Introduction:
Many organizations operate in more than one city in Afghanistan. Therefore, sometimes it is necessary for their employees to have official trips to other provinces other than their home province. For the employee’s food and accommodations, some organizations provide food and accommodation directly while some others pay cash to employees to cover their expenses for food and accommodation. For the organizations that pay cash, one common question is whether the amount paid to an employee for food and accommodation is taxable in Afghanistan. This article helps to understand when the above-mentioned payment is taxable and when it is not.
What is Per Diem?
For the organizations that pay cash to their employees for food and accommodation, there are two types of payments.
- Direct Reimbursement: This is when the organization pays only for the actual costs incurred during an official trip of employees. Employees report the actual costs incurred with proper receipts and supporting documentation, then the organization will reimburse it (or clear the advance payment if a cash advance is issued to the employee before the trip).
- Per-Diem: Per-Diem refers to a fixed daily amount paid to employees to cover costs incurred while on an official trip. Official expenses that are covered by per-diems typically include accommodation, food, and other incidental expenses. With this method of paying for travel costs, the per-diem amount is not directly tied to actual expenses. The use of per-diems is an accepted business practice worldwide and many organizations choose to use per-diems rather than directly reimbursing costs because it is easier and requires less paperwork.
When is a Travel Cost Taxable:
The direct reimbursement method of paying for employee travel costs does not constitute taxable income to the employee. However, the Afghanistan Revenue Department considers per-diems to be a type of cash allowance since employees can theoretically spend this money in whatever way they choose (even for personal purposes), and all cash allowances are considered taxable income to the employee who receives them under the Afghanistan Income Tax Law.
How is Tax Calculated on Per Diem:
Per-diems are considered to be additional salary to an employee and are subject to wage withholding tax. To learn more on how to manage salary withholding tax please click here and scroll down to section 2.1 Salary Withholding Tax.