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IG hits back at Afghan criticism on contractor taxes

May. 22, 2013 - 06:00AM   |  
By JIM McELHATTON   |   Comments
Robert Payer, a private contractor from AC first company, prepares to repair rifles at Camp Clark in Mandozai district, Khost province, Afghanistan in 2011. A watchdog uncovered tens of millions of dollars in Afghan taxes improperly levied against contractors.
Robert Payer, a private contractor from AC first company, prepares to repair rifles at Camp Clark in Mandozai district, Khost province, Afghanistan in 2011. A watchdog uncovered tens of millions of dollars in Afghan taxes improperly levied against contractors. (Ted Aljibe/AFP)

A government watchdog is defending an audit that uncovered tens of millions of dollars in Afghan taxes improperly levied against federal contractors in recent years amid sharp criticism from the country’s finance ministry.

The Special Inspector General for Afghan Reconstruction earlier this month found Afghanistan had charged $921 million in taxes and penalties on 43 U.S.-funded contractors since 2008. Those taxes included nearly $100 million from a corporate tax category that U.S. and Afghan officials agreed ought to have been exempt, the IG report found.

But Omar Zakhilwal, Afghanistan’s minister of finance, called the findings “deeply flawed” in a May 16 letter he sent to IG John Sopko, arguing auditors had never sought “meaningful input” from his department.

“This oversight renders the conclusions contained in the report suspect,” Zakhilwal wrote.

Zakhilwal also argued the report failed to account for U.S. contractors who “acted with impunity” in Afghanistan. What’s more, he said some tax assessments noted in the IG report related to instances where contractors has failed to file tax returns or report income.

Overall, the letter by Zakhilwal cited “deep disappointment and dissatisfaction” in the IG report.

But Sopko made no apologies.

Sopko defended his office’s findings in a May 20 reply to Zakhilwal, saying the finance minister has been “misinformed” as to whether his auditors reached out to Afghan finance officials. The IG’s office released a copy of the letter Wednesday.

Sopko said auditors had held four meetings with Afghan finance officials, who failed to answer their repeated requests for additional information.

Sopko said while auditors did get information from contractors, they didn’t rely on those documents alone.

“As we reported, we identified at least $93 million in taxes that had been assessed by the Afghan government on U.S. contractors in contravention of ... bilateral agreements,” Sopko wrote. “Based on our analysis, we believe that much more of the total $921 million in taxes we identified is likely illegitimate.”

The Professional Services Council, a trade group which represents federal contractors, issued a statement following Sopko’s report saying the findings had confirmed what the group had been saying for years.

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