Taxing the Afghan Nation: What the Taleban’s pursuit of domestic revenues means for citizens, the economy and the state

On 15 August 2021, much in Afghanistan was overturned or radically altered. The insurgents became the rulers and the old elites fled. Afghanistan’s relationship with the rest of the world ruptured and the country became poorer overnight. It also went from being a state where the administration was reliant on foreign donors and military support to one where the government depends for funding on the domestic economy and its taxpaying citizens. AAN’s new special report is a first attempt at making sense of one of the most fundamental of these changes – the Emirate’s need to tax its citizens. Kate Clark, with research support from the AAN team, explores the ramifications of the Taleban’s serious-minded pursuit of taxation, the consequences to citizens across the country, to state power and the dilemmas it has created for donors.
Read “Taxing the Afghan Nation: What the Taleban’s pursuit of domestic revenues means for citizens, the economy and the state” here.

At the core of the new report are interviews with more than 100 Afghans from across the country who were asked first about their experiences of the Taleban takeover, and subsequently how the economic collapse was affecting their household economy. Taxation emerged as a significant theme. These interviews gave a good view of what was happening on the ground. They also ensured that Taleban fiscal policy was viewed first of all through a human lens.

From the interviews, a picture emerges of a new administration moving swiftly and seriously to collect revenue of all types and with far less corruption than the old regime. Not everyone we heard from felt their tax bill had been fair or drawn up according to the rules. Some described Taleban tax collectors as menacing and implacable, demanding money they could not afford. Others said negotiation was possible. Just one interviewee reported that tax collectors in his district were demanding bribes. The Taleban have also rolled out new taxes, in particular, on agricultural production. This represents a massive transfer of resources from the rural economy to the state. In some districts, they have demanded taxes that fall outside the rules, whether Ministry of Finance regulations or Islamic practice, and look to be extortionate.

The Taleban’s diligence in taxing the nation is driven by the very different position they are in compared to the Republic. It had no need to prioritise tax collection. For 20 years, much – possibly most – of the money paid out by taxpayers and traders importing goods was diverted into the pockets of corrupt officials and politicians and, to a lesser extent, the insurgency. Even so, there was always enough foreign money coming into the country that citizens scarcely felt the deficit. Public services continued. Meanwhile, the Taleban used the taxes they collected to run the insurgency while foreign money and, increasingly in the latter days of the Republic, taxpayers in government-controlled areas kept funding public services.

The Republic was dependent on foreign funding. That, in turn, made the Hamed Karzai and Ashraf Ghani administrations financially autonomous from the people. Indeed, often, they appeared more answerable to donors than their own citizens. In contrast, the Emirate needs to tax and, as our report shows, they are managing to raise large amounts of domestic revenue despite the massive contraction of the economy. In this, the Taleban could be said to be ‘doing well’. However, that is a slippery concept when it comes to taxation. If taxes pay for what a population wants – education, healthcare, better roads, a competent administration – they are usually seen as a public good. If people consider their rulers are taking their money without seeing the benefits, ‘unfair’ taxation can plant enmity towards the state.

One of the problems facing Afghan citizens today is that they do not know how the government is spending their money. The Taleban have released the barest details of their budget. Moreover, some types of taxation appear not to be included in official revenue figures.

Both citizens and donors need greater financial transparency from the Emirate. For donors, this is especially the case this year as they gear up to again provide funding for basic services, albeit in parallel systems that seek to avoid money going directly to the Taleban administration. Increased donor funding will inevitably free up money that the Emirate was spending on healthcare, support to farmers or other services, enabling it to be spent elsewhere – on security, intelligence or other sectors donors are least inclined to bolster.

Transparency is also important for the Taleban’s reputation. Until now, they have appeared far less corrupt than the Republic, largely because of their relatively clean revenue collection. However, collecting revenues is just one part of the cycle of public finance where corruption can manifest. Without openness on expenditure that better reputation cannot go unquestioned.

This new special report also asks what the Taleban’s tough approach to taxation means for households, given how poor, vulnerable and hungry so many Afghans are. In AAN’s previous work on household economies, we have seen again and again how even the poorest seek to help those in even worse need than themselves. Charity is embedded in the Afghan psyche and social fabric, but how well can people carry on helping others if the state is taking their marginal income?

Read the full report here.

Taxing the Afghan Nation: What the Taleban’s pursuit of domestic revenues means for citizens, the economy and the state