Defence`s Feeds

Americas

• AAR Supply Chain has won a $909 million contract to support the USAF’s Landing Gear Performance Based Logistics One program. Under the deal, the company will purchase, remanufacture, distribute and provide inventory control for the branch’s C-130, KC-135 and E-3 aircraft, and will also include work for foreign military sales. Work will be carried out in Illinois, Florida and Utah and will run until March, 2032.

• A US Government Accountability Office (GAO) report has stated that the USAF’s KC-46 tanker modernization program could face additional delays despite findings that the program needs fewer engineering changes than expected, and the cost has fallen by 14 percent, or $7.3 billion. Lead contractor Boeing, however, has experienced issues with developing the aircraft, and additional flight testing is likely to push back deliveries, which are already 14 months behind schedule, passed the current target of 14 tankers by October 14, 2018. The service plans to operate 179 KC-46s as part of plans to replace a third of their aging KC-135 tanker fleet.

• The US Armament Research, Development and Engineering Centre (ARDEC) has successfully test-fired a 3D printed grenade from a launcher made from the same process. Named RAMBO (Rapid Additively Manufactured Ballistics Ordnance), The launcher was created in a six month development process involving the US Army Research, Development and Engineering Command (RDECOM), the US Army Manufacturing Technology (ManTech) Program and America Makes, the national accelerator for additive manufacturing and 3-D printing. The project was undertaken in order to demonstrate the utility of AM for the design and production of armament systems. A 40 mm grenade launcher (M203A1) and munitions (M781) were selected as candidate systems.

Europe

• NATO is planning to spend in excess of $3 billion over the next three years in order to bolster satellite and computer defenses against threats from hackers and Iranian missile threats. A senior official at the NATO Communications and Information Agency said the plans include a near $2 billion investment in satellite communications to better support troops and ships deployed across the alliance, as well as aiding the use of UAVs. NATO will present their needs in detail at a conference in Ottawa in April and then begin launching the bidding process.

• Leonardo is planning to unveil the latest addition of their Falco tactical UAV, the Falco 48. While little is known about the new system, it’s believed that the UAV will have an increased flight endurance of approaching 48h. The revelation was made by CEO Mauro Moretti during a presentation of the company’s industrial plan until 2021 to the Italian Senate’s permanent committee for industry, commerce and tourism earlier this month. Moretti also identified the company’s M-345 basic trainer and a light fighter development of the M-346 as current main programs, and the latter will also be capable of performing reconnaissance, attack and air defense tasks.

Asia Pacific

• In response to additional sanctions placed on them by the US, Iran has retaliated by placing sanctions on 15 US companies for alleged human rights violations and cooperating with Israel, according to the state news agency, IRNA. Included on the list were defense giant Raytheon, Oshkosh, and United Technologies, although it remains unclear if any of the firms has had any dealings with Iran or whether they would be affected in any way by Tehran’s action. The move came two days after Washington imposed sanctions on 11 companies or individuals from China, North Korea or the UAE for technology transfers that could boost Tehran’s ballistic missile program.

• South Korea is looking to target the Southeast Asian market with their T-50B advanced trainer after a display of the aircraft at last week’s Langkawi International Maritime and Aerospace Exhibition in Malaysia. Included in the sales push was a demonstration from the South Korea air force’s aerobatic team, the Black Eagles. Potential buyers of the aircraft include Malaysia, looking to replace the near obsolete Aermacchi MB-339CM, and Indonesia, who have partnered with Seoul to help develop the next-gen KF-X fighter.

• India is moving ahead with a $1 billion procurement of Spike anti-tank missiles from Israel’s Rafael Advanced Defense Systems. The Spike will see New Delhi acquire 275 launchers and 5,500 Spike missiles in completed and kit form along with an undisclosed number of simulators, and also includes a technology transfer to India’s state-owned Bharat Dynamics Limited (BDL) to build another 1,500 systems and around 30,000 additional missiles. Meanwhile, Israel is considering selling armed Heron TP UAVs, including the technology transfers necessary to meet the “Make in India” requirement. A decision on the Heron deal will be made following Indian Prime Minister Modi’s visit to Israel this July.

Today’s Video

• RAMBO:

Spike firing
(click to view full)

India has been looking for a modern anti-tank/ infantry strike missile to take the place of MBDA Milan missiles that have been produced under license by Bharat Dynamics. The finalists in this competition were the American fire-and-forget Javelin, and Israel’s Spike with its combination of wire guided or fire-and-forget modes. As of October 2014, Spike appears to have won, despite offers from the USA to involve India in developing the next version of Javelin.

The Spike Family

Spike family

The Spike infantry system consists of a missile in its cannister, a tripod, a Command Launch Unit that contains the optics and firing system, and a battery. It can go from “off” to firing in less than 30 seconds, as the operator lays the cross hairs on the aim point using either the 10x day sight, or the clip-on thermal imaging night sight.

Fire-and-forget targeting uses the imaging infrared (IIR) seeker, but there’s also an optional fully guided mode, using a fiber optic wire that spools out from the rear. They can be combined via “fire and forget plus,” which locks a target before launch but can be used to change targets or abort after launch. The missile flies in a lofted trajectory, hitting the target in a terminal dive and detonating a tandem high-explosive warhead that can defeat explosive reactive armor. The lofted trajectory also allows the missile to hit targets that are behind earthen walls, or otherwise not directly visible in line of sight. Reloading takes less than 15 seconds.

Spike-MR/ Gill is designed as an infantry-only weapon, and weighs 26 kg/ 57.2 pounds when fully assembled (13.3 kg missile in cannister, 5 kg CLU, 4 kg Thermal Sight, 1 kg missile, 2.8 kg tripod). Its effective range is 2.5 km. Spike-LR is a vehicle and infantry weapon that uses common systems, and extends effective range to 4 km. Vehicle variants include launch mountings and a control console, and Spike has been integrated into missile-capable Remote Weapons Systems.

Beyond these infantry weapons, Spike-ER is a larger missile that equips a number of helicopter types, and reaches out to 8 km. A special helicopter and vehicle-mounted variant called Spike-NLOS extends range to 25 km, and relies heavily on “fire and forget plus” via optical guidance. Neither appears to be on India’s acquisition radar just yet, but once Indian firms are license-building Spike family weapons, the government can always sign subsequent agreements to broaden its scope.

Contracts & Key Events

Spike components
(click to view full)

March 27/17: India is moving ahead with a $1 billion procurement of Spike anti-tank missiles from Israel’s Rafael Advanced Defense Systems. The Spike will see New Delhi acquire 275 launchers and 5,500 Spike missiles in completed and kit form along with an undisclosed number of simulators, and also includes a technology transfer to India’s state-owned Bharat Dynamics Limited (BDL) to build another 1,500 systems and around 30,000 additional missiles. Meanwhile, Israel is considering selling armed Heron TP UAVs, including the technology transfers necessary to meet the “Make in India” requirement. A decision on the Heron deal will be made following Indian Prime Minister Modi’s visit to Israel this July.

August 18/15: The German Army is reportedly buying Spike-LR Anti-Tank Guided Missiles (ATGM) from Israel’s Rafael Defense Systems. The missile family has found export success with India, with the Bundeswehr planning to equip some Puma IFVs with the weapon. The German Defense Ministry has reportedly already purchased a number of the missiles, with the integration with Puma vehicles scheduled for completion by 2018.

Oct 24/14: Spike picked. India’s top-level Defence Acquisition Council clears INR 900 billion in acquisitions. New submarines are the biggest, but there’s also clearance for up to INR 32 billion to buy and license-build about 300 Spike family launcher systems and 8,000 missiles.

Other DAC clearances include INR 530 billion for 6 submarines; 2 SDV underwater commando delivery vehicles; INR 20 billion to have the state-owned Ordnance Factory Board build about 360 more BMP-2 tracked IFVs under license; and INR 18.5 billion for 12 more license-built Do-228NG short-range transport and maritime surveillance aircraft from HAL. Sources: NDTV, “6 Made-in-India Submarines for Navy for 53,000 Crores” | IANS, “Defence ministry clears Israeli anti-tank missile, six submarines”.

DAC Approval: Spike wins

Nov 11/13: DAC delays. Indian defense minister AK Antony and the Defence Acquisition Council give Javelin an opening in India, by delaying any decision on INR 150 billion project to equip India with 321 Spike family launchers and 8,356 of RAFAEL’s Spike-MR missiles.

Raytheon had received the Indian Army’s 2010 RFP, but only RAFAEL responded. Europe’s MBDA, Russia’s Rosoboronexport, Raytheon, and General Dynamics reportedly balked at India’s technology-transfer requirements, and did not bid. The Lockheed/ Raytheon Javelin needs the competition to be withdrawn and replaced by another RFP that it can enter, at which point India’s own state-run firms might choose to offer a version of their problem-plagued Nag missile. DAC’s non-decision leaves the entire situation very unclear.

Even if RAFAEL does win, Javelin is expected to remain a viable competitor for subsequent infantry buys. Sources: Times of India, “Antony defers decision on critical but controversial missile deals with Israel” | Defense News, “India Again Considers Buying Israeli-made ATGM” | Defense News, “India Pursues Indigenous ATGM Amid Javelin Talks” | Times of India, “Scam-wary Army calls off Israeli missile deal” (March 2013).

Nov 29/12: Competition. The Times of India reports that Israel’s Spike-MR missile may be about to elbow Javelin aside, because the Israelis are willing to transfer enough technology to allow production in India.

The Ministry eventually wants to equip all 356 of its infantry battalions with an estimated 2,000 launchers and 24,000 missiles, produced by state-owned Bharat Dynamics. The Army reportedly wants to complete the induction of these anti-tank guided missiles by the end of the 12th Plan (2017).

Sept 23/12: Javelin issues. India remains interested in the Lockheed/Raytheon Javelin. Their soldiers fired some in 2009 joint exercises with American troops, and Defence Minister AK Antony said in August 2010 that a Letter of Request would be sent. So, why has no DSCA request been approved? India’s PTI explains that conditions regarding the secrecy of certain components are holding up an agreement. This isn’t the first time transfer of technology and proprietary designs have had an impact on US-Indian sales, and it won’t be the last. Raytheon will say only that:

“The Javelin JV stands ready to respond to all requests of the Indian government relating to the evaluation and procurement of the combat-proven missile while ensuring it adheres to a US and Indian governments’ agreement.”

If Javelin continues to hit roadblocks, Israel’s RAFAEL awaits with its popular Spike family.

March 25/11: RFP exclusion. Spike MR was the only bidder in India’s international tender, in part of because of language requiring an “active-passive fire-and-forget guidance system,” which only Spike meets. Most other missiles are either active/ passive guidance that requires crosshairs on target (GBM-71 TOW, AT-14 Kornet, MBDA Milan-ER), or fire and forget (FGM-148 Javelin). Defense Update writes:

“The Indian Army plans to install the missiles on infantry combat vehicles currently carrying locally produced AT-5 or Milan missiles.

The Indian Ministry of Defense plans to order 321 launchers, and 8,356 missiles, plus 15 training simulators in a multi-phase arms package worth over one billion US$. Two options are currently on the table – the U.S. Javelin and the Israeli Spike MR.”

Reports are currently conflicting. Defense Update suggests that both programs are proceeding in parallel channels, and at some point either the RFP (Spike MR) or a government-to-government deal (Javelin) will win out. The challenge for RAFAEL is that India has rules discouraging awards to competitions that wind up with just 1 compliant vendor, so a waiver will be needed. For Javelin, the issue is technology transfer. Sources: Defense Update, “Spike or Javelin? India Still Undecided on a Billion Dollar Missile Buy”.

Additional Readings

• RAFAEL – SPIKE Family of Multi-Purpose, Tactical Missiles.

• RAFAEL – Spike NLOS Electro Optic Guided Missile.

General Atomics has awarded a new $41m contract to QinetiQ North America (QNA) to support delivery of the US Navy's electromagnetic aircraft launch system (EMALS) and advanced arresting gear (AAG).

The US Navy’s George H.W. Bush Carrier Strike Group (CSG) has commenced strike missions against ISIS from the Arabian Gulf in support of Operation Inherent Resolve (OIR).

Chief Executive Jorge Domecq welcomed NATO Deputy Secretary General Rose Gottemoeller to the EDA today ahead of discussions mainly focused on the implementation of the EU-NATO Joint Declaration. Deputy Secretary General Gottemoeller is the first NATO official of this level to visit the EDA, signalling an important message of strengthening EU-NATO cooperation in the field of defence capabilities.

Ms. Gottemoeller’s visit began with a presentation of selected EDA capability development projects, offering an opportunity to demonstrate the work that the EDA is undertaking, for example in the area of air-to-air refuelling. The briefing provided concrete examples of how the EDA plays a crucial role in enhancing European defence capabilities, which provide also concrete benefits to NATO.

EDA Chief Executive Domecq and Deputy Secretary General Gottemoeller then held fruitful discussions on a range of EU-NATO issues. Mr. Domecq began the meeting by outlining the main developments in European security and defence including the EU Global Strategy and its Security & Defence Implementation Plan with focus on EDA’s role.

Discussions then switched to EDA-NATO relations with the main focus on the EU-NATO Joint Declaration. Mr. Domecq underscored the significance of the EU-NATO Joint Declaration and its implementation to ensure coherence of output between EU and NATO efforts. As the EDA is involved in 6 out of the 7 areas of the Joint Declaration (Resilience, Maritime, Cyber, Defence Capabilities, Defence Industry/Research, Exercises), it is crucial that EDA-NATO capitalise on their existing good interaction. 

Speaking at the conclusion of the visit, Mr. Domecq commented; “I am delighted to have welcomed NATO Deputy Secretary General Rose Gottemoeller to the EDA for extremely positive and forward looking discussions. Even before the EU-NATO Joint Declaration the Agency pursues substantive dialogue and cooperation at staff-to-staff level with NATO, from top management to expert level. However, a new culture of EU-NATO interaction was triggered due to the Joint Declaration. It has added new momentum and provides the opportunity to further enhance cooperation and to provide more visibility to the ongoing staff-to-staff talks.”

The starting pistol for the first European Advanced Airlift Tactics Training Course for 2017 (EAATTC 17-1), hosted by the Bulgarian Air force at Plovdiv Airbase, was fired yesterday (26 March). The exercise, initiated by the European Defence Agency (EDA) and run together with the European Air Transport Command (EATC), will last until 7 April 2017. 

The event gathers five aircraft from five different countries (Belgium: C130; Bulgaria: C27J; Czech Republic: C295; Italy: C27J; Netherlands: C130) and over 100 personnel from different countries (Belgium, Bulgaria, Czech Republic, Italy, Netherlands). 

This edition of EAATTC is dedicated to single-ship flying missions which, as the training goes on, will evolve from an initial low level tactical scenario to more complex air-to-air to and surface-to-air threats environments. Nine flights are planned for the single ship course. At the end of the course, graduating crews will be presented with a certificate based on the training events completed.

 

More information: 

• Factsheet EAATTC 17-1
• Airlift tactics training held in Spain (2016)
• Multi-ship, format flying at the core of airlift tactics course in France (2016)
  
  
  

Americas

• The US has imposed sanctions on 30 foreign individuals and companies for alleged aiding of arms sales to Syria, North Korea and Iran. A State Department statement said that 11 companies or individuals from China, North Korea or the United Arab Emirates were sanctioned for technology transfers that could boost Iran’s ballistic missile program, while 19 others were sanctioned for other violations under the Iran, North Korea and Syria Nonproliferation Act (INKSNA). INKSNA was passed by the US Congress in 2000 as the Iran Nonproliferation Act, with Syria and North Korea added in 2005 and 2006 respectively.

• Northrop Grumman’s APG-83 AESA fifth-generation radar has been installed on USAF F-16 fighters. The install is part of the F-16 Radar Modernization Program which intends to replace currently used APG-66 and APG-68 radars and provide the F-16 with advanced capabilities similar to fifth-generation fighters like the F-22 Raptor and F-35 Joint Strike Fighter. It’s believed that the APG-83 could satisfy a need for F-16 users to counter increasingly sophisticated and technological threats with increased bandwidth that would allow the F-16 to detect, track and identify greater numbers of targets faster, and at greater distances.

• Lockheed Martin has announced that it is to switch the production line of the F-16 Fighting Falcon fighters from Forth Worth, Texas, to their facility in Greenville, South Carolina. The switch will take place in September following the delivery of the last F-16 being built for Iraq, after which the Forth Worth operation will focus on the company’s F-35 production effort. Of the 4,500 F-16s sold to customers since 1976, about 3,600 have been built in Forth Worth.

Middle East & North Africa

• FNSS has been contracted to produce armored amphibious assault vehicles for the Turkish Naval Forces Command. The Turkish company will deliver a total of 27 vehicles — 23 personnel carriers, two command-and-control vehicles, and two recovery vehicles — to Ankara, in a deal thats value remains undisclosed. Meanwhile, the German government has blocked deliveries of defense equipment to its NATO ally, claiming that Turkish President Recep Erdogan may be using imported weapons to oppress his own citizens.

Europe

• The French government has approved key upgrades for the Rafale multi-role fighter which will bring the aircraft up to its F4 standard. Under the program, manufacturer Dassault will modernize legacy F3-R standard jets with updated technological capabilities that will boost their performance in a network and be more effective in combat missions, with Thales and Safran providing subsystems, and MBDA supplying missiles. It is expected that the F4 standard will begin qualification in 2018 and enter service by 2025.

• Poland’s deputy minister for national defence Bartosz Kownacki has stated that his government will not purchase second-hand early F-16 variants, deeming them too expensive and bad value for the money. Citing Romania’s purchase of second-hand F-16A/Bs from Portugal, deputy commander in chief of the Polish armed forces Gen. Jan Sliwka commented that Bucharest had paid more to upgrade the fighters than buying them new. Instead, Warsaw may look at either purchasing brand new F-16s or the F-35.

• New British Royal Navy Queen Elizabeth-class aircraft carriers will not have V-22 tiltrotor aircraft onboard, according to a written parliamentary reply to Lord West. Lord West, a retired Royal Navy officer and former government minister, had asked if the government was considering the Osprey for use by the state’s special forces. In response, the government stated that the aircraft was not part of plans to deliver the UK Carrier Strike capability. However, the MoD will continue to explore a variety of options to augment the capabilities of the carriers.

Asia Pacific

• India is set to commence contract negotiations for the purchase of 56 Airbus C-295 aircraft for the Indian Air Force after New Delhi selected the tactical transporter to replace its aging Avro HS-748 fleet in 2015. The aircraft will be built in partnership between manufacturer Airbus and Tata Advanced Systems Ltd where Airbus will first deliver 16 units in “fly-away” condition from their own final assembly line in Spain, and the remaining 40 aircraft will be produced in India by Tata. The arrangement will see the Indian firm undertake structural assembly, final aircraft assembly, systems integration and testing, and management of the indigenous supply chain. In a separate order, India’s Border Security Force (BSF) is also looking at four additional C-295s for movement of its troopers within the country.

Today’s Video

• Indonesian Jupiter and South Korean Black Eagles friendship flight at LIMA 2017:

French DARD 120 Anti-Tank Rocket Launcher

A new EDA project aimed at the development of a media and technology monitoring system for EDA was launched with the Joint Research Centre (JRC) of the European Commission on March 23rd, 2017. This initiative represents a continuation of previous EDA Technology Watch activities and projects and has the purpose to increase access to high quality defence technology information for the Agency and its stakeholders. 

This new capability will help EDA  provide better support to the activities of Member States as well as those foreseen under the Preparatory Action for Defence Research and the future European Defence Research Programme.  Having a systematic understanding of evolving technical trends and their effect on future European defence capabilities, both long and short term, is of great significance for EDA’s work. The Technology Watch activity is providing one of the inputs for the EDA CapTechs process of technology identification.

The objective of this new project is to develop customized versions of JRC’s monitoring and data analysis tools adapted to the needs of defence. The modules identified in JRC’s tools have been assessed as crucial for understanding the state-of-the-art technologies relevant for the defence sector and their evolution. The new system will provide both media and technology monitoring components, use diverse information sources and offers a combination of search methods. Furthermore, JRC’s instruments give the possibility to identify in real-time tendencies in specific domains. This is especially important in the current context of fast-paced technological development and can represent a strategic advantage for the European defence community. 

The outputs from the monitoring systems can serve as background information to be used in the assessment and prioritization phases of defence R&T planning, essential for the development of the CapTechs Strategic Research Agendas. These activities will also support the dual-use link with the Long-term strand of the Capability Development Plan (CDP), EC Key Enabling Technologies (KETs), for short and medium term applications, and with the EC Future Emerging Technologies (FET), for forward looking technologies and applications.

The kick-off meeting between EDA and JRC took place on 23 March 2017 at the EDA in Brussels. 

 

More information:

• EDA Technology Watch & Horizon Scanning Tool 
• JRC European Media Monitoring 
• JRC Tools for Innovation Monitoring

On 22 March, the SEDE committee welcomed preeminent experts on transatlantic relations to discuss the implications of US security and defence policy for the EU. Ian Lesser, Vice President for Foreign Policy, German Marshall Fund, Steven Blockmans, Senior Research Fellow at CEPS and Jan Joel Andersson, Senior Analyst at the European Union Institute for Security Studies provided Members with their take on the challenges and opportunities created by the Trump administration.
Further information
Draft agenda and meeting documents
Presentation by Jan Joel Andersson, Senior Analyst, European Union Institute for Security Studies
Source : © European Union, 2017 - EP

On 22 March, the SEDE committee will discuss with H.E. Kazuo Kodama, Ambassador of Japan to the EU, Mr Gunnar Wiegand, Managing Director for Asia and Pacific, EEAS and Ms Theresa Fallon, Director of the Centre for Russia, Europe and Asia Studies (CREAS), the implementation of the recent Japan’s defence and security policy reform, its impact on regional security, as well as the development of Japan’s political, security and military cooperation with the countries of the region.
Further information
Draft agenda and meeting documents
Presentation by Kazuo Kodama, Ambassador of Japan to the EU
Source : © European Union, 2017 - EP

will take place on Tuesday 11 April, 15:00-18:30 and Wednesday 12 April 2017, 9.00-12:30 in Brussels.

Organisations or interest groups who wish to apply for access to the European Parliament will find the relevant information below.

Further information
watch the meeting live
Access rights for interest group representatives
Source : © European Union, 2017 - EP

Four new Project Arrangements (PA) were signed by participating EDA Member States in the margins of the EDA Steering Board meeting in Capability Directors formation which took place on 23 March at the Agency under the chairmanship of Lieutenant General Erhard Bühler. EDA Chief Executive Jorge Domecq welcomed the news signings as they show that progress is being made on important and concrete capability projects within the EDA. 

The four Project Arrangements are related to the following projects :

• Multimodal Transport Hub.This project involving 14 contributing Member States (Austria, Belgium, Czech Republic, Cyprus, Germany, Greece, Finland, France, Hungary, Italy, The Netherlands, Poland, Sweden, Slovenia) aims to simplify the procedures for the crossing of borders and national territories with military personnel and equipment. Other objectives are to apply harmonized Customs procedures, to ensure a more cost-effective use and pooling of European transport assets, to allow for the best use of existing air/sea/inland infrastructure and increased civil military transport synergies, and to develop cost saving options for combining a range of logistic facilities and systems. The overarching aim of the project is to develop a European Multimodal Transport Hub Network ready to be used by CSDP missions and for other Member States’ purposes (day to day business and exercises) through harmonised regulations, procedures and processes as well as pooling and sharing of movement and transport assets and infrastructure in Europe. Once set up, this European network will considerably facilitate the deployment of troops and assets for joint CSDP operations as well as the overall military movement and transport.This project involving 14 contributing Member States.
 

• ECMAN (European Centre for Manual Neutralisation Capabilities). The aim of this project is to provide participating Member States (Austria, as a lead nation, as well as Germany, the Czech Republic, Finland and Italy) with expertise and experience in the field of Improvised Explosive Devices (IED) threats. The project will provide opportunities to enhance education and training, improve interoperability and capabilities, assist in doctrine, TTPs and equipment development & testing and validate concepts through experimentation. Close involvement during the entire cycle of a Manual Neutralisation (MN) activity will provide participating Member States with highly skilled MN personnel. ECMAN is a follow-on activity of the EDA Category B programme Manual Neutralisation Techniques Courses and Exercises (MNT C&E). 


• PRCPC (Personnel Recovery Controller and Planner Course). This project was established in 2013 as a Cat B project under the lead of Sweden. The course was initiated by six contributing Member States: Austria, Belgium, Germany, Hungary, the Netherlands, and Sweden. The Course was extended a first time until 2015 and then until 2017. Cyprus joined in 2017. The main focus of the Course, which will now run until 2019, is to train staff officers in supporting their commanders in Personnel Recovery related tasks. The EU will thereby benefit from the increased number of trained personnel available to support future CSDP operations and missions


• M3U (Multinational Modular Medical Unit). This project will standardize national medical capabilities to achieve a high level of multinational interoperability so that different medical modules can be integrated within a framework structure offered by a Frame Nation. The final outcome will be a deployable & sustainable Multinational Modular Medical Unit.  Nine EDA Member States have signed the PA today (Austria, Czech Republic, Germany, Belgium, Romania, The Netherlands, Cyprus, Italy, Finland) but more are expected to join soon. 

 

Americas

• Lockheed Martin has ruled the T-50A out of the USAFs upcoming light attack aircraft experiment, instead focusing on offering the plane as part of the service’s T-X trainer competition. The company stated that the T-50A, a variant of Korea Aerospace Industries’ (KAI) T-50 Golden Eagle, already has a light-attack version, the FA-50, hinting that a solution may come not from the fixed-wing side of the company but rather from its rotary and mission systems business. Last week’s invitation by the Air Force details plans to choose up to four companies to bring non-developmental, low-cost, multi-role aircraft to Holloman Air base for a capability assessment. Over a period of four to six weeks, each plane’s “basic aerodynamic performance” will be tested as well as weapons, sensors, and communications capability. On the success of these demonstrations, the Air Force aims to prove whether there is a business case for creating an OA-X program of record.

• Elbit will deliver 126 helmet display tracker systems associated with MH-60 Seahawk helicopters to the US Navy in a contract worth $49.8 million. The system is designed to integrate with the rotorcraft’s 20mm automatic gun subsystem, 2.75-inch unguided rockets and digitally-guided precision rockets, and enhances the situational awareness and targeting capabilities for Seahawk pilots and co-pilots. Work on the contract will be performed at Elbit’s facility in Fort Worth, Texas, and is expected to be completed by June 2021.

• The US Navy’s MQ-25A Stingray unmanned aerial tanker is likely to have a wing-body-tail design after Lockheed Martin’s Skunk Work division found that a flying wing design is not the best aerodynamic shape for the service’s latest requirements. While the Navy had initially intended a surveillance and possible strike capability for the aircraft, the current requirements suggest a strong emphasis on a tanking role and less on ISR. As a result, competing firms Lockheed Martin, Northrop Grumman, General Atomics and Boeing are likely to redesign their bids for the competition.

Middle East & North Africa

• L-3 Fuzing and Ordnance System has won a $37 million US Army contract to provide various military fuses for the government of Saudi Arabia. The foreign military sales contract will see the kingdom receive more than 38,000 M734A1 multi-option fuses and more than 165,000 M783 detonating and delay fuses by May 31, 2019. Fuses are used as components in artillery munitions, grenades, sea mines, and other explosive devices.

Europe

• Rheinmetall has been revealed as one of the defense manufacturers affected by defense export denials to Turkey by the German government. Speaking at the company’s end of year results, Chief Executive Armin Papperger reported that the “German government is currently denying clearance for some export contracts,” which could get in the way of current talks with Ankara over a contract to supply a defense system for its Leopard battle tanks, after the country lost 10 such vehicles in its war against the Islamic State. The latest tensions between the two governments have arisen from a row over campaign appearances in Germany by Turkish officials to drum up support for a referendum that could boost President Tayyip Erdogan’s powers.

• An explosion at an army base warehouse storing tank ammunition in eastern Ukraine is being blamed on Russia or Russian-backed separatists. Defence Minister Stepan Poltorak told a press conference that a fire and explosions caused the detonation of ammunition in several sites at the base, possibly set off by a drone attack or a radio or timed device. Poltorak added that “I think that first of all it could be representatives who help the (separatist) groups that carry out combat missions,” hinting that a “friendly” country (Russia) may have been involved.

Asia Pacific

• Dassault’s Rafale is being touted as the preferred selection by Malaysia for their latest fighter procurement program. A pitch in fovor of the fighter is expected to be made during French President Francois Hollande’s visit to the country next week, and could initially be worth as much as $2 billion for 19 aircraft. Hollande’s arrival will be marked by a ceremony which will see two French Rafales join a Royal Malaysian Air Force A400M in a flypast at Subang airbase in Kuala Lumpur. Also in the hunt include BAE with the Eurofighter Typhoon, Russia’s Sukhoi and Sweden’s Saab, which is selling its single engine Gripen.

• The Indian government is considering whether it will pay for the maintenance and repair of grounded helicopters and transport planes belonging to the Afghan Air Force. Experts sent by New Delhi to access Kabul’s need estimate that it will cost close to $50 million for new parts and repairs to 11 grounded Soviet-made Mi-35 helicopters and seven transport aircraft. A final decision is expected within the next few months as soon as final costing is complete. As most of Afghanistan’s small air force dates from the Soviet era, sanctions against Russia means that Western donors that fund the military cannot pay to get grounded aircraft flying again. Here, India plays an important role in potentially supporting Afghanistan as it is not posed by such restrictions.

Today’s Video

• Airspace System’s drone catcher:

German / Swiss SIG MPX Submachine Gun

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Source : © European Union, 2017 - EP

What are the tax obligations of citizens, residents and investors in Afghanistan? This question is much harder to answer today than it was 18 months ago. Then, the 2009 Income Tax Law, a remarkably well-written and detailed piece of legislation, had gone a long way in establishing a path towards clarity, stability and integrity for taxpayers and officials alike. Indeed, it was one area, where ‘rule of law’ in Afghanistan seemed to be starting to take hold. From late 2015, however, new tax laws were passed and they have created uncertainty and chaos. AAN guest author Chantal Grut* describes the confusion and how it has created more space for corruption, predation and tax evasion.

In early 2016, the always-bustling Kabul city tax offices saw waiting times grow from hours to days. Taxpayers had been informed of a new penalty for failing to file either a tax return or, in the words of the new 2015 Tax Administration Law, “any other document” with fines threatened regardless of whether any tax was due or not. As a result, tax offices were flooded with people filing piles of various empty forms in an attempt to prevent the mysterious new penalty from being directed at them. Tensions ran high as taxpayers were charged penalties for a still-undefined obligation that they never knew they had. The confusion and increased waiting times carried on long after an April 2016 memo from the Ministry of Finance’s Legal Services and Revenue Policy Directorate confirmed that late penalties should not be applied to at least some of the documents. The memo, which came in response to an influx of petitions, requested tax offices to “adjust their performance in accordance with the tax laws to prevent taxpayers from aimlessly wandering around.” (1)

While the Afghan tax system has always faced many challenges, the legislation at its heart – the 2009 Income Tax Law (2), now partially repealed – is still one of the best-written and most detailed pieces of legislation on the books in Afghanistan. This remains the case, to the extent that it is still in force. The clarity, stability and integrity of this legislative regime created a space in which tax officials and taxpayers, over six years, worked together to establish a truly Afghan tax jurisprudence. This was indeed a remarkable, rare example of organic and effective rule of law development.

However, over the last 18 months this legislative framework has been subject to significant and rapid change. These changes included the introduction of a Value Added Tax Law and the Tax Administration Law, which repealed large swaths of the Income Tax Law while leaving other parts still in force. Putting aside for the moment the substance of the changes, the manner in which they have been introduced – vaguely, apparently haphazardly and without sufficient preparation or adequate notice – runs the risk not only of damaging the long-term health of the tax system, but of crushing nascent rule of law in one small corner where it had been thriving. Further overhauls are expected in the near future, with the Ministry of Finance currently in the process of repealing and replacing the last remaining articles of the 2009 Income Tax Law.

Afghan tax law – the basics

Before delving into the details of the new laws and how they were brought about, it is useful to lay out the basic tax obligations of individuals and organisations.

The most common income tax obligations (3) for both for-profit and non-profit entities in Afghanistan are:

• A monthly obligation to withhold and pay taxes from: employees’ salaries (a progressive scale of 0-20%), landlords’ rental income (0-15%) and payments to contractors (2-7%);
• A quarterly obligation to file and pay business receipts tax – a flat tax, usually four per cent – on gross revenue (non-profit organisations are exempt from this obligation); (4)
• An annual obligation to file a detailed tax return and pay 20 per cent tax on annual net profits (non-profit organisations and certain tax-exempt programmes are exempt from the obligation to pay the 20 per cent tax, but not from the obligation to file returns).

While the tax rates themselves are not particularly high, (5) compliance is costly in terms of time and administrative effort. Taxpayers have a 10 to 15 day window at the end of each month to calculate and pay each monthly, quarterly and annual tax obligation and file the applicable forms, after which financial penalties may accrue. (6) The 10 to 15 calendar day window is particularly onerous for smaller taxpayers without administrative staff; and for international investors headquartered outside Afghanistan where offices and banking systems may operate on a different work-week. Filing requires multiple trips to the tax office and the bank each month, as waiting times are long and taxpayers are regularly asked to come back the following day because of power outages or problems with the computer system. The annual return obligation is not completed until a tax clearance certificate is issued by the tax office, a process which typically takes many months (despite the Tax Administration Law specifying a time limit of 21 days) and which does not progress without the regular actual physical appearance of the taxpayer or their representative at the tax office. (7) Despite all these problems, however, at least the procedures were clear.

It is vital for Afghanistan to increase its tax revenues. The current tax base is small, with the group of large taxpayers described as “tiny” and over-taxed (8), and the wider potential taxpayer population described as “largely noncompliant and unidentified” (9). Despite recent impressive increases in revenue collection, domestic revenue still covers only half of the government’s operating expenditures (10). The government is under great pressure to continue to increase revenue in order to decrease reliance on foreign aid, to meet donor and IMF targets, and to fund much-needed development and infrastructure projects. That needs to happen at the same time as the economy continues to suffer from a collapse in economic growth. The government itself has acknowledged the challenges posed by corruption and limited capacity. (11)

There was always a lot of work to be done to develop the procedures, personnel, and most importantly, systems to get more people paying tax. However, under the strong framework of the 2009 Income Tax Law, the trend had been upwards and steady. For every page of the 2009 Law, the Income Tax Manual – a detailed set of regulations and practical examples that makes such a technical law function in practice – provided an additional five to six pages of guidance. Multiple plainly-worded guidelines were published and distributed. The law, moreover, established a dispute resolution procedure and a public and private rulings system to resolve disputes between taxpayers and the tax office and answer unclear questions of law. Rulings were (and still are) issued in writing, and are widely regarded as reasonably fair, with decisions regularly being made in favour of both the government and taxpayers. The body of rulings issued under the 2009 Law – to the extent that they are still in force – help make taxes more reliable and evenly and fairly applied, by ironing out disagreements about how certain rules should be applied.

The body of rulings, practices and procedures was developing into a uniquely Afghan tax jurisprudence that had grown organically from the real-life use of the tax law by both tax officials and taxpayers, garnering buy-in from both, and tailored to the specific conditions of Afghanistan (see for example how this has developed in relation to withholding tax on foreign service providers discussed at footnote 17). In terms of post-2001 legislation and formal rule of law development, the evolution of the tax law is remarkable: this author is anything similar in any other sector.

The new tax laws  

The most significant recent changes in the tax law were the passing of the 2016 Value Added Tax Law and the 2015 Tax Administration Law. The latter left some parts of the 2009 Income Tax Law in force, while repealing much of it. While some of the other recent amendments to the tax laws have been discrete and fairly well-publicised, such as the introduction of a 10 per cent telecoms tariff and the increase of the standard business receipts tax rate (from two to four per cent), others have resulted in more wide-ranging and less transparent overhauls. These changes have not only disrupted a stable, tried and tested system, they were also implemented without consultation or warning and, in effect, retroactively, at times without so much as making a copy of the law available.

The Tax Administration Law for example, published in the official Gazette dated 18 November 2015, states that it will come into force after the date of publication. However, neither the Gazette nor a copy of the law were actually physically available until mid-December 2015 (12). Since most people are not in the habit of regularly checking the Gazette, many taxpayers were first notified of the law when they received a penalties bill for failure to comply with it, with penalties back-dated to 18 November 2015. A decree issued almost a year later, in October 2016, recognised that “companies were not aware” of the Tax Administration Law but, nonetheless, continued to allow for the penalty to be applied back to November 2015 for all but one category of form (the fourth quarter 1395/2016 business receipts tax submission that was due on 5 January 2017 (see here).

The first public information sessions on the Tax Administration Law which the author is aware of were not organised until late November 2016, more than 12 months after the law had come into effect, and even today, no public guidelines or published procedures such as exist for the 2009 Law have been made available.

In contrast, the Value Added Tax Law, dated 13 April 2016, stated that it did not come into effect until more than eight months after its publication, on 21 December 2016. This is an excellent model for legislation that helps mitigate the risk of a law being retrospectively applied because of publishing delays. It also provided taxpayers and citizens with time to become familiar with the new rules. Despite this, in practice however, there were still months of confusion over whether or not the law even existed. In May 2016, tax officials responding to queries about Value Added Tax stated that there would not be a new law or system for many years to come. In early July 2016, the official Gazette became available and included the Value Added Tax Law with the 13 April date. That meant that the law had actually been passed before the public was told there were no plans for any such law, and also three months before a copy of the law would be made available to them.

This confusion is made immeasurably worse by the fact that, in contrast to the 2009 Tax Law, the new tax laws have not been clearly drafted. They have also not been released with any of the supplementary rules and regulations that are necessary for a technical law to function.

To take just one example, Article 35(1) of the 2015 Tax Administration Law provides a daily late filing fee for failure to submit a tax return “or any other document,” words that did not appear in the 2009 version. When the 2015 Tax Administration Law repealed this section (and many other sections) in the 2009 Law, by default, it also repealed the underlying regulations and rulings issued under those sections, but did not replace them. In total, approximately 60 pages of guidance and detail in the Tax Manual were deleted, not including other rulings and guidelines. It was this provision that led to the queues of people filing reams of documents, many of no consequence or relevance to actual tax liability, in early 2016: who were they to know what “any other document” referred to?

Whether or not one agrees with the expansion of the Article 35(1) fee from a failure to file a return to a more general failure to file undefined paperwork, (13) the vagueness with which the regulation was drafted created a waste of government and private resources. It lost the government goodwill and created a sense of injustice among taxpayers who were not able to assess with any certainty what the law was asking of them. The change in the law, moreover, left low-level tax officials with an overbroad discretion to interpret the law. That created new space for corruption and predation, but also placed a heavy burden on those tax officials who were trying their best to do an already difficult job with limited resources. All of this could have been avoided by simply specifying what “documents” were being referred to, either in the text itself or in an accompanying regulation.

At the time of writing, a Tax Administration Manual that provides some guidance (including on the meaning of ‘documents’) has reportedly been drafted, but is not yet publicly available.

Regulations and guidelines were not the only items left unprepared when the laws were passed. Much of what the Tax Administration Law purported to establish, and the mechanisms which are required for it to function, have not actually been created. For instance, Article 55 describes new dispute resolution procedures for a Board that does not, at the time of writing, exist. New licences that must be held by tax accountants pursuant to Article 33 have not yet been issued, nor have the rules explaining the licensing procedures. Responsibilities assigned to the tax administration (Art 59), such as the requirement to issue a tax clearance certificate within 21 days of a taxpayer request, are not being implemented in practice and would be near impossible to implement without radical changes to the way that the tax clearance procedure currently works.

While financial penalties for late filing of documents are enforced in practice, a system to date-stamp documents when submitted, to prove that filing obligations have been complied with, is missing. In practice, the tax office may refuse to provide any proof of filing, or refuse to accept a filing, creating a situation where taxpayers are powerless to stop the daily accrual of financial penalties (14).

In another bizarre example, the Value Added Tax Law came into effect on 21 December 2016, without any corresponding Value Added Tax system being created and, apparently, without any intention to implement or enforce the law. It was, however, the law of Afghanistan (together with the numerous penalties for failure to comply with it (15)), at least until 29 January 2017, when yet another law was passed delaying the effective date by four more years. Once again and despite the 29 January 2017 date stated on the law, the text of the law is still not available online or in print at the time of writing. Only a soft copy was made available by the Ministry of Justice on request almost a month after it had been passed, on 20 February 2017.

This lack of legislative coherence is not uncommon in Afghanistan. However, it is in stark contrast to the 2009 Tax Law, and highlights one of the reasons why the 2009 Tax Law was (and to the extent it is still in force, is) such a workable law. (16) The forms, procedures and administrative bodies that were established by the 2009 Tax Law largely existed and functioned. The rights and responsibilities that the law set out were capable of being enforced, and were not just policy statements or aspirations. Passing laws that are treated as nothing more than paper and that may or not be implemented, possibly only at a later date, makes it close to impossible for anyone to truly know what their tax obligations are, or what their tax obligations might be interpreted to be (with penalties and interest) in the future.

Such laws also make it extremely difficult for taxpayers and tax officials to hold each other to account according to the law, something which, albeit imperfectly, and among a small group of participants, had previously been happening. It is difficult for tax officials to point to articles of the law and insist that taxpayers are legally required to part with a percentage of their profits, or for taxpayers to point to specific articles and insist on their due process, when large swathes of the law are not really in force, or have not been implemented yet, or are only aspirational. If law is no longer in the toolbox available to both officials and taxpayers, what is left is confusion in which predation and coercion on the one hand, and manipulation and evasion on the other, are likely to thrive.

AAN put in a request to the Ministry of Finance for an interview as we were keen to know why they felt the need to change the taxation law and why those changes had resulted in such muddle and confusion. However, the ministry was unable to provide us with an interviewee.

The future of paying taxes in Afghanistan

What are the tax obligations of citizens, residents and investors in Afghanistan? It is a question that is much harder to answer today than it was 18 months ago. It is inexplicable that so much uncertainty and opaqueness could have been introduced to this sector, at exactly the time that the government is trying to expand the tax base in a shrinking economy, attract investment, and tackle corruption, and hoping to develop and maintain a strong revenue stream.

Indications are that the situation may be about to become even worse: the Ministry of Finance is in the process of repealing and replacing the remaining articles of the 2009 Income Tax Law, and is soon to send the new draft legislation to the cabinet. Early drafts indicated that certain provisions may exacerbate areas of uncertainty in Afghanistan’s tax code even further (17). Meanwhile, a recent draft of another proposed law (18), to license professionals entitled to work in the tax sector, gives the Ministry of Finance (as opposed to an independent body) the authority to license the professionals who are charged with holding it to account. If passed in its current form, Afghan attorneys – independently licensed by the Afghanistan Independent Bar Association – would likely be excluded from appearing on behalf of taxpayers at the Ministry of Finance, including on questions of law.

At times, legislative change is, of course, needed. If a law needs to be changed to pursue new policy goals, then lawmakers need to consider which specific aspects need amendment without overhauling precious functional systems. If laws are to be partially repealed and replaced, they should be republished in one document that shows clearly what is and is not still in force. Laws should be drafted with clarity and precision, and should preferably not be passed until the regulations, policies and administrative structures needed to make them work (and an intention to actually implement them) have been prepared. At a minimum, citizens should be provided with adequate notice of changes and access to the laws before being penalised for failure to comply with them.

The 2009 Tax Law and its accompanying regulations were, and still are, a strong example of a law that was clearly drafted, accessible, and enforceable. When considering rule of law development, taxation may not be the first thing that springs to mind, but in Afghanistan, it was the primary area where formal rule of law was developing. Moreover, it was developing not through a top-down initiative, or a donor-funded rule of law project, but organically, through day-to-day interactions between tax officials and taxpayers who chose to conduct their affairs and resolve their disputes by opening up a law book together, seeing what it says, and conducting themselves accordingly. It is a real pity that such hard won achievements have been undermined.

 

* Chantal Grut is a legal consultant based in Kabul. She holds degrees from Columbia Law School and Victoria University of Wellington and is a licensed attorney in New York State and a New Zealand Barrister & Solicitor.

 

 

 

(1) Letter to Mustofiat, RSI-94618, 1395/1/28.

(2) The Income Tax Law 2009 was preceded by and substantially based on the Income Tax Law 2005.

(3) Matters relating to customs and import duties are dealt with under a separate legislative regime. Additional tax obligations that are not as common include the obligation to withhold from certain forms of passive income (Income Tax Law 2009, Article 46).

(4) Alternative business receipts tax rates range from two to ten per cent for certain specified industries. See: Income Tax Law 2009, Article 66 (as amended by Presidential Decrees nos. 58 and 149).

(5) Afghanistan’s corporate income tax rate is 20%, and the progressive personal income tax rate also peaks at 20%. According to international rates for 2016 as published by KPMG, this compares to a global average corporate tax rate of 23.62% (and an Asia average of 21.92%), and a global average personal tax rate of 33.17% (and an Asia average of 28.88%). See: KPMG Individual income tax rates table, available here; and KPMG Corporate tax rates table, available here.

Other Afghan tax obligations including on gross revenues and expenses, as opposed to net profits, can however be quite onerous particularly for low-margin businesses.

(6) These financial penalties include:

• A flat 10% penalty for late payment of withholding taxes: Tax Administration Law, Article 36(1);
• A 0.1% per day penalty for late payment of any tax liability: Tax Administration Law, Article 34;
• A per day penalty of 30 AFN per day (for natural persons) or 100 AFN per day (for legal persons) for failure to file “documents” including for example a withholding tax or business receipts tax form: Tax Administration Law, Article 35(1).

(7) Delays in the issuance of tax clearances on the part of the tax office can have serious repercussions for businesses, as business license renewal is contingent on obtaining a tax clearance certificate for the most recently closed financial year. This is particularly onerous for businesses whose licenses expire close to the end of a tax year. For example, annual returns for the year ending 20 December 2016 are not due to be submitted until 20 March 2017, and once submitted typically take multiple months before a tax clearance is issued. As such if a business license expired in January 2017, then it is almost certain to be subject to a long period of expiration before it will be renewed, even if the business in question pursues its tax filings and clearance with the most diligent efforts. The lack of a valid business license can also lead to an inability to renew work visas, making it incredibly difficult for some organisations to continue to operate on a legal basis.

The Central Business Registry has alleviated some of this burden by issuing licenses which are valid for three years (as opposed to the former one year license), in effect providing two years of relief from the time crunch.

(8) See for example: Letter of Intent from Government of Afghanistan to the International Monetary Fund, Attachment I, Memorandum of Economic and Financial Policies for 2016-2019, paras 21 (specifically in relation to a lack of capacity to administer a Value-Added Tax), 36-37. Available here.

(9) William A. Byrd and M. Khalid Payenda, “Afghanistan’s Revenue Turnaround in 2015”, United States Institute of Peace, Brief 201, February 2016. Available here.

See also: Masuda Sultan, Saving Private Enterprise in Afghanistan, New York Times, 2 January 2017. Available here.

(10) International Monetary Fund, IMF Country Report No. 16/252, “The Islamic Republic of Afghanistan: Request for a three-year arrangement under the extended credit facility – press release; staff report; and statement by the Executive Director for the Islamic Republic of Afghanistan”, July 2016, p 11. Available here.

(11) See page 11, footnote 13 of the just mentioned IMF country report.

(12) This is a common problem. The Tax Administration Law (Art 65(1)), like many laws in many jurisdictions, states that it will come into effect after the date it is published in the official Gazette. Such provisions are intended to ensure that laws cannot come into force before the public has access to them. However, due to printing and translation delays, the ‘publication date’ printed on Afghan Gazettes is usually not the date that it is actually physically published or available to the public, in hard or soft copy. It typically becomes available at a date weeks or even months later, with the effect that all laws stated to come into force on Gazette publication are actually retroactive.

(13) There is certainly scope to argue that additional taxes for late filing/payment have become wildly disproportionate under the Tax Administration Law. For example, a tax liability of 1 AFN per month in salary withholding alone, a total annual bill of 12 AFN, accumulates to 202,300 AFN in late filing penalties per year for legal persons, or 1.7 million per cent of the tax liability itself. This is in addition to two other proportionate penalties of a flat 10% (1 AFN) and 0.1% per day (2 AFN annualized). The alternative to accruing over 202,000 AFN in penalties on a 12 AFN tax bill is to hire an employee or service provider to complete the forms and file them in person with the bank and the tax office every month, a cost that is also disproportionate to 12 AFN.

This penalty applies equally to non-profit organisations and businesses that may be operating at a loss.

(14) For example, if a tax liability is disputed or a taxpayer does not have the means to pay a tax bill, they will not be able to stop the filing penalty from accruing, because the tax office will typically not accept filing of the document unless the underlying tax liability is paid. Other practical problems may result in the tax office refusing to accept filing of a document, including confusion about which tax office the taxpayer is supposed to register with, and system-outages at the tax office.

(15) Tax Administration Law 2015, Article 43.

(16) In many respects, the 2009 Income Tax Law is the outlier. For example, at the time of writing and as far as the author is aware, the dispute resolution body purportedly established under Article 37 of the NGO Law does not exist. The Labour Law 2008 makes multiple references to a “pension” (see Articles 26, 134, 141, 143, 144), including a “right” to a pension and payment from an employer “fund”, without ever specifying what the pension obligation, if any, actually is, or who it would apply to. While these any many other articles of the Labour Law allude to often laudable policy goals, the result is a law that cannot be objectively complied with or enforced, because the rights and obligations it purports to establish are so often vague, with details left to be fleshed out in regulations that may or may not have been promulgated.

(17) Early drafts of the new proposed tax law indicated that officials were considering trying to radically alter the tax landscape by limiting the ability of non-profits to generate tax-exempt charitable income and by placing high tariffs on a range of international costs. That, of course, may have changed in subsequent drafts, but it is worth noting that these changes would have exacerbated, rather than clarified, existing uncertainties in the 2009 Income Tax Law, and undone the hard work that has been done to address those uncertainties through jurisprudence.

One area of confusion under the 2009 Income Tax Law relates to the obligation to withhold seven per cent taxes from contractors and service providers who do not have an Afghan business license, and whether or to what extent it applies to foreign vendors. Because this is a tax that might be levied on certain costs, uncertainty about what costs it applies to is high-risk – if a taxpayer is not aware that the tax will apply at the time that it makes the purchase from the vendor, then the taxpayer is unable to properly budget (if the cost is seven per cent higher the taxpayer may have declined to make the purchase). If the tax is later found to apply, the taxpayer will be out of pocket not only for the seven per cent, but for the significant penalties for failure to withhold discussed above.

This is one of the areas in which the rulings committee has provided significant guidance, finding that, with the exception of certain specific industries such as insurance (see: Decision #12.2, 1393/4/9), there is no applicable tax where the service provider is outside of Afghanistan, and the services are provided outside of Afghanistan and made available to an Afghan taxpayer (see: Decision #15, 1392/5/9). In practice, the risk is also mitigated by Income Tax Manual Article 72.4 which states that the withholding obligation only applies to vendors who are paid more than 500,000 AFN in the course of the financial year – meaning that taxpayers can more easily identify costs more or less likely to be subjected to the withholding obligation.

In contrast, the new draft Income Tax Law proposes a withholding tax of 20 per cent on foreign “technical services fees”, and excises the 500,000 AFN per year exemption threshold. “Technical services fees” is defined as “any type of payments for any kind of administrative, technical or consultancy services” which does not provide much more clarity. It could, conceivably, apply to almost every cost that a business or non-profit incurs to any service provider who is not registered in Afghanistan including software, email, web-hosting and cloud service providers; administrative service costs incurred by Afghan taxpayers while travelling internationally; international banking fees; advertising in international forums; and international dispute resolution costs to name just a few.

Because a service provider who is not actually otherwise subject to Afghan jurisdiction is not likely to agree to a 20 per cent cut on their invoice, in reality this is a cost that Afghan taxpayers would have to bear to gain access to international markets, services, and expertise.

Further because the tax could apply to almost any cost, because it is so high, and because the penalty regime is so punitive, taxpayers will have no good choices if the provision as drafted becomes law. They can either voluntarily gross-up all their international service costs and pay the tax to prevent the risk of penalties accruing (with the result that they pay 25 per cent more than their competitors in the informal and international markets), they can decline to purchase any international services where possible, or they can run the potentially devastating risk of the tax being found later to apply to their expenses, with penalties.

(18) See also: Tax Administration Law 2015, Article 33.

 

 

 

 

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