April 8th, 2008 | By Jon Boone

Afghanistan businesses are moving cash reserves overseas after learning that the government claimed it was owed more than $285,000 in back taxes from the Aga Khan’s luxury hotel development in Kabul.

A fortnight after eight guests and staff were killed by a terrorist attack at the city’s most upmarket hotel on January 14, the ministry of finance took the money from the dollar account of the Serena hotel without warning.

After two years in operation, the Serena, an elegant five-star hotel set up by the Aga Khan in the hope that it would spur other international investors, has yet to make healthy profits.

The ministry of finance said it was within Afghan law to settle tax disputes by freezing or “making transfers” from private accounts. But Christopher Newbery, the hotel’s general manager, said the sudden withdrawal of funds could not have come at a worse time. The hotel’s revenue had dried up after a team of suicide bombers detonated themselves in front of the compound in central Kabul and it needed cash to repair the damage.

“We were absolutely furious because having been attacked on January 14, on January 29 we had a second attack when the government took our money at just the moment we needed it most.”

The case has highlighted the risks of starting businesses in a country where entrepreneurs say government interference and “nuisance taxes” are as big a problem as declining security and a decrepit national electricity supply.

Three companies, which declined to be named, told the Financial Times that they were taking cash out of the country to protect their businesses.

The Serena is one of two businesses that the Aga Khan Development Network has invested in as part of a private sector-led development programme. Frantic lobbying of Hamid Karzai, the president, by the ambassador to the Aga Khan, the billionaire spiritual leader of the Ismaili Muslim community, led to the money being temporarily repaid.

The ministry of finance says it expects the money to be paid to the government in three tranches. But the Serena’s tax consultants say the amount owed, which related to tax accrued by the Indian construction company that built the hotel, is more like $50,000 (?25,000, 32,000).

At a meeting on December 31 they paid that sum as a goodwill gesture and were told by Sharifullah Ibrahimi, the deputy minister of finance, that the dispute would only be settled after a full audit by the country’s large taxpayer’s office.

“It was as if the meeting had never taken place,” Mr Newbery said. “Not only did they simply help themselves to money, they claimed that we had never paid the $50,000. That’s what they do to people who actually pay their taxes – they take whatever they can get.”

Cases such as these are, the Afghan business community says, damaging the country’s efforts to build its economy, so Afghanistan can pay its own way when the foreign cash that pays for almost everything the government does dries up.

But the private sector is so limited – and so reliant on money spent by international consultants, diplomats and aid workers – that a French restaurant in Kabul catering to the culinary needs of the city’s expats is one of the country’s 100 biggest taxpayers.

Taxes, along with crime and persistent power outages, are leading some businesses to stop projects or relocate some or all of their businesses to Dubai. Saad Mohseni, chief executive of Moby Media, which runs television and radio stations, says he recently had videotapes of imported Indian television programmes impounded at Kabul airport because a government agency believed they should be paying on the content.

“The government says it is dealing with these so-called nuisance taxes but it’s ridiculous that after seven years we are still facing these problems,” he said. “Why can’t the whole lot just be declared null and void?”

He says his frustration with Afghan government “incompetence” is so great that the company has set up a business division in Dubai.

One leading international logistics company came close to pulling out of Afghanistan last year after it discovered it had been paying taxes to the ministry of communications – technically illegal because only the ministry of finance is allowed to raise revenue.

Some efforts to improve the tax system have made the situation worse. Draft laws prepared in English by foreign consultants have been mistranslated into Dari, the official language of government. The garbled version is then treated as the law. A western official, who declined to be named but has worked closely on tax reform issues, said the “cheques had been made out to the ministry of post, which doesn’t exist, so God knows who actually got the money”.

Source: ANC News


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