Introduction
International companies and NGOs operating in Afghanistan face unique challenges due to the country’s use of the Solar calendar (Hijri Shamsi) for tax purposes, which differs from the Gregorian calendar commonly used in most parts of the world. This discrepancy can complicate financial reporting and consolidation efforts.
Understanding the Afghan Tax Year?
According to the Tax Administration Law, a “tax year” in Afghanistan begins on the first day of Hamal (Hijri Shamsi Calendar) which is equivalent to March 20 or 21 and ends on the last day of Hoot (March 19 or 20 of the following year), unless approved otherwise by the taxation administration upon request.
A taxpayer in Afghanistan may be approved for a different tax year if it is a subsidiary of a foreign company or part of a corporate group with foreign companies and needs to align its accounting period with its parent or group members for business reasons.
Step 1: Application Process
To change the tax year, a legal entity must submit a written application to the Afghanistan Revenue Department (Tax Exemption Office), detailing the reasons for the requested change and providing the following supporting documents:
- Application form (downloadable from the ARD website)
- TIN (NGO)
- Copy of valid license
- Recent tax clearance letter
- Copies of wages and rent tax withholding forms and payment receipts (last three months) along with rent contract
- List of employees, including name, designation, salary, salary tax, contact, and address
- Introduction letter for the person processing the application
- Justification for the tax year change
Once the application is approved, the tax year change letter (obtained from ARD) should be submitted to the relevant sector’s Taxpayer Services Directorate. A case manager will be assigned to process your request.
Step 2: Updating Tax Records
The case manager will carefully review the tax year change letter and ensure that the tax system is updated accordingly. This includes creating new tax forms for various tax types (e.g., rent, wages, contractors) that reflect the new tax year. This step is essential for maintaining tax compliance.
Step 3: Handling Payments During a Tax Year Change
If the tax year change occurs after the start of the new fiscal period, the case manager will ensure that all payments made on old tax forms are reversed. The caching department will credit these payments to the new tax forms. The assessment department will verify the forms before they are returned to the case manager for further processing. This procedure safeguards the accuracy of tax records.