounts of revenue for the central government budget. In Afghanistan, many are legacies of past regimes. They are numerous and onerous for business, but they provide small incomes for many who are empowered to collect them.  Afghan businessmen have previously complained in a two-paragraph note entitled, “Tax Collectors Run Amok.” Several tax experts at the Conference also premised their discussions of the way forward with an assumption that such nuisance taxation be removed. Lessons elsewhere, (Chile and China were mentioned) suggest that the stimulating impact of removing the nuisances, particularly on small service businesses, can provide jobs and incomes for disenfranchised tax collectors, providing they compete effectively. It must be taken on faith, however, which is politically unsettling.  

2. Build institutional and human capacity to effectively and fairly administer a new tax system.

Once again Afghan businessmen have led the way on this, but with the full support and agreement of the tax experts at the Conference. As background to the Conference, Afghan businessmen examined and praised the Dubai (UAE) approach. This is an approach that first emphasized “capacity building,” mainly using IMF and World Bank expertise to do so. The aim was to build the institutional and human capacity to create an international business climate (essentially a “free” zone) in Dubai. This is an approach that has been very effectively implemented in elsewhere, including Mauritius and China. The emphasis is on taxing wages but not capital and on efficiently, fairly and transparently administering tax and customs systems. The goal of creating an international business climate means that there should be no incentive distinctions between foreign and domestic investors.

3. Rapidly impose modest, flat rate, transparently assessed and collected taxes on all income and consumption expenditures.

There was virtually total agreement amongst tax experts at the Conference on this recommendation. The goals are to suddenly and dramatically increase Afghanistan’s tax base, or citizen involvement in the tax system and to get the administrative apparatus working, rather than to raise short-term tax collections. Businessmen at the Conference endorsed this recommendation, but stressed the need for speed. In particular, the businessmen expressed impatience with bureaucrats’ belief that initiating such tax reforms be delayed, and that the reforms themselves would take many years to complete. In fact, some saw business opportunities in implementing the reforms. They again cited Dubai as an example of the value of hastening implementation of the reforms.

4. A share of aid should by-pass the public sector and go to the private sector to stimulate private investment/production and employment.  

            Aid is part of the broader issue of public sector resource mobilization. Roundtable/Workshop attendees focused on the potential impact of aid on growth in the tax base. Given that tax experts counsel avoiding taxing capital, such growth essentially means increases in private sector employment, wages and salaries. The generally held belief amongst attendees is that aid to government somehow suppresses growth in the tax base by dampening private investor and producer incentives. This leads to aid dependency, which is unsatisfactory in the long run. However, it is recognized that it is both difficult to convince bilateral and multilateral Donors to effectively transmit aid to the private sector. The participants endorsed transmitting substantial amounts of aid through a Marshall-type trust fund, but with the details ( not assumed to be easy) to be worked out later.

In other venues, AACC/AICC has created a Targeted Investment Strategy (TIS) or a mechanism that would effectively make matches between “capable” Afghan companies/opportunities and U.S. investors, partners and joint venturers.  It would work closely with other business associations and AISA in search of appropriate opportunities and matches.

TIS would take advantage of such a fund to help finance collaborative businesses. If this fund could serve as a conduit for aid to the private sector, it would help the tax base to grow more rapidly, thus increasing Government’s greater dependency on private enterprise for revenue generation, and reducing Afghanistan’s longer-term dependency on aid and imports.          

Appendix I: List of Speakers, Presenters and Discussants

Ms. Adina Adler, Program Manager, Iraq – Afghanistan Reconstruction Task Force, US Dept. of Commerce, Washington DC, adina.adler@ita.doc.gov  Discussant - D

Ms. Laurie Adler, Burdeshaw Associates, LTD, Washington, DC lja022864@aol.com

Mr. Ghulam Rahman Amanzada, Businessman, Dubai, UAE and Kabul, Afghanistan (Kodak and Gillette distributor), Board member, AICC aamir660@emirates.net.ae

Ms. Betsy Amin-Arsala, Development Consultant, Washington DC ,

Caravan44@aol.com   Discussant - D

Dr. Mohd Aslami, Co-Founder and Director, Abadi Kishwar, Dubai, UAE and Kabul, Afghanistan; Founder, ex- Chairman and CEO, Fibercore, and Board member, AACC,  fbce1maa@aol.com   Presenter - P               

Ms. Nazee Aslami, Real Estate businesswoman, MA

Dr. Philippe Auffret, Economist, Public Expenditures, World Bank, pauffret@worldbank.org Discussant - D

Ms. Bistra Baharova, Program Assistant, Center for Int’l. Private Enterprise CIPE, Washington, DC

Mr. Jake Ballard, Millennium Group, UAE and Iraq

Mr. Jay Brandes, Director, Iraq - Afghanistan Task Force, US Commerce Dept., Washington DC,  jay_brandes@ita.doc.gov  Discussant - D                         

Mr. John Brandon, Director of Int’l. Programs, Asia Foundation, Washington, DC

Mr. Christopher Broughton, USAID, Afghanistan Desk, Washington DC, cbroughton@usaid.gov

Mr. James Burrows, Burdeshaw Associates, Washington, DC

Mr. Kelly Cameron, VP Legal Affairs, TSI Inc., Vienna VAk.cameron@TSIGlobe.com   Discussant – D

Shakti Chemitiganti, Desk officer, Afghanistan Office, Bureau of South Asia Affairs, Washington DC

Prof. Robert Conrad, Economist, Duke University, Durham, NC, robertconrad@earthlink.net  Presenter – P

Mr. Abdul Ghafar Dawi, Businessman, Dubai, UAE and Kabul, Afghanistan, Board member AICC, dawi_company@Yahoo.com Discussant - D

Mr. Neal Donahue, Afghanistan Program Manager, On the Frontier (OTF), ndonahue@OTFGroup.com  Discussant-D

Mr. Shaun Donnelly, Economist, Principal Deputy Assistant. Secretary of State, Bureau of Economic and Business Affairs, Washington DC, Donnellyse@state.gov

Discussant - D

Dr. Steve Entin, Economist, Institute for Research on the Economics of Taxation (IRET), Washington DC, sentin@iret.org  Presenter – P

Shir Khan Farnood, President, Kabul Bank, Kabul Afghanistan, Board member AICC,

sherkhan@emirates.net.ae Discussant – D

Mr. Mohammed Farahi, 1^st Deputy Minister of Commerce, Kabul Afghanistan

Col. Ben Fitzgerald Ret’d, South Asia Policy Consultant, Washington DC, benedict_fitzgerald@yahoo.com Speaker - S

Mark Generales, Real Estate business/Investor, Hilton Head, SC

Dr. Ata Ghaznawi, Businessman, Falls Church VA and Kabul, Afghanistan, Board  member AACC and AICC, amghaznawi@hotmail.com  Presenter - P 

Mr. Ajmal Ghani, Founding Board Member and Vice President, AACC ajmalghani@hotmail.com Discussant - D      

Ms. Veronica Gilbert, Director Emerging Markets Group, Washington DC, vegilburt@emergingmarketsgroup.com Discussant-D

Mr. Stephane Gimbert, Economist, World Bank, sgimbert@worldbank.org

Mr. Moe Grassia, Consultant for Safi Apparel, Atlanta Georgia, Grassia(@cs.com  Discussant – D

Mr. Scott Greenip, US Trade Development Administration, Washington, DC, sgreenip@ustda.gov  Discussant – D

Ms. Deborah Grout, Reconstruction Program Coordinator, Afghanistan Office, Bureau of South Asia Affairs, Washington DC Grout DZ@State.gov

Dr. Nikolas Gvosdev, Senior Fellow, Nixon Institute, Editor, the National Interest, Washington DC, Gvosdev@nationalinterest.org  Discussant -D

Mr. Larry Hart, Executive Director Afghanistan America Foundation/Investor, member AACC, Washington DC, larryhart2@att.net  Discussant-D

Dr. Kevin Hassett, Economist, Senior Fellow, American Enterprise Institute (AEI), Washington, DC, khassett@AEI.org  Presenter –P

Mr. Mirweis Azizi Hotak, Businessman, Dubai, UAE and Kabul, Afghanistan azizi@eim.ae Discussant

Gen. John Howell Ret’d., Investment Consultant, Discussant - D jmhowell@afcointl.com

John Kachmar, Atlantic Consultants, Hilton Head, SC, kchmr@aol.com

Honorable Jack Kemp, Honorary Chairman of AACC; Chairman, FreedomWorks, Washington DC, Speaker - S

Mr. Karim Khoja, CEO, Roshan Telecommunications, Kabul, Afghanistan, karimkhoja@hotmail.com Presenter - P

Hon. William Lash III, Assistant Secretary US Dept. of Commerce for the Middle East and South Asia, Washington DC, William_Lash@ita.doc.gov Presenter - P

Mr. Abrahim Lutfi, President, Trivision Inc., Springfield, VA and Kabul Felez, Kabul, Afghanistan, Board member AACC, arsalan@trivision.tv Discussant –D

Sulaiman Lutfi, President, Trivision, Springfield VA , sulaiman@trision.tv

Mr. Syed Mahmood, Sr. Private Sector Development Specialist, World Bank, Washington, DC,  Smahmood@worldbank.org Discussant - D

Mr. Aaron Manaigo, Partner, Fenner Gray, Washington DC amamaigo@fennergray.gov 

Mr. Anthony Marcus, Task Force on Financial Reconstruction and Stabilization, International Affairs, U.S. Department of Treasury

Ms. Jamelle McCampbell, Senior Advisor for Operations, Afghanistan ReachBack Office, DoD, Washington DC, jamelle.mccampbell@reachback.whs.gov    Discussant - D

Ms. Amy McDonald, Senior Policy Analyst, US Dept. of Commerce, Washington, DC, Discussant - D

Mr. Larry McDonald, Director, Task Force on Financial Reconstruction and Stabilization, US Dept. of Treasury, larry.mcdonald@do.treas.gov Washington, DC, Presenter - P

Mr. Anil Mishra, Energy and Power Infrastructure Consultant, recent AID Deputy Chief of Party: Restructuring Capacity in Afghanistan, MISHRAAK@aol.com Discussant - D

Mr. Saad Mohseni, CEO Arman Radio and Tolo TV, Kabul Afghanistan,

Board member AICC, saad.mohseni@mobycapital.com  Presenter – P

Paul Mulligan, Program Officer USAID, Washington DC,  pmulligan@usaid.gov

Dr. Robert Myers, AACC Economist, Developing Nations project consultant, Washington, DC, rmyers@aol.com  Presenter – P

Prof. Ishaq Naderi, Endowed Chair, Economics Dept., New York University, New York and Chief Economic Advisor to President Karzai, Kabul Afghanistan, min1@nyu.edu Speaker - S

Ghulam Daoud Naseeb, President, Naseeb Group of Companies, Dubai, UAE and Kabul, Afghanistan naseeb@emirates.net.ae Discussant - D

Ms. Mariam Nawabi, Commercial Attaché, Embassy of Afghanistan, mnawabi@hotmail.com Discussant - D

Ms. Jana Nelhybel, Assistant Program Manager, Iraq and Afghanistan Reconstruction Task Force, US Dept. of Commerce, Washington, DC, jana.nelhybel@mail.doc.gov  Discussant - D

Mr. John Nelson, Co-Director, Wall Street Without Walls, New York and Washington, DC, jnelsonres@aol.com  Discussant - D

Mr. Atiq Panjshiri,, President, Afghan American Chamber of Commerce (AACC), Washington DC,  atiqpanjshiri@yahoo.com Speaker - S

Mr. Ashok Parameswaran, International Economist, Task Force on Financial Reconstruction and Stabilization, US Treasury Department

Mr. Mike Phipps, Director of Operations, Millennium Group, UAE and Iraq, mike@miltech.us

Ms. Jeanne Pryor, Officer-in-Charge, Afghanistan Program, USAID, Washington, DC, jpryor@usaid.gov Discussant - D                                    

Hon. Don Ritter, Senior Advisor AACC/AICC, USA and Afghanistan, Business Partner/Investor, Kabul, Afghanistan, Founding Board member, AACC dritter@a-acc.org Event Coordinator

Ms. Jeane Rogers, Deputy Director, Center for Int’l. Private Enterprise (CIPE), Washington, DC, jrogers@cipe.org

Mr. Gene Rooney, VP Int’l. Aircraft Sales and Leasing (IASS), Centreville, VA, euro1@prodigy.net Discussant - D

Ms. Asiyah Sarwari, Graduate Student, Law and Int’l. Development, American U., Intern with Commercial Attaché, Embassy of Afghanistan AsiyahSarwari@qmail.com

Mr. Bob Schadler, Chairman, Committee for Western Civilization, Washington, DC, Discussant - D

Schaefer, Peter, Senior Fellow and Counselor, Institute for Liberty and Democracy (Hernando de Soto group). Washington, DC, ILDWashington@aol.com Discussant - D

Mr. Ali Seraj, President, Abadi Kishwar, Dubai, UAE and Kabul, Afghanistan, ulmillat@aol.com Discussant - D

Mr. Wali Shairzay, Technical Manager, Institutional Reform and Capacity Building USAID contract, Kabul, Afghanistan, ah_w_shairzay@msn.com Discussant-D

Ms. Virginia Sheffield, President, Sheffield Associates, Washington, DC, virginia@sheffieldadvisors.com  Discussant - D

Mina Sherzoy, Director Entrepreneurship, Development For Women in Afghanistan, Kabul Afghanistan, Board member, AICC MinaSherzoy@hotmail.com  Speaker - S

Ishaq Shariyar, Recent former Afghanistan Ambassador to the U.S., Businessman/Investor, ishaqm1@aol.com  Presenter - P

Dr. Jim Sheets, International Business Attorney, Counsel to AACC and Board member, Washington, DC, jsheets@mail.com  Discussant – D

Ms. Elena Suhir, Program Officer, Center for Int’l. Private Enterprise (CIPE), Washington, DC, esuhir@cipe.org

Prof. Fred Starr, Director, Central Asia & Caucasus Institute School of Advanced International Studies (SAIS), Johns Hopkins University, sfstarr@jhu.edu  Discussant - D

Mr. Richard Stern, Regional Program Coordinator, International Finance Corporation (IFC), Foreign Investor Advisory Service (FIAS), rstern@ifc.org Presenter - P

Mr. Steve Stein, International Corporate Attorney, Kellydrye, New York, sstein@kellydrye.com  Discussant - D

Gordon Straub, Senior Associate, International Development, Abt Associates, Washington, DC, Gordon_straub@abtassoc.com  Discussant - D

Dr. Khwaja Sultan, Economist, Senior Associate, Bering Point, ex Chief of Party, Bering Point Tax Advisory team, Kabul, Afghanistan and Washington, DC, kwhaja.sultan@beringpoint.com Discussant - D

Dr. Emil Sunley, Economist, Senior Advisor to the Managing Director, International Monetary Fund (IMF), esunley@imf.org  Presenter - P

Ms. Vineyard Holly, deputy Assistant Secretary, Middle East and South Asia, US Dept. of Commerce, Washington, DC, Discussant – D holly_vineyard@ita.doc.gov 

Ms. Lynnea Vanasek, Grant Coordinator, Center for International Private Enterprise, Washington DC, lvanasek@cipe.org

Ms. Malaly Volpi, Director, Policy Council on Afghan Women, Washington, DC,  Malaly@policycouncil.org Discussant – D

Linda A. Wells, Chief Counsel for Commercial Law Development, Office of the General Counsel, US Dept. of Commerce Washington, DC   1Wells@doc.gov

Ambassador Ashley Wills, Assistant US trade Representative, Middle East and South Asia, AWills@USTR.gov Discussant - D

Mr. Dan Witt, President, Int’l. Tax and Investment Center, ITIC-Washington DC, Washington@iticnet.org  Discussant - D

Mr. Naeem Yassin, Businessman, New York and Kabul, Afghanistan, VP Afghan Builders Association (ABA), Board member AICC Yassinmarketing@aol.com Discussant - D

Dr. Omar Zakhilwal, Economist, contracts with Ministry for Rural Development/World Bank, Advisor to AICC, Kabul, Afghanistan, hozakhil@yahoo.com  Event Report Leader and Presenter - P

Ms. Dulce Zanheiser, Deputy Chief of Staff, Overseas Private Investment Corporation, dzahn@opic.gov   Speaker - S