1. Is there any threshold for withholding tax?
A minimum threshold for withholding tax under Article 72 of Afghanistan income tax law is AFN 500,000. Transactions below this threshold are not subject to withholding income tax. However, if the aggregate of payments to a legal or natural person in a fiscal year exceeds or is likely to exceed this threshold, the tax shall have to be withheld from all payments.
2. Who must withhold?
According to Article 72 of the Income Tax Law 2009, government agencies, municipalities, state entities, private sector businesses and organizations, and other persons are required to withhold from any legal or natural persons who provide supplies, materials, services, and construction under contract.
3. What if you do not withhold?
The Income Tax Law 2009 provides for an additional tax of at least 10 percent of the amount that should have been withheld. In cases where there is an intention to evade tax by not withholding, the taxpayer also may be prosecuted by the Attorney General’s Office and may be subject to a fine and/or imprisonment. For more information, please read Guide 22 – Additional Tax and Penalties.
Article 72.4 of Income Tax Manual:
Article 72 does not provide a threshold amount below which no withholding of tax is required. To reduce the compliance burden on taxpayers, a minimum threshold of Afs. 500,000 has been set for contract withholding tax purposes. Transactions below Afs. 500,000 are not subject to withholding income tax. Payments for purchases of daily household consumption are usually below this minimum threshold and are not liable for withholding income tax. Payments on account of purchases or supplies made or services rendered to a legal or natural person aggregating below Afs. 500,000 in a tax year shall not be subject to withholding tax. However, if the aggregate of payments to one person on this account exceed this threshold in a tax year the entire payment to that legal or natural person shall be liable to contract withholding income tax under Article 72.
In case you want to know more about how contractor withholding tax should be calculated and when is the due date for paying contractor withholding taxes as per the Afghanistan tax law, please click here and go to section 2 Withholding Taxes.