Author: Matt Nissley, CPA
Introduction
On July 12, 2026, the Islamic Emirate of Afghanistan publicly announced changes to its tax rates. Shortly after this announcement, the Ministry of Finance released a document with technical implementation guidance. This article provides an overview of the relevant changes, summarized below:
- Corporate income tax was changed from 20% to 10% for all legal entities except for mining extraction companies.
- Individual income tax rates and brackets were changed and now top out at 15% instead of 20%.
- The fixed tax on the transfer of movable and immovable property was reduced from 1% to 0.5%.
- A new fixed-tax regime now applies to fuel and gas traders.
According to the Ministry of Finance, these changes are intended to ease the tax burden on businesses and individuals, encourage investment, and improve compliance across the economy. Finance Minister Mullah Mohammad Nasir Akhund described the reductions as economic policy tools meant to encourage investment, increase production and exports, and create employment opportunities. Deputy Prime Minister for Administrative Affairs Mawlavi Abdul Salam Hanafi added that the reduced corporate rate is tied to businesses formally registering with the Ministry of Finance and connecting their financial systems electronically with the tax authority — framed by officials as a step toward greater transparency and simpler tax administration.
Corporate Income Tax
Corporate income tax (CIT), governed by Article 4 of the Afghanistan Income Tax Law 2009 (ITL 2009), has been reduced from a flat 20% to a flat 10% of annual net taxable profit for all legal entities — including private healthcare centers, per Ministry officials — with the exception of mining extraction companies, which remain at 20%.
Example: A company with 5,000,000 AFN of taxable income previously owed 1,000,000 AFN in corporate tax at the 20% rate. Under the new 10% rate, that liability drops to 500,000 AFN.
A compliance condition worth knowing. The reduced rate is not unconditional. Ministry officials have tied it to formalization — businesses are expected to be properly registered with the Ministry of Finance and, where applicable, to connect their financial systems electronically with the Afghanistan Revenue Department (ARD). Businesses that are not fully registered, or are behind on registration, should treat this as a prompt to get current, since the benefit of the lower rate applies most securely to taxpayers operating fully within the formal system.
Worth factoring into your planning. The corporate income tax cut does not change the Business Receipts Tax (BRT), which continues to apply at its existing rates — generally 4% of gross revenue for most sectors, with different rates for certain sectors such as restaurants and airlines/telecom (BRT is governed by Articles 64–67 of the ITL 2009). For many businesses, particularly those with significant cost of goods sold — trading, resale, and manufacturing operations especially — BRT was already a larger tax cost than corporate income tax, even under the old 20% CIT rate.
Here’s the math: under the old 20% CIT rate, a business needed roughly a 20% net profit margin for its corporate income tax liability (20% of profit) to equal its BRT liability (4% of gross revenue). Under the new 10% rate, that breakeven margin doubles to roughly 40%. Since most businesses — especially those with high cost of goods sold — operate below a 40% net margin, BRT will remain, and for many businesses will become even more clearly, the larger of the two tax costs.
For example: a business with 20,000,000 AFN in annual revenue and a 10% net profit margin (2,000,000 AFN in profit) owes 800,000 AFN in BRT regardless of the CIT change. Its corporate income tax liability on that same profit falls from 400,000 AFN (old 20% rate) to 200,000 AFN (new 10% rate) — so BRT, already twice its CIT liability under the old rate, is now four times its CIT liability under the new one.
This is not meant to diminish the relief the government has extended — a straight halving of the corporate tax rate is a meaningful and welcome change — but an accurate picture of a business’s total tax burden requires looking at BRT alongside corporate income tax, not corporate income tax in isolation.
Customs advance tax. The 2% advance income tax paid by importers at customs borders during goods clearance remains fully deductible and creditable against the business’s annual corporate income tax liability. This treatment is unchanged by the reform.
A related note on rental income. Withholding tax on rental income (Article 59, ITL 2009) is unchanged by this reform: 0% up to 10,000 AFN/month, 10% flat from 10,000–100,000 AFN, and 15% flat above 100,000 AFN. For a legal entity renting out property with monthly rental income above 100,000 AFN, this means the withholding rate applied when rent is collected (15%) is now higher than the entity’s own corporate income tax rate (10%) — worth flagging for any legal entity in that position.
A related note on dividends and interest. Withholding tax on dividends and interest (Article 46, ITL 2009) also remains unchanged, at a flat 20%. It would not be surprising to see this rate adjusted in a future round of reforms to bring it closer in line with the new corporate and individual rates, but as of this writing no such change has been announced.
Individual Income Tax
Previous monthly salary tax brackets:
| Monthly Salary (AFN) | Withholding Amount |
| 0 to 5,000 | 0% |
| 5,001 to 12,500 | 2% |
| 12,501 to 100,000 | 10% + 150 AFN |
| Over 100,000 | 20% + 8,900 AFN |
New monthly salary tax brackets:
| Monthly Salary (AFN) | Withholding Amount |
| 0 to 10,000 | 0% |
| 10,001 to 100,000 | 10% |
| Over 100,000 | 15% + 9,000 AFN |
Three structural changes stand out:
- The tax-exempt threshold doubled, from 5,000 AFN to 10,000 AFN per month.
- The 2% bracket (previously applied to income between 5,001 and 12,500 AFN) has been eliminated entirely.
- The top marginal rate dropped from 20% to 15%, though the fixed base amount added at that top bracket rose slightly, from 8,900 AFN to 9,000 AFN.
What this means in practice. Because the 2% bracket disappeared, wage earners with a monthly salary between 11,250 AFN and 102,000 AFN will actually pay up to 100 AFN more per month than under the previous rates. Wage earners earning below 11,250 AFN or above 102,000 AFN will pay less than before.
Here is the simple explanation. Under the old rules, monthly income between 5,001 and 12,500 AFN — the first slice above the exemption — was taxed gently, at just 2%, which came to 150 AFN of tax on a 12,500 AFN salary. That gentle starter rate is gone now. The new exemption is bigger, covering income up to 10,000 AFN, but everything above that is taxed at 10% right away — so that same slice of income, 10,001 to 12,500 AFN, which used to be taxed at 2%, is now taxed at 10%, and tax on that 12,500 AFN salary rises to 250 AFN. That’s 100 AFN more a month, and the gap holds steady through the rest of the middle of the range.
At the higher end, the story is better: the top tax rate itself dropped from 20% to 15%, which is a real cut. But the government also nudged up the starting point used in that top-bracket calculation, by 100 AFN. Just above 100,000 AFN a month, those two changes roughly cancel out, so the small increase from the middle bracket lingers a little longer. It is only once monthly income passes 102,000 AFN that the lower top rate clearly wins out, and salaries above that point see real, growing savings.
A few illustrative scenarios:
| Scenario | Monthly Salary | Old Tax | New Tax | Change |
| Low-level salary | 9,000 AFN | 80 AFN | 0 AFN | –80 AFN (savings) |
| Middle-level salary | 45,000 AFN | 3,400 AFN | 3,500 AFN | +100 AFN (increase) |
| High-level salary | 150,000 AFN | 18,900 AFN | 16,500 AFN | –2,400 AFN (savings) |
A closing thought. Because many salaried employees in Afghanistan earn between 11,250 and 102,000 AFN per month, it is not yet clear whether this reform will, on net, decrease or increase the total individual income tax remitted to the government. The higher exemption and the lower top rate genuinely help those at the bottom and top of the income distribution — but the removal of the 2% bracket means many employees in the middle will see a small tax increase, not a decrease.
Fixed Tax on Transfer of Movable and Immovable Property
Under Article 30 of the ITL 2009, transactions involving the transfer of physical property (land and buildings) and movable assets (fleets, machinery, and business shares) were subject to a 1.0% transfer tax. This rate has been halved to 0.5%.
The implementation guidance clarifies that this tax is treated differently depending on who is transferring the asset:
- Individual persons: The 0.5% transfer tax constitutes a final tax liability (Final Tax).
- Corporate/legal entities: The 0.5% transfer tax constitutes an advance payment of income tax (Pre-payment/Advance Tax), which is fully deductible and reconcilable against the corporation’s final annual CIT calculation.
Fixed Tax on Fuel and Gas Traders
The oil and gas sector moves from profit-based tax assessment to a volume-based fixed-tax structure for most participants:
- Importing companies continue under the standard framework — filing annual income tax returns and paying BRT as before.
- Retail fuel stations (pumps) continue paying a fixed 0.30 AFN (30 Pul) per liter sold.
- Domestic wholesale vendors with physical storage or reservoirs pay a fixed 50 AFN per metric ton sold.
- Retail gas facilities (“Sikos”) selling by the kilogram pay a fixed 80 AFN per metric ton. To measure volume, tax officials physically seal storage containers and compare initial and remaining volume.
- Commission brokers without physical offices or storage pay a tiered annual fixed fee — 100,000 AFN, 70,000 AFN, 50,000 AFN, or 25,000 AFN depending on category — assigned by a joint committee of ARD officials and the Oil & Gas Merchants Association, valid for three years before reassessment.
Effective Date & Implementation Guidance
The cut-off date for all of these changes is 1448/01/25 Hijri Qamari (1405/04/20 Hijri Shamsi), corresponding to July 11, 2026. This date governs which rates apply, and the rule is more nuanced than a simple before/after split:
- New rates apply going forward. Any tax return, payroll calculation, assessment, or audit notice that is submitted, assessed, calculated, or finalized after July 11, 2026 uses the new rates — regardless of which fiscal month or year the underlying income relates to.
- Example #1:If a company files income tax returns for fiscal years 1403 and 1404 (2024–2025) after July 11, 2026, the new 10% rate applies to that filing.
- Example #2: Entities filing monthly wage tax returns for the month of Saratan 1405 (or July 2026 if on the Western tax calendar) should use the new wage withholding tax rates for the entire month.
- Prior filings are not reopened. Tax returns or liabilities that were already submitted, assessed, or finalized before July 11, 2026 remain subject to the old rates, even if payment on them is still outstanding.
- Audit adjustments generally get the new rate. Additional tax identified during an audit and issued for collection after July 11, 2026 is taxed at the new rate, even if the original tax return was filed and assessed in prior months or prior years under the old rates.
- One important exception. If an audit disallows a prior-year operating loss that had been carried forward, the resulting additional taxable profit is taxed at the old 20% rate, not the new 10% rate.
- Example: ABC Company reported a net operating loss on its 2024 annual income tax return. It then claimed one-third of that loss on its 2025 annual income tax return (in accordance with Article 42 of the ITL 2009) to offset 2025 profits. A tax audit conducted in August 2026 determines that the 2024 operating loss was fictitious, and therefore disallows the claiming of one-third of the loss carryforward on the 2025 annual income tax return. The disallowed carryforward loss will be taxed at the old 20% rate on the 2025 annual income tax return.
- All central and provincial tax administrations are required to enforce these changes, and the Directorate of Revenue Systems is required to update all electronic revenue systems accordingly.
What This Means for You
- Total tax burden: The corporate tax cut delivers real savings, but it does not touch BRT — model your combined CIT and BRT exposure rather than corporate tax alone, especially if your business carries high cost of goods sold.
- Payroll: Employers should immediately update payroll systems to reflect the new monthly withholding thresholds and rates for the Saratan 1405/July 2026 monthly payroll, and should not assume every employee will see a tax cut — those earning 11,250–102,000 AFN/month will see a small increase.
- Property transactions: If you are planning a sale or transfer of significant assets, the timing relative to the July 11, 2026 effective date affects which transfer tax rate applies, and whether that tax is final (individuals) or creditable against CIT (legal entities).
- Registration status: Confirm your business is properly registered and consider what electronic reporting or system connectivity may be expected going forward — this is a stated condition of the reduced corporate rate.
- Fuel and gas businesses: Confirm which fixed-tax category applies to your specific role in the supply chain, and prepare for physical meter-sealing if you operate a retail “Siko” facility.
- Filing timing: Because the effective date depends on when a return or assessment is finalized rather than the underlying fiscal year, there may be legitimate timing considerations for pending filings — worth discussing with your advisor before submitting.
How Quest Can Help
Our team can review your entity’s specific tax position under the new rates — including your combined CIT and BRT exposure, not just the headline rate cut — help ensure your registration and reporting are aligned with the formalization expectations tied to the reduced corporate rate, update payroll withholding calculations, and advise on the timing of property, asset, or filing decisions relative to the July 11, 2026 effective date.