So much for thanks: As the U.S. accelerates its exit from a decadelong, $100 billion reconstruction effort in Afghanistan, American generosity is getting an unwelcome penalty in the form of taxes and fees imposed by President Hamid Karzai’s government on U.S. contractors supporting the rebuilding effort.

Everything from exiting military equipment and food for troops to new federal contract dollars are facing levies, customs fees and fines — a wave of taxation estimated to slice $1 billion or more off the top of aid that was supposed to go to the Afghan people. Instead, it’s going into the coffers of the Karzai government.

America’s top watchdog in the country said in a recent report that the taxes are legally questionable but that U.S. officials have had little success pushing back, setting up an unnecessarily expensive end to U.S. military operations in Afghanistan.

“Congress’s appropriations for the Afghanistan reconstruction effort are intended to build Afghan security forces, improve governance and foster economic development in Afghanistan,” the special inspector general for Afghanistan reconstruction wrote in a warning letter to congressional appropriators June 28. But “a substantial portion of these funds are being spent not to achieve these important goals, but, rather, to pay the cost of doing business in Afghanistan.”

For nickel-and-diming U.S. efforts to rebuild and defend its country, the Afghan government and its American reconstruction supervisors win this week’s Golden Hammer, an award given by The Washington Times to highlight egregious examples of wasted tax dollars.

Wave of confusion

The wave of taxation has created confusion among American officials, resulting in even more financial penalties, the inspector general says.

“In addition to levying nearly a billion dollars in business taxes on companies supporting U.S. government efforts in Afghanistan — most of which we believe are improper based on applicable international agreements — the Afghan government is assessing hundreds of millions of dollars in additional fines, fees, and penalties, some of which are also improper, on many of these same companies,” the watchdog wrote.

State Department officials overseeing the Afghan rebuilding effort took issue with parts of the inspector general’s conclusions, warning that questions of who and what are subject to national taxes are complex, with some contractors working with multiple federal, international and nongovernmental organizations.

“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,” Ambassador James Warlick, the deputy special representative for Afghanistan and Pakistan, wrote in his reply to the findings.

Mr. Warlick added that it is difficult to know whether all fees assessed by the Afghan government are in violation of treaties.

“Any exemption from taxes or customs duty in a country has to be negotiated, and the host country has to be willing to provide it,” he said.

The Afghan Embassy declined to comment on the report, but Najeeb Manalai, a spokesman for Kabul’s Ministry of Finance, told the military publication Stars and Stripes this month that the government was not violating any bilateral agreements.

“These taxes that we ask these companies to pay are according to the laws of Afghanistan,” he told the paper. “Afghanistan loses a lot through that military cooperation agreement. But still we respect that and we follow all the agreements we have made.”

Afghan officials say that many U.S. contractors working for the American government also do private-sector projects in the country, and those operations should be subject to local taxation. Mr. Manalai also disputed the estimate of a $1 billion tax bill, saying the levy was as little as a tenth of that sum.

Taxing the war effort

Though there is an agreement between the two countries exempting military supplies, the Defense Department’s shipments are still getting taxed, the inspector general found.

“The Afghan government is charging DOD commercial carriers customs process fees for every exempt container of goods shipped into Afghanistan in support of U.S. military operations,” the report noted.

Inspector General John Sopko’s office is urging Congress to step in, contending that the fees are starting to hurt the U.S. war effort. The Karzai government has stopped a number of trucks laden with food or fuel for U.S. military personnel and their allies, demanding that transit fees be paid before the trucks are released.

“This is an issue U.S. military leadership in Afghanistan is currently addressing with the Afghan government,” said Cmdr. Bill Speaks, a Pentagon spokesman who handles Afghanistan affairs. “We are confident the situation will be resolved soon.”

State and Defense Department officials have attempted to negotiate with Kabul, but investigators said the imposition of fees is supported by Mr. Karzai himself.

Meanwhile, U.S. contractors are starting to charge the taxes and levies back to the U.S. government, increasing the costs of procurement.

Earlier this year, the Afghan government stopped the transportation of 220 containers, some of which contained food for U.S. and allied troops. The contractor charges the U.S. government $100 per day per container for their use, so every day the containers are held by Afghanistan customs, the contractors is charging the U.S. government $22,000, the IG noted.

Much of the controversy surrounds a customs declaration form known as T1, with the Afghan government charging late fees for forms that aren’t turned in on time. But the U.S. Transportation Command — in charge of logistics for the military — maintains there’s an agreement with Kabul that exempts military supplies and told its contractors not to pay the fees.

That hasn’t stopped Afghanistan from levying the fees or, according to SIGAR, making it more difficult for contractors to pay their bills on time.

Afghan customs houses have stopped accepting copies of forms and started demanding the originals. The government normally gives a 21-day grace period to turn in T1 forms before assigning late fees, but customs officials have started the 21-day countdown as soon as they receive notification of the cargo — before its even crosses the border into Afghanistan.

“These changes have led personnel to fly to customs houses to hand-deliver original documents and avoid further fines,” SIGAR said.

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