Afghanistan

Merchandise Trade

 

 

• Afghanistan joined the World Trade Organization (WTO) in July 2016 as its 164th member, after nearly 12 years of negotiating its accession terms. It has also formally accepted the WTO's new Trade Facilitation Agreement. Afghanistan was the ninth least-developed country to accede to the WTO since the organisation was established in 1995.


• The Customs Law of 2005 authorises the government to prohibit or restrict the imports of certain goods. Under this law, Afghanistan currently prohibits the importation of alcoholic drinks, live pork and pork products, cotton seeds and narcotics.


• In July 2010, Afghanistan introduced export duties on scrap metal and waste, with applied rates varying between 5% and 40%.


• In February 2010, Afghanistan introduced a royalty tax on the exports of minerals (the Minerals Law), which regulates the extraction of minerals in the country for exportation. It sets a royalty tax of 15% on the commercial invoice value of all minerals, except for lapis lazuli. With respect to lapis, it sets a royalty tax of 15%, depending on the grade of the estimated stone value.


• In February 2010, the government of Afghanistan introduced export duties on certain natural resources. The duties vary from 2.5% to 40%, depending on the product.


• Afghanistan has an average tariff rate of 7%, the third-lowest (out of eight countries) in the South Asia region, which reflects, according to officials, the government's intention to establish an open, market-based economy.


• Trade with Afganistan is complicated and cumbersome. The World Bank's Ease of Doing Business 2018 report ranks Afghanistan 175th out of 190 countries in the Trading Across Borders Index. Basic communications and support for automated processes are held back by unreliable electricity supplies at major crossing points and the long and porous border. Traders face unclear procedures at the borders and extra-legal duties and bureaucratic hurdles. Coordination is very low between customs and other government authorities. Customs reform efforts are underway to establish standardised fees and procedures for imported goods, as well as streamlined procedures for exports, along with a trained cadre of professional staff.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Updates

After the first air corridor between Afghanistan and Turkey was launched in May 2018, officials from the two states spoke about Afghanistan-Turkey trade ties and the importance of the new air corridor for mutual trade. Afghanistan's Minister of Commerce and Industries, Humayun Rasa stated that a new trade agreement will be signed between the two countries in the near future, which would increase Afghanistan's exports to Turkey.

Multinational Trade Agreements

Active

1. Afghanistan-India Bilateral Partial Scope Agreement: This agreement covers trade in goods and entered into force in May 2003. India is Afghanistan's second-largest export market; as of 2016 (latest direct data available), India received 38.6% of Afghanistan's total exports, of which edible fruit and nuts, peel of citrus fruit and melons made up the highest percentage.


2. South Asian Free Trade Agreement (SAFTA): SAFTA's signatories are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The agreement covers trade in goods and originally entered into force on January 1, 2006; Afghanistan joined later on August 7, 2011. Under SAFTA, Afghanistan currently has duty-free access to India for all traded goods, except cigarettes and alcohol, and pays duties of 5% to Pakistan on non-sensitive goods.


3. Afghanistan-Pakistan Transit Trade Agreement (APTTA): APTTA came into force on June 12, 2011, with the purpose of facilitating the movement of goods between the two countries, as well as to India and mainland China and the rest of the world through the ports at Karachi, Port Qasim and Gwadar. The main provisions of the agreement include freedom of transit through each state's territory via pre-defined routes, facilitation of clearance procedures, the establishment of technical requirements for the admittance of road vehicles and drivers, and the elimination of customs duties and taxes on all goods in transit, and means of transit and transport, regardless of destination or purpose.


4. Afghanistan-United States Trade and Investment Framework Agreement (TIFA): TIFA was signed and came into effect on June 26, 2004. It has aimed to establish a framework for the discussion of economic relations between Afghanistan and the United States. Since then, there have been annual meetings of the United States-Afghanistan Council on Trade and Investment, established under the auspices of the TIFA, to further the bilateral cooperation needed to achieve Afghanistan's goals of creating an environment conducive to economic reform, private sector development and trade expansion.

Signed But Not Active

Economic Cooperation Organisation Trade Agreement (ECOTA): ECOTA is a trade agreement between Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan that was signed on July 17, 2003. The agreement is not yet in force.

Sources: WTO Regional Trade Agreements database, Afghanistan Customs Department
 

Foreign Direct Investment

• Value Added Tax: 10% (by 2021)
• Corporate Income Tax: 20%

Source: Ministry of Finance 1398 National Budget

Important Updates to Taxation Information

Afghanistan is committed to introducing policies and making administrative improvements that will increase domestic revenue. The WTO Agreement requires the government to eliminate fixed taxes on imports and implement value added tax (VAT) before January 1, 2021. A VAT rate of 10% is expected to yield an additional 1.9% of GDP.

Foreign Worker Permits

The Foreigners Employment law in Afghanistan stipulates that foreigners can be employed on the basis of a work permit issued by the Ministry of Labour and Social Affairs. Work permits are issued for one year and are renewable. Foreign citizens travelling to Afghanistan for employment need to obtain business visas and work permits.

Localisation Requirements

The employment of foreign workers is allowed, but a 2005 labour regulation requires that priority be given to equally qualified Afghan workers.

Visa/Travel Restrictions

Citizens of all countries require a visa to visit Afghanistan. Exemptions apply to visitors born in Afghanistan or born to Afghan parents, as well as for holders of diplomatic or service passports of mainland China, India (diplomatic only), Indonesia, Iran, Tajikistan and Turkey for visits of up to 30 days.

Security is a concern for foreigners travelling to Afghanistan due to the threat from terrorism, armed conflict and kidnapping. It is advised that no foreigners travel to Afghanistan unless travel is essential (although essential travel is restricted to only a few areas, including Kabul). Owing to the ongoing conflict in Afghanistan, any foreign workers sent to the country will need high levels of security or protection as well as additional compensation. Foreign workers would need to be paid a danger pay of approximately 35% of their basic compensation as well as a hardship pay of 35% of their basic compensation on top of their normal wages or salaries.

Sources: Government websites, US Department of Commerce, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, Transparency International, Fitch Solutions

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: June 7, 2020

Hong Kong’s Trade with Afghanistan