If left unresolved, the disagreement could inflate the price tag of the U.S. military drawdown by hundreds of millions, if not billions, of dollars because of the higher cost of shipping by air — an unwelcome expenditure at a time when the Pentagon is scrambling to cope with steep congressionally mandated budget cuts and the White House is attempting to jump-start negotiations over a long-term security cooperation deal with Kabul.
The Afghan government’s demand for payment is part of a broader dispute over Kabul’s authority to tax entities from the United States, its chief benefactor. As the war economy that for years bankrolled Afghanistan’s political elite starts to deflate, the government is increasingly insisting that U.S. defense contractors pay business taxes and fines for a range of alleged violations.
The latest fight has added a new irritant to negotiations over a bilateral security agreement that will address the possibility of a residual U.S. military force in Afghanistan after 2014, when the NATO combat mission formally concludes. Washington and Kabul remain at odds over several details of the security deal, including the types of taxes and customs fees that would be imposed on the force and its contractors.
The Special Inspector General for Afghanistan Reconstruction warned in a letter to Congress last month that Afghan ministries were seeking to collect nearly $1 billion in business taxes and fines from U.S. contractors — an effort that some American officials see as a massive shakedown in one of the world’s most corrupt countries. U.S. funds intended to rebuild Afghanistan, inspector general John. F. Sopko said in his June 28 letter to lawmakers, are increasingly being used to “pay the cost of doing business in Afghanistan.”
Afghan officials dispute the charge. They say that U.S. contractors and government officials have flouted Afghan tax and customs regulations, citing operating agreements drafted shortly after the 2001 invasion. Those agreements gave the U.S. government vast leverage and protections.
A familiar dispute
Eager to boost the country’s aid-
dependent economy, Afghan officials have spent years trying to collect more tax and customs revenue from the international community, particularly the U.S. government. They have closed the border to U.S. cargo in the past during similar spats that neither government acknowledged publicly.
For the most part, the Americans have managed to resolve those impasses without paying large fines — a position they have taken because they fear that paying up would open the door to even bigger fines.
But this week the Kabul government took the unprecedented move of blocking inbound shipments of fuel and equipment for Afghan security forces.
With trucks loaded with U.S. military cargo piling up along the southern border, the top commander of U.S. troops in Afghanistan, Gen. Joseph F. Dunford Jr., has asked for a meeting with Afghan President Hamid Karzai this week to find a resolution. But neither side appears willing to budge.
Afghan officials allege that U.S. contractors hired to transport equipment failed to turn in documentation for billions of dollars in equipment shipped into the country since the 2010 troop “surge.” This month, Karzai’s cabinet came up with the $70 million fine, citing at least 70,000 cases in which the United States failed to process the necessary customs paperwork.
“How do we collect the fines for these violations?” Najibullah Wardak, the director general of the Afghan Customs Department, said in an interview Wednesday. “The only way is to stop all trucks from crossing the border. What else can we do?”
Wardak said the Afghan government has long suspected that vast amounts of gear shipped in U.S. military containers find their way to the black market. “We worry that we are losing a lot of revenue,” he said.
U.S. commanders see Pakistani land routes as the best and most cost-effective channel to ship materiel out of the landlocked war zone. Bilateral tensions have prompted the Pakistani government to shut down the border in the past, but the Pakistanis have been largely cooperative as the U.S. drawdown has accelerated, American officials have said.
Early this year, the U.S. military was flying out about 70 percent of its gear as it tentatively explored the ease of shipping cargo out by land. Maj. Gen. Kurt J. Stein, the architect of the withdrawal effort, had expressed cautious optimism about getting equipment out through Pakistan, even as he acknowledged “corruption, taxes, tariffs, all kinds of delays.”
“The tide has changed, and now we’re flying out 30 percent,” he said in an interview in Kabul last month. “Obviously, there’s a tremendous cost saving there.”
In recent weeks, however, the tide has shifted yet again. A Pentagon spokesman said that during the most recent 30-day period, only 36 percent of equipment was leaving by land.
The Pentagon estimates that the Afghan drawdown will cost $5 billion to $7 billion, depending on what percentage of the equipment slated for shipment can leave by land.
In recent months, as U.S. military cargo began to flow at an unprecedented rate down the roads that lead to Pakistan, Afghan officials decided to take a tough stance, imposing the $1,000-per-container fine. The United States did not pay it, Afghan Finance Minister Omar Zakhilwal said.
“The goods they bring in and take out were stopped temporarily because the deadline that was given to them expired on July 11,” he said in an e-mail.
The borders remained closed for six days. Zakhilwal extended the transit exemption Wednesday for one month but denied a U.S. request for a three-month exemption, Afghan officials said.
Officials at the Pentagon did not answer detailed questions about the tax dispute. In a statement, Cmdr. Bill Speaks, a spokesman, said U.S. officials “are confident that the situation will be resolved shortly.” He would not say how.
“We are experiencing challenges with our equipment retrograde at the southern Afghan border crossing points,” the statement said. “These issues are recurring, and typically center around the interpretation of Afghan customs processes.”
The Afghan customs chief conveyed less optimism that a resolution is imminent.
“The U.S. is still not taking it seriously,” Wardak said. “It’s a compliance issue, and they’re not complying with our laws.”
Sieff reported from Kabul. Mohammad Sharif in Kabul contributed to this report.