Additional Taxes and Penalties Under Afghan Tax Law
Chapter 16 of the Income Tax Law 2009 outlines additional taxes and penalties for non-compliance with tax obligations, including late payment, failure to maintain records, and more.
1. Introduction
Chapter 16 of the Income Tax Law 2009 outlines additional taxes and penalties for non-compliance with tax obligations. These include failures to file or pay taxes on time, maintain adequate records, withhold taxes, or obtain a Taxpayer Identification Number (TIN). The imposition and collection of these additional taxes follow the same provisions as regular taxes under Chapter 13 and Chapter 14 of the Income Tax Law, respectively.
2. Late Payment of Tax
Article 100 of the Income Tax Law stipulates an additional tax of 0.10% per day for any tax amount unpaid by its due date. This penalty applies even if the tax return is filed on time and covers unpaid tax liabilities including business receipts tax, withholding taxes, and fixed taxes. The Afghanistan Revenue Department may waive the 0.10% daily additional tax if it is less than AFN 250. This threshold applies separately to different tax types. For assessments issued following audits, the Revenue Department may also refrain from applying the additional tax for amounts up to AFN 500,000 if the taxpayer can prove good faith compliance.
Example 1
Company A, an Afghan corporation, was required to file its 1388 income tax return by the last day of Jowza, 1389. The company filed its return 10 days late, showing a liability of AFN 100,000. The late payment penalty would be AFN 1,000 (AFN 100,000 x 0.001 x 10 days).
Example 2
If Company A filed its return on time but paid the tax 10 days late, the additional tax for late payment would still be AFN 1,000, irrespective of the timely filing.
3. Failure to Maintain Adequate Books and Records
Failure to maintain or provide access to required records can result in additional tax penalties. Natural persons are fined AFN 5,000 and legal persons are fined AFN 20,000.
Example 1
Company A in Kabul failed to keep expense records. Despite knowing the requirement, they were assessed AFN 20,000 for non-compliance.
Example 2
Aziz, who lost his records in a fire, was not penalized for failing to maintain records due to his reasonable cause.
Example 3
If Company A’s manager denies access to records unjustifiably, the company faces an additional tax of AFN 20,000.
4. Tax Avoidance vs. Tax Evasion
Tax Avoidance: Legal reduction of tax liabilities within the law's framework, often referred to as tax mitigation. No penalties are involved if done correctly. Tax Evasion: Illegal acts to avoid paying taxes, involving fraud and deception, potentially leading to prosecution.
5. Failure to File a Tax Return
Failure to file or late filing results in additional tax. Natural persons face AFN 100 per overdue day, and legal persons face AFN 500 per overdue day.
Example 1
Company A, which filed its return 10 days late, would face an additional tax of AFN 5,000.
Example 2
Company B, which experienced a fire and filed late, would not be penalized if it can justify the delay.
6. Failure to Withhold Tax
If withholding tax is not done as required, an additional 10% tax on the amount not withheld applies.
Example
Company A failed to withhold tax from an employee’s wages, resulting in a 10% additional tax if the failure was without reasonable cause.
7. Failure to Pay Tax
Failure to pay taxes results in a 10% additional tax on the unpaid amount, in addition to penalties for late payment.
Example 1
Aziz, who missed payment deadlines without justification, faces an additional tax of AFN 2,000 plus daily penalties for late payment.
Example 2
If Aziz was in the hospital, the additional tax may be waived due to reasonable cause.
8. Failure to Obtain a Taxpayer Identification Number (TIN)
Failure to obtain a TIN results in additional taxes. Natural persons face AFN 5,000 and legal persons face AFN 20,000.
Example 1
Asiyeh, who had difficulty obtaining a TIN due to her location and literacy issues, is not penalized.
Example 2
Sarika, who had access to resources but chose not to obtain a TIN, is subject to the additional tax.
9. Additional Taxes for Misclassification and Underreporting
Misclassification of Income or Deductions: An additional tax of 15% of the misclassified amount is levied. Underreporting of Income: A penalty of 20% of the underreported income is applied.
Example
If Company B misclassified AFN 50,000 as a deductible expense instead of income, it would face an additional tax of AFN 7,500 (AFN 50,000 x 0.15). If Company C underreports AFN 100,000 in income, the penalty would be AFN 20,000 (AFN 100,000 x 0.20).