Cablegate: Afghanistan Reports Better Than Expected Annual Revenues

VZCZCXYZ0014
RR RUEHWEB

DE RUEHBUL #0488/01 0400505
ZNR UUUUU ZZH(CCY-ADX1E4458-MSI4474-468)
R 090505Z FEB 10
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 5476
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS KABUL 000488

SENSITIVE

C O R R E C T E D C O P Y (ADDED CAPTION)

SIPDIS

DEPT PASS AID/W FOR TYLER HOLT, MARK KARNS, DIANE RAY
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH
E.O. 12958: N/A
TAGS: ETRD ECON EAID EFIN PGOV AF
SUBJECT: AFGHANISTAN REPORTS BETTER THAN EXPECTED ANNUAL REVENUES

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SUMMARY
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1. (U) On January 23, 2010, the Deputy Minister of Revenues and
Customs, Mr. Gul Sabit, unofficially reported that annual revenues
for Afghan fiscal year 2010 are likely to be in excess of the 54.5
billion Afghanis (USD 1.09 billion) target set by the IMF.
Estimates from the Ministry of Finance project that revenues are
likely to top 64 billion Afghanis (USD 1.28 billion), 17 percent
more than target and 60 percent over 2008-09. As of January 21,
2010, Customs revenues reportedly met their annual target (set by
the IMF) of 20.1 billion Afghanis (USD 402 million) two months
early. It is estimated that 5 billion additional Afghanis (USD$100
million) will be collected through Customs receipts alone by the end
of the Afghan fiscal year ending on March 21, 2010. This increase
will help GIRoA to reduce its dependence on operational budget
support from international donors, and to build its capacity to fund
and manage its own budget functions.

2. (U) Over the past several years, the USG has provided substantial
revenue collection, budget execution, and fiscal reform assistance
to the Ministry of Finance and Afghanistan Customs Department,
contributing to improvements in the country's revenue performance
and expanding its budget capabilities. USAID, Treasury, State, and
the Border Management Task Force (BMTF) have each played a pivotal
role in this process and continue to work closely with the Ministry
of Finance and its subordinate offices through tax, non-tax, and
customs reform programs. Other donors, including IMF, DFID, the EU,
and the World Bank, also contribute to revenue collection reform
efforts. Moving forward, the USG will continue its fiscal reform
agenda, as well as support domestic production and services to drive
exports and broaden the domestic tax base to create a more balanced
fiscal system. END SUMMARY.

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AFGHANISTAN CUSTOMS REVENUES BEAT EXPECTATIONS
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3. (U) Unofficial figures show total Customs revenue collection in
the first nine months of the current Afghan fiscal year were 20.1
billion Afghanis (USD$402 million), meeting the annual target two
months early. This is the first time Customs revenue has met its
target prior to the end of the fiscal year. It is estimated that 5
billion additional Afghanis (USD$100 million) will be collected
through Customs receipts by the end of the Afghan fiscal year (March
21, 2010).

4. (U) The impressive revenue increase is a result of better
governance and various revenue enhancement measures that GIRoA has
initiated over the last year, including:

--strict performance monitoring of regional directors by the Customs
Department headquarters in Kabul,
--shifting/removal of several incompetent and corrupt officials from
sensitive posts,
--improving Customs Officers' access to the Ministry of Commerce
state-owned Fuel Liquid Gas Enterprise (FLGE) installations at
Heiratan and other points of entry,
--rolling out the ASYCUDA transit and declaration processing system
to Custom Houses at Torkham Gate, Jalalabad, Kabul Inland Customs
Depot, Kabul Airport, Heiratan/Mazar, Islam Quala/Herat, and Shirkan
Bandar,
--more vigorous checks by Mobile Verification Teams (MVTs) - the
Afghan Customs Department's primary enforcement mechanism,
--improving implementation of post clearance audit,
--instituting daily revenue collection reporting system, and
--capacity building of officers engaged in critical work such as
data analysis and enforcement.

5. (U) While all the major Custom Houses showed increased
collections, the most significant improvements were in Herat,
Jalalabad, and Mazar. This was a result of close monitoring of
performance and other administrative and revenue enhancement
measures taken during the year. In addition, the Afghan Customs
Department Customs Statistics Unit (CSU), assisted by USAID,
established a systematic Customs data collection and reporting
system. The Unit is playing a vital role in ACD control over
revenue and providing on time trade statistics.

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INCREASED REVENUE IMPACT ON AFGHANISTAN'S
OPERATIONAL BUDGET
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6. (SBU) The Ministry of Finance's Revenues and Customs Department
estimates that annual revenues will top 64 billion Afghanis
(USD$1.28 billion) this fiscal year, 17 percent more than targeted
and 60 percent over the previous year. Customs Revenues make up 39
percent of all government revenues. Deputy Minister Sabit believes
that if GIRoA can maintain this positive trend, Afghanistan will be
able to fund its own operational budget from domestic revenues
within the next three years. More realistically, the World Bank
projects 79 percent fiscal sustainability in 2014/15, and the IMF
projects this by 2022/23.

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REVENUE PICTURE INCOMPLETE; EXPANSION
OF DOMESTIC PRIVATE SECTOR IS KEY
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7. (SBU) On a less positive note, Afghanistan's recent Customs
revenue jump is linked to an increase in collections as well as
imports, which is indicative of Afghanistan's weak domestic
production capability and stagnant exports. In the medium-term,
Afghanistan's fiscal sustainability must come from stronger domestic
economic growth and a broader private-sector tax base. USAID is
expanding its business development and job creation programs to
assist Afghanistan to enhance its economic performance. USAID is
also supporting the establishment of Medium Tax-payer Offices (MTO)
in provincial economic centers to enhance tax collection efforts and
broaden Afghanistan's tax base. Together these will drive economic
output, exports, and domestic tax revenues.

8. (SBU) The USG is committed to continuing its fiscal reform
assistance to GIRoA through tax, non-tax, and customs revenue and
budget management and execution assistance that emulate
international best practices. Proposed assistance includes reforms
in legislation, tariffs, policies and procedures; international
cooperation on infrastructure and information management; and human
capacity development, enforcement, and strategic planning. U.S.
assistance has created and will continue to create conditions for
better efficiency in revenue collection, with a direct and positive
impact on the GIRoA's fiscal resources.

EIKENBERRY

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