Now wouldn’t that be funny? Every security company just packs up and leaves?….wow. But honestly, it is not funny because what Karzai is doing is having a severe impact on the quality and stability of security services in Afghanistan. If the coalition values those services, it would behoove them to apply the necessary pressure on greedy Karzai to end this ridiculous taxation plan.
The other concern here is that if Afghanistan plays this game of imposing taxes on companies providing services to diplomats and such, what about security companies operating elsewhere in the world providing such services? Tax exemption for companies providing services to the US government has been a staple of foreign relations throughout the world. To standby and allow Afghanistan to tax these companies like this, sets a horrible precedence that will surely impact operations elsewhere in the world. If you lose this fight, the costs of doing business will skyrocket and contracts will have to be re-adjusted to deal with this new reality.
This is a fight worth fighting, and Karzai needs to be put in his place. Perhaps taxing his consulates overseas, or freezing some Karzai family assets in overseas accounts would be one way to send a message that this is uncool? If greed is what fuels him, then greed is his weakness. –Matt
Security Firms Threaten to Leave Afghanistan
APRIL 6, 2011
By MARIA ABI-HABIB
KABUL—Some private security companies guarding diplomatic and aid missions and critical infrastructure facilities in Afghanistan are threatening to withdraw from the country if President Hamid Karzai’s government follows through on its plans to impose on them hundreds of millions of dollars in back taxes.
Many of the more than 30 security companies targeted by the Afghan tax authorities say they are supposed to be tax-exempt because they support diplomatic missions, such as the large U.S. Embassy in Kabul.
Executives at these companies say Western diplomats are encouraging them to hold off on paying the taxes so as not to set a precedent for U.S. and European diplomatic missions around the world.
The Afghan government issued its unexpected tax demand last month, at the same time it made all current security company licenses expire. The assessed taxes are in some cases higher than several years’ worth of operating profits for the companies.
“It’s not feasible for us to pay such a large bill. We wouldn’t be able to continue to operate here,” one security company official in Kabul said.
Until the companies pay the back taxes, they cannot apply for new security licenses or weapons permits, throwing their legal status in limbo and leaving them ineligible to bid on new contracts to protect diplomatic missions or government development projects.
Private security contracts that aren’t connected to diplomatic missions are taxable. “In other cases, however, the Embassy believes the taxes were assessed in error, on activities that were properly exempt from taxes,” said a U.S. Embassy official in Kabul. “Consistent with U.S. law and policy, the U.S. government seeks exemptions for U.S. foreign assistance from host-nation taxation in any bilateral assistance agreement.”
When asked why the Afghan government was taxing companies that work for diplomatic missions, Najib Malalai, a Finance Ministry spokesman, said he can’t comment on individual cases. “The taxes aren’t too high,” he said.
The standoff over back taxes is the latest in a simmering conflict between Mr. Karzai’s administration and Western governments over the presence of private security companies. Last summer, Mr. Karzai announced plans to dissolve all these companies within four months, calling them “criminal” for the number of civilian casualties they cause. The deadline, however, has been pushed back repeatedly as the international community lobbied for their stay, arguing that Afghan police aren’t yet able to provide adequate security.
At stake are billions of dollars in development money. Many aid organizations and U.S. Agency for International Development contractors have said they would leave Afghanistan if they can’t use private security guards—a concern that is especially acute after last week’s deadly mob attack on the United Nations compound in the city of Mazar-e-Sharif.
Development Alternatives Inc., a big subcontractor for USAID, said it would scale back its operations significantly if the security companies left Afghanistan.
“The international community is worried that if this goes through, all construction programs, consultants—everyone working on government aid and development projects—will also be taxed,” said one private security company executive.
Among the targeted companies, G4S, which protects the U.S. and British embassies in Kabul, could be slapped with one of the biggest bills, some $125 million, according to Western officials familiar with the matter. Global Security Group could also be charged a hefty sum in the millions, according to officials. Control Risks Group, which protects some European embassies, may be charged about $25 million in back taxes by Afghanistan’s Finance Ministry, the Western officials said.
Some of these companies have yet to receive official documentation from the Afghan Finance Ministry and have only been verbally notified.
“We’re working with the British foreign office and Afghan authorities to receive clarification on the tax situation,” said a G4S spokesman. The media office for Control Risks declined to comment. Global Security’s communications director, Tim Matthews, said the company is in “discussions with the Afghan authorities to resolve any outstanding issues on taxation.”
A British Foreign office spokesperson said the U.K. government has “been in regular contact with [the Afghan government] where this relates to our contract with G4S and hope that all these issues can be resolved soon.”
Story here.