Withholding Tax on Contractor Services in Afghanistan
According to Article 72 of the Income Tax Law 2009, legal and natural persons who provide supplies, materials, services, and construction under contract are subject to tax withholding from the gross amount payable to the contractor.
Overview
According to Article 72 of the Income Tax Law 2009, both legal and natural persons providing supplies, materials, services, and construction under contract are subject to tax withholding from the gross amount payable to the contractor. However, natural persons earning taxable salaries under Article 17 (1) are excluded from this provision and are subject to ordinary wage withholding (see Guide 05 – Wage Withholding Tax for more information).
What is a Contract?
A contract is a legally enforceable agreement between two or more parties. In business transactions, a contract involves the purchase and sale of goods and services. This agreement can be written or verbal, and payments can be made in cash or on credit. Such contracts are subject to withholding provisions outlined in Article 72 of the Income Tax Law 2009.
Is There Any Threshold for Withholding Tax?
A minimum threshold for withholding tax under Article 72 is AFN 500,000. Transactions below this threshold are not subject to withholding income tax. However, if the aggregate of payments to a legal or natural person in a fiscal year exceeds or is likely to exceed this threshold, tax must be withheld from all payments.
Who Must Withhold?
According to Article 72 of the Income Tax Law 2009, the following entities are required to withhold tax from payments to contractors: Government agencies, Municipalities, State entities, Private sector businesses and organizations, and Other persons.
What is the Withholding Rate?
If the contractor has a business license, the withholding rate is 2% of the gross payment to the contractor. This amount can be credited against the contractor's annual income tax return for the tax period in which they were paid. If the contractor does not have a business license, the withholding rate is 7% of the gross payment. This amount is treated as a final tax, and the contractor cannot claim it as a credit against their income tax.
When is the Tax Due?
Withheld taxes from payments made to contractors during a month must be reported and remitted to the relevant government account by the 10th of the following month.
What If You Do Not File and Pay on Time?
The Income Tax Law 2009 imposes penalties for late filing and late payment. These penalties vary depending on the taxpayer type and specific circumstances. For details, see Guide 22 – Additional Tax and Penalties.
What If You Do Not Withhold?
Failure to withhold tax as required results in an additional tax of at least 10% of the amount that should have been withheld. Intentional evasion of withholding may lead to prosecution by the Attorney General’s Office and potential fines or imprisonment. For more details, see Guide 22 – Additional Tax and Penalties.
Where Should You File and Pay?
File and make payments at Da Afghanistan Bank. The cashier will keep two copies of the form (white and green) and provide you with two copies (yellow and blue). Keep the yellow copy for your records and give the blue copy to the contractor.
Note
Afghanistan Revenue Department tax offices and Mustufiats offer forms, guides, and instructions free of charge. These are available both in printed form and downloadable from the website [http://www.ard.gov.af](http://www.ard.gov.af). The website provides locations, contact numbers, and hours of operation for tax offices and Mustufiats. Taxpayers can also download various public announcements, rulings, and guides including information on withholding tax on contractor services in Afghanistan.