Challenges of VAT implementation in Afghanistan
Submitted by
Samiullah hoshmand
Hasibullah karimi
Ramzia Yarmand
1. Introduction
VAT is an indirect tax that first appeared in 1954 in France. Maurice Loretta is the one who
suggested its concept and placed its Basic rules. It is a compound tax implemented on the
difference between the cost and selling price of goods or services (Osaimy, 2018)
Value added tax was initially introduced to meet the increasing needs for revenues that could not
be easily achieved by business taxes. There are many differences in the structure of VAT and the
way of its implementation, but there is an international agreement on some of the main issues,
such as making consumption the final base of this tax. In addition, it is determined by a
acceptable characteristic which is the tax does overpass the productive potential limits of
economy. The 1990s saw a high rate of dependence on VAT; as it was nearly adopted by all
countries of economic transformation (which reflects its need to change its traditional revenue
resources), and a large number of developing countries (Awad, 2012).
1.1. Background of study
This study undertakes the challenges of Implementing Value added tax in Afghanistan.
Introduction of Value added tax is a medium term objective of the Afghanistan revenue
department the VAT implementation in Afghanistan was initially authorized by H.E the ministry
of Finance in November 2011 and VAT implementation was originally planned for 2014 However
implementation was postponed to December 2016 and afterwards to December 2020 by
replacing BRT(Business receipt tax ) with VAT .
The VAT Law was officially approved by parliament of Afghanistan signed by H.E the president
and published in official Gazette 1209 of 13 April 2016
Under current legislation VAT implementation will begin on the first day of JADI 1399 with a
standard rate of 10% .(ministry of finance report 2017)
Although it was planned many times but there was some challenges which the could not
succeed to implement it and even if The Ministry of finance begin for VAT official
implementation there will be some major challenges according to researchers that researched
about the challenges of VAT implementation and found some critical problem facing while
implementing VAT
For instance there is a research about Assessment on the implementation of Value Added tax in
Ethiopia Mekelle city which its finalized result from research gathered implied that sole
beneficiary of VAT is government and firms and individuals don’t willfully register for VAT Tax
also there is negative perception about the fairness payment across the business in another
hand there proved decline in the number of customer for implementation of VAT has been
observed , consumers feels that the reason for business and firms to rise the price of product
lies on VAT implementation (Simon Tareke Abay; 2013 ).
In addition another research about the Problems and prospect of VAT implementation in Tigria
Regional State by considering the population size and number business and firms which are
registered in VAT through using (Spss) software along with survey questionnaire and qualitative
data analysis which the result indicted that willful of the registration of the business has not yet
come to the desired level and there is negative view about the fairness of payment of the
business as well as there is decline in number of customers adapting VAT and so many customer
believe that business’s enhance the product and service price in order to generate VAT and to
pay it .(Abiy Kassa, Yibrah Hagos, Simon Tareke ).
Similarly another research conducted about Value added tax administration and its challenges
(The case of South Gonder zone Ethiopia) which In this study Many Taxpayers that were
registered For VAT along with Tax officers were interviewed and Based on the result findings the
main challenges of VAT are Lack of tax payers awareness, selling goods and service without tax
invoice, weak cultural of tax payers, lack of fairness, lack of experience of Value added tax
registrant, weak follow-up and controlling mechanism against unregistered and registered value
added tax payers.
it is recommend that for over coming the awareness problem there is need of tax education
campaign and similarly tax office should monitor and supervise the registered and unregistered
taxpayers up to the door of inspection. Moreover there is need to enhance the capacity of the
employee of the tax office by providing them long term and short-term training as well as there
is need to change the attitude of customer toward VAT.(Dejen Debeb Asmare , Alebel Weretaw
Asaye;2020 ) .
Eventually another research on Implementation of Value added tax and its challenges Evidences
from Bench Sheko zone SNNPR Ethiopia imposed by using primary and secondary data related
to VAT collection performance. According to findings there is awareness creation and
educational program, inadequate eligibility, insufficient fulfillment of tax law, absence of
consistent follow-up to register unregistered traders, weak monitoring, tax avoidance inefficient
tax intelligence work and tax auditing and finally unfair infrastructure. At the end this article
offers to regional revenue bureau and ministry of revenue to give unreserved attention on it and
improve the implementation gaps of VAT through fulfilling the necessary tax administration
logistic, enhancing tax education, reducing organizational bureaucracy and improving taxpayers
trust .In conclusion the revenue bureau shall make continues monitoring and evaluation,
maintain accountability and transparency, conduct adequate intelligence and tax auditing to
achieve desired objective . (Wondimu Sebhat Tebebu , Mulatie chanie yitbarek 2019 ).
The Afghanistan Value Added Tax law has approved with nine chapters and
Thirty-Five articles, which are as follow
1.1 Chapter One General Provisions
1.1.1 One Basis
1.1.2 Two Definitions
1.1.3 Three Supply of Goods and Services
1.2 Chapter Two Imposition of VAT
1.2.1 Four Tax Imposition
1.2.2 Five Tax Exemption
1.2.3 Six the Zero Standard
1.3 Chapter Three Registration
1.3.1 Seven Mandatory Registration
1.3.2 Eight Optional Registration
1.3.3 Nine Certificate and Cancellation of Registration
1.4 Chapter Four Rules for Importing and Supplying of Goods
and Services
1.4.1 Ten Date of Supply
1.4.2 Eleven Location of Supply
1.4.3 Twelve Value of Supply
1.4.4 Thirteen Value Assessment at Day Rate
1.4.5 Fourteen Correction of VAT upon Sale
1.4.6 Fifteen Imports
1.4.7 Sixteen Value of Imports
1.4.8 Seventeen Payment Obligation of Recipient of Foreign Services
Supply
1.5 Chapter Five Payable VAT
1.5.1 Eighteen Accounting Method of Tax Due
1.5.2 Nineteen Deductible Tax
1.6 Chapter Six VAT Documents
1.6.1 Twenty VAT Statement of Accounts
1.6.2 Twenty-One VAT Credit and Debit Notes
1.6.3 Twenty-Two Record-Keeping of VAT Documents
1.7 Chapter Seven VAT Tax Return and Payment
1.7.1 Twenty-Three VAT Tax Return
1.7.2 Twenty-Four VAT Payment
1.7.3 Twenty-Five VAT Refunds
1.8 Chapter Eight VAT Assessment
1.8.1 Twenty-Six Tax Assessment
1.8.2 Twenty-Seven Recipient’s VAT Assessment
1.9 Chapter Nine Miscellaneous Provisions
1.9.1 Twenty-Eight Receipt of Guarantee
1.9.2 Twenty-Nine Confiscation of Goods
1.9.3 Thirty Agencies and Branches
1.9.4 Thirty-One Authorities of Customs’ Officers
1.9.5 Thirty-Two Currency
1.9.6 Thirty-Three Interim Provisions
1.9.7 Thirty-Four Enactment of Regulations and Procedures
1.9.8 Thirty-Five Enforcement Date
(VAT law #OG 1209)
1.2. Problem Statement/research Gap
Many countries of the world generate their revenue by collecting taxes from
their resident and mostly developing countries more depend on their tax and
customs hence Afghanistan as one of those countries collect different type of
direct and indirect taxes and customs from individual, local and international
companies which are operating in Afghanistan since Afghanistan government
plans to add VAT in their tax system .This research is done in order to identify
the challenges of VAT implementation in Afghanistan .
1.3. Research Questions:
1. How is the current state of payment system and technology
management in Afghanistan?
2. How is the coordination between Value Added Tax rules, SIGTAS
(software) and Tax Administration?
3. What is the perception and how awareness of taxpayers toward
Value Added Tax?
4. How much is percentage of Tax evasion and fraud in
Afghanistan?
1.4. Research Objective
To study the challenges that negatively effects the implementation of
value added tax in Afghanistan.
To forecast the impact of less payment system and poor
technology management in implementation of Value Added Tax
in Afghanistan.
To determine the impact of disco ordination or disarrangement
between Value Added Tax rules, SIGTAS (software) and Tax
Administration.
To evaluate the perception and awareness of taxpayers .
To anticipate the evasion and fraud in Value Added Tax system.
1.5. Significance of study:
Significance of this study is to forecast the major challenging factor of Value
Added Tax during of its implementation in Afghanistan and finding the
resolution for the negative challenges in order to implement VAT efficiently
and effectively.
Organization of study:
This research paper contains 5 chapters.
1st chapter: Introduction of VAT, background of study, problem statement,
research questions, research objective, significance of study.
