FAQ

  • Q. 01. Why have withholding of income tax on contractors?

    Why have withholding income tax provisions on contractors been introduced when contractors already pay income tax?

    Ans: Withholding tax on contractors is not a new tax or additional tax on contracts. It is advance income tax payable at source as against lump sum payment of tax at the time of filing annual income tax return. The provisions shall facilitate the compliant taxpayers to discharge their tax liability on the principle “pay as you earn”. The tax deducted at source is adjustable against total tax chargeable on the net profits of the registered contractors for the tax year and final tax for contractors doing contract business without a business license or contrary to approved by-law.

  • Q. 02. What is the rate of withholding tax on contractors?

    Ans: The rate of withholding income tax on contract payments is 2 percent for the contractors who have a business license, and the tax so withheld is advance tax adjustable against gross income tax payable by the contractor on annual income. For contractor who are not registered with ASIA and conduct business without a business license or contrary to approved by-law withholding income tax rate is 7 percent of the contract receipts, and the tax so deducted at source is treated as final tax on this source of income whether the contractor earns profit or incurs loss at the end of the tax year.

  • Q.03. Why have two different withholding tax rates?

     
     

    The rate differential is cost for non-documentation, a disincentive to remain out of tax system and not complying with the laws of the country. Since such persons do business and earn income they are required to contribute towards national revenue. Such measures are common in other tax jurisdictions especially the developing countries where tax culture is not so developed and cash transactions dominate the economic activity. If the non-licensed taxpayers register and comply by law, they should also be subject to 2% adjustable withholding income tax on their contract receipts.

     

  • Q. 04. What is the definition of a contract?

    No definition of “contract” has been provided in the Income Tax Law 2009. The following definition given in The Contract Law is, therefore, the accepted basis for withholding income tax:

    “A contract is an agreement between two or more parties, which is enforceable by the law. A business transaction to buy and sell goods or services is a contract between the buyer and the seller.”

    An offer and acceptance of business transactions or sale and supply of goods and services constitute a contractual arrangement. Such arrangement may be in writing or verbal and the method of payment may be in cash or on credit. The transaction is a contract and withholding provisions under Article 72 of the Income Tax Law 2009 apply.

     

  • Q. 05. Who should withhold income tax?

    Government agencies, municipalities, state entities, private entities and other persons are required to withhold income tax at the prescribed rates and at the time of making payment to the legal or natural person(s) who provide supplies, materials, construction and services under a contract.

  • Q 06. Is there a threshold for contract withholding tax on small purchases?

    Aminimum threshold of AFN 500,000 has been fixed for contract withholding tax. Transactions below AFN 500,000 are not subject to withholding tax. Payments for purchases of daily household consumption are usually below this minimum threshold and are not liable for withholding tax.

    Payments on account of purchases or supplies made or services rendered to a legal or natural person aggregating below AFN 500,000 in a fiscal year shall not be subject to withholding tax. However, if the aggregate of payments to one person on this account exceed this threshold in a fiscal year the entire payment to that legal or natural person shall be liable to contract withholding income tax under Article 72 of the Income Tax Law 2009.

  • Q. 07. How and when should withheld tax on contracts be paid?

    The tax withheld is paid at Da Afghanistan Bank on a prescribed form which is in quadruplicate. The cashier will keep two copies of the paid/stamped form and give the depositor two copies-one for the payee and one for the tax withholding person.

    Tax forms, Guides and assistance are available from the Ministry of Finance, Afghanistan Revenue Department (ARD) and local Mustufiat offices, free of charge.

    As per Article 72(3) the tax withheld has to be transferred to the relevant account of the Afghanistan Revenue Department (ARD) within 10 days of the date it is, withheld. However to relieve the withholding person of the additional burden and reduce the cost of compliance the income tax withheld during a month is required to be remitted to relevant government account on 10th of the next following month

  • Q.08. What happens if I don't withhold tax or pay on time?

    Chapter 16 of the Income Tax Law 2009 provides for imposition of additional tax and penalties for not withholding, not paying the withheld tax or transferring the withheld


    amount to relevant account later than due date. The rate of additional tax and penalties vary depending on taxpayer type and the circumstances. In extreme cases of not withholding tax with the intention to evade payment the taxpayer may be referred to the office of the Attorney General for prosecution and may be subject to further fine and/or imprisonment. See Guide 22-Additional Tax and Penalties for more information.

  • Q. 09. How can a contractor (payee) get credit for income tax withheld?

    The payer (withholding person) is required to issue a certificate to the contractor stating the gross payment, the amount of income tax withheld and the net contract payment along with a copy of payment form of the bank where the withheld tax is deposited for transfer to relevant government account. It is on the basis of these documents the taxpayer (payee) shall claim credit against their tax liability determined on the basis of annual return of income. The contractor without a business license or not complying with other by-law shall also require having this evidence of tax although the tax withheld at 7 percent rate constitutes the final tax from this source of income.

  • Q. 10. Is there contract withholding tax on payments for goods delivered before 18 March 2009?

    Income tax withholding is linked with payments. The payments made after the promulgation of Article 72 of the Income Tax Law 2009 but for the goods delivered before shall also be liable to withholding tax on the prescribed rates.

Page 1 of 2
Prev12Next