KABUL (Reuters) - Afghanistan’s budget revenue increased almost 22 percent in 2015, a report by the United States Institute for Peace said, an encouraging turnaround for a cash-strapped government that remains heavily reliant on foreign aid.
Since the U.S.-led military intervention toppled the Taliban regime in 2001, the country has depended on billions of dollars in foreign aid as it struggled to find domestic revenue sources, casting doubt on the government’s ability to stand on its own.
Increased revenue is key to reassuring donors as international attention on Afghanistan fades.
The increase followed an 8 percent revenue decline in 2014, which, combined with unexpectedly high spending on war efforts, led the Afghan government to ask international backers for millions in emergency funding.
The U.S. government-funded institute, in its report, said stronger tax collection efforts, corruption crackdowns and new taxes contributed to an “extraordinary turnaround” last year.
“This experience demonstrates that targeted progress can be achieved, even in Afghanistan’s challenging political and security environment,” said the report, whose authors included an adviser to Afghanistan’s Ministry of Finance.
The government collected nearly 122 billion afghani ($1.7 billion) in 2015, which nevertheless “will not diminish the country’s massive overall fiscal gap or its large aid requirements for the foreseeable future,” the report noted.
Some efforts were driven by targets and incentives from the International Monetary Fund, which gave the government a $75 million bonus for surpassing its revenue goals, said ministry spokesman Ajmal Hamid Abdulrahimzai.
Fifty-six percent of the increased revenue was attributed to better collection efforts, especially in the customs department, which controls trade at Afghanistan’s border crossings.
Roughly 24 percent came from new taxes including on mobile phone use and imported gas, and increases in existing ones.
“2015 was unprecedented in the past 13 years for Afghanistan’s revenue but this is not enough and we will continue our efforts,” Abdulrahimzai said.
Abbas Ibrahimzada, a businessman and member of parliament’s national economic commission, said this year could be more difficult as many business owners are leaving amid higher taxes, lingering corruption and increasing fears of violence.
“You will witness that the government will not be able to collect half their target,” he predicted.
The institute report called the 2016 outlook “fairly good”, but said efforts to squeeze more revenue from existing systems face “diminishing returns.”
“The long-term challenge will be to grow the economy and develop new, buoyant revenue sources, which will not be easy given poor prospects for mineral revenues and for additional revenues from the proposed Value Added Tax,” researchers wrote.
Editing by Richard Borsuk