What is Depreciation?
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Why Is Depreciation Important?
Depreciation accounts for the gradual loss in value of business assets such as buildings, equipment, furniture, and vehicles due to wear, aging, or obsolescence. Claiming this deduction annually will lowers taxable income, reflects true asset value, and improves compliance with Afghanistan income tax law.
Depreciation as a Deductible Tax Item
Depreciation is a critical tax deduction for businesses, allowing them to recover the cost of fixed assets over time. However, point d of paragraph 18.6 of the Income Tax Manual emphasizes:
“Depreciation is an annual allowance. If a taxpayer fails to deduct, or deducts an understated amount for one taxable year, they may not deduct the depreciation omitted or understated in another year.”
Hence, depreciation must be claimed in the same tax year. You cannot carry forward unclaimed or underclaimed depreciation to future tax years. Non-compliance can result in the disallowance of major deductions and increase your tax liability.