Income Tax

Ilyas
402-1904013
Sayed Ajan Ahmadzai

BSc Economics, Faculty of Economics

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Contents

Income Tax ..................................................................................................................................... 3

Natural person's income calculation ………………………………………….……………….….6

Legal person's income calculation …………………………………………………………….….6

Exemption & Deduction ………………………………………………………………………….9

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Answer 1:
Income Tax

An income tax is a government levy imposed on individuals or entities that varies with the
income or profits of the taxpayer
The income tax law in Afghanistan is set according to the economic and social situation of the
residence of this country.
every Afghan is obligated to pay taxes and duties to the government in accordance with the
provisions of law.
The income tax law which was passed by the parliament of Afghanistan is a compulsory law that
all the residence of Afghanistan must pay the tax if they're eligible for this criteria.
The purpose of this tax is that government by using these tax wants to finance their expenses and
also provide public goods and services for the people.
All the taxes which are collected from the residents of Afghanistan are then carried to a specific
place called " The Ministry of Finance" and then it's also their job to manage those funds.

Income tax in Afghanistan is imposed on all income of natural and legal persons which uses
afghan sources within or out of the country and also it's imposed on all residents of Afghanistan
which uses non afghan sources.

A natural and legal person is one who:

1. Has the principal home in Afghanistan during the tax year
2. Even don't have principal home but is present at Afghanistan at least 183 days in a year
3. Employee of Afghanistan but currently doing services out of Afghanistan
4. Establish entity during a tax year.

The tax fiscal year in Afghanistan starts on 1 Hamal and ends on last day of 'Hoot'. And when an
individual want to have a differ tax fiscal year for himself so it should write an article and submit
it to the ministry of finance, then ministry of finance will grant the fiscal year for the specific
individual.
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The income tax of a legal person should be 20% of tax base for the tax year.
And before the calculation of income tax, of an individual earns wages in the form of foreign
currency first it should be converted to Afghani.

Income tax ranges: (Monthly)

(0, 5000) 0%
(5000, 12500) 2%
(12500, 100000). 10%
(100000, Above). 20%

Income tax rate for natural person:

1- income tax on tax base from the in and out of the Afghanistan sources.
2- any income tax paid to the other country's government should be credited to the part of
attributable income
3- if natural resident derives from more than 2 countries the income tax should be credit as the
proportion of income from each country.
Income tax for legal person: they should be taxed on taxable income from in and out of the
country.
If an individual earns income on foreign the currency must be converted to Afghanis, according
to the exchange rate of "Da Afghanistan Bank".

Government of Afghanistan except those non-resident of Afghanistan from country on which the
other country also except the afghan non-resident of that country.
For example: Income derived from the operation of aircraft under the flag of a foreign country in
Afghanistan shall be exempt from tax provided that the foreign country grants a similar
exemption to income from the operation of aircraft under the flag of Afghanistan in that country.
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Non-residents persons in Afghanistan who are not involved in business and trade is only taxed to
income tax from the dividends or interest they receive.
Deductions in tax is not allowed for interest, dividends, rents and royalties.

Non-residents persons in Afghanistan who are involved in business and trade is taxed on their
portion of income which is gained from the sources Afghanistan.

Condition in which the organization's operation is except from tax:

1. Organizations establishes under the law of Afghanistan
2. The non-profit organizations which are for the purpose of education, science, culture and
literally.
3. Contributors, shareholders, employees, during the operation of the organization must
not benefit from the organization.

Income of Government agencies and departments should be excepting from tax.

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Answer 2:
a) Annual taxable income = 180’000

Tax first Afs. 5’000 per month 60’000 per year Afs. 0
2% on the next Afs 7’500 per month 90’000 per year Afs 1,800
10% on the next Afs. 2’500 per month 30’000 per year Afs 3’000

Total Tax payable = Afs. 4’800

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b)
Total gross receipts Afs. 3,600,000
Deductible expenses Afs. 2,300,000
Business receipts tax with rate of 2% Afs. 72,000
Total deductible amounts Afs. 2,372,000
Taxable income Afs. 1,228,000

Income tax payable on taxable income (20 %) Afs. 245’6000

Business Receipts Tax Afs. 72’000
Total tax payable Afs. 317,000
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c) 1200$ each month

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For the 1st 4 months: $1200 * 73 = 87’600 per month
Tax first Afs. 5’000 per month Afs. 0
2% on the next Afs 7’500 per month Afs 150
10% on the next Afs. 75’100 per month Afs 7’510
Total Tax payable for these 4 months 7510+150= 7’660 * 4(month) = 30’640
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For the 2nd 4 months 1200$ * 75 = 90’000 per month
Tax first Afs. 5’000 per month Afs. 0
2% on the next Afs 7’500 per month Afs 150
10% on the next Afs. 77’500 per month Afs 7’750
Total Tax payable for these 4 months 7’750+150= 7’900 * 4(month) = 31’600
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For the 3rd 4 months 1200$ * 77 = 92’400 per month
Tax first Afs. 5’000 per month Afs. 0
2% on the next Afs 7’500 per month Afs 150
10% on the next Afs. 79’900 per month Afs 7’990
Total Tax payable for these 4 months 7’990+150= 8’140 * 4(month) = 32’560
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For the 4th 4 months 1200$ * 79 = 94’800 per month
Tax first Afs. 5’000 per month Afs. 0
2% on the next Afs 7’500 per month Afs 150
10% on the next Afs. 82’300 per month Afs 8’230
Total Tax payable for these 4 months 8’230+150= 8’380 * 4(month) = 33’520
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Total taxable income for the year = 4 (87’600 + 90’000 + 92’400 + 94’800) = Afs. 1’459’200
Total tax payable for the year = 30’640 + 31’600 + 32’560 + 33520 = Afs. 128’320
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Answer 3:
a) Tax exemption refer to a personal or specific monetary exemption which may be claimed
by an individual to reduce taxable income under some systems.
Tax exempt status may provide a potential tax payer complete relief from tax, tax at a
reduced rate, or tax on only a portion of the items subject to tax.
Tax deduction is a reduction of income subject to tax for various items especially
expenses incurred to produce income.
Often these deductions are subject to limitations or condition. Tax deduction generally
are allowed only for expenses incurred that produce current benefits, and capitalization of
items producing future benefit is required, sometimes with exceptions. Most system
allow recovery in some manner over a period of time of capitalized business and
investment items, such as through allowances for depreciation, obsolescence or decline in
value.

b) Personal expenses are not deductible in computing taxable income. As the personal
expenses doesn't belong to business and must not be included in business expenses, so
while calculating income tax of business we must also calculate that.
For example: an individual has a firm of making clothes so he can deduct the expenses
such as electricity and raw material, but he can't deduct the expense of his car's fuel from
the taxable income of business.

c) Individual can deduct while collecting income tax because this individual once paid the
amount of tax as the form of 'import duty'.
Example: an individual has a firm of making clothes, and imports wool, cotton, and warp
from another country and pay a specific amount of 'import duty'، so this individual will
not pay another tax from the business income tax.
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Executive Summary

An income tax is a tax which is imposed on the income of individuals, these tax are then
collected by government from individuals on the monetary form.

Not whole the residents of a country pay taxes, taxes must be paid only by those who are eligible
for example: if someone works he should pay tax, not the one who don’t have a job.

Rate of taxes is directly related to the amount of income of an individual, the more income an
individual has the more tax he will pay and vice versa.

A tax deduction is reduction on tax payable and the reason to the reduction is expenses which is
incurred and must be deducted from tax payable.