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Beginning to Implement Prohibition on Taxation of Aid' which was 
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Washington, DC 20548:

United States General Accounting Office:

February 20, 2004:

The Honorable Mitch McConnell:
Chairman:

The Honorable Patrick Leahy:
Ranking Minority Member:

Subcommittee on Foreign Operations:
Committee on Appropriations:
United States Senate:

The Honorable Jim Kolbe:
Chairman:

The Honorable Nita M. Lowey:
Ranking Minority Member:

Subcommittee on Foreign Operations, Export Financing and Related 
Programs:

Committee on Appropriations:

House of Representatives:

Subject: Foreign Assistance: USAID and the Department of State Are 
Beginning to Implement Prohibition on Taxation of Aid:

In 2002, Congress learned that the Palestinian Authority had collected 
$6.8 million[Footnote 1] in taxes on U.S. humanitarian assistance meant 
for the people of the West Bank and Gaza and subsequently learned that 
some other foreign governments were also taxing U.S. assistance. U.S. 
Agency for International Development (USAID) officials estimate that at 
least several million dollars in taxes are collected annually on U.S. 
assistance programs, although some of this amount is reimbursed by 
recipient governments. This situation raised concerns in Congress that 
U.S. assistance funds for programs to help developing country 
populations were instead being diverted to the treasuries of foreign 
governments. In response to these concerns, Congress included a 
prohibition against such taxation in its Consolidated Appropriations 
Resolution for fiscal year 2003,[Footnote 2] and provided for a 200 
percent penalty for taxes levied but not reimbursed.[Footnote 3] This 
legislation defines "taxes" and "taxation" as value added taxes (VAT) 
and customs duties imposed on commodities financed with U.S. 
assistance for programs for which funds are appropriated by the act.

This report responds to a requirement in that legislation that we 
report to the committees on appropriations concerning these provisions. 
In discussions with staff of the House Appropriations' Subcommittee on 
Foreign Operations, Export Financing and Related Programs, we agreed to 
determine (1) the extent to which USAID bilateral framework agreements 
or other arrangements include exemption from taxation and (2) the 
progress that the Department of State has made in developing and 
distributing guidance to implement the prohibition.

To accomplish these objectives, we reviewed U.S. government bilateral 
framework agreements with countries receiving USAID assistance, State 
Department guidance to implement the prohibition, and other relevant 
documentation and met with cognizant officials in USAID and State. As 
agreed with congressional staff, we did not review bilateral agreements 
that other U.S. government agencies, including State, have with 
recipient governments. Also, we were unable to identify the amount of 
taxes levied and reimbursed during fiscal year 2003[Footnote 4] because 
State is still in the process of collecting this information.

Results in Brief:

Of the 90 countries or entities[Footnote 5] to which USAID provided 
bilateral assistance in fiscal year 2003,[Footnote 6] 77 have bilateral 
framework agreements[Footnote 7] that include some type of prohibition 
on taxation, 6 have other agreements that include such prohibitions, 
and 7 do not have agreements that include such prohibitions. Of the 77 
bilateral agreements that have some type of prohibition, 45 of them 
state that supplies, materials, equipment, or other property may be 
imported into or acquired within country free from any tariffs, customs 
duties, import taxes, and other taxes or similar charges. The other 32 
agreements contain prohibitions against taxing commodities imported or 
introduced for use in assistance projects but do not address 
commodities purchased in-country. USAID has arrangements or agreements 
other than bilateral framework agreements with 6 countries and entities 
that include tax prohibitions. For example, regarding assistance to the 
West Bank and Gaza, USAID received a letter from the Palestinian 
Authority in March 2002 stating that it would not assess VAT for any 
U.S. assistance activities. In addition, imported items are exempt from 
customs duties through separate administrative procedures involving the 
Palestinian Authority and the Israeli Customs Department. Of the 7 
countries without agreements that include the prohibition, 2 have 
bilateral framework agreements with USAID, and 5 do not. USAID 
officials noted that, although bilateral framework agreements are an 
important tool for establishing the tax-exempt status of U.S. 
assistance, USAID has additional tools to obtain tax exemptions in 
actual practice, such as including tax prohibitions in individual grant 
agreements. However, USAID officials told us they could not provide 
comprehensive information on the use and effectiveness of such tools 
because they currently have no mechanism for collecting such 
information from individual missions.

In response to the legislation's requirements, the State Department has 
developed guidance on implementing the prohibition on taxation of U.S. 
assistance and disseminated the guidance to all applicable offices and 
U.S. missions for implementation. For taxes charged in fiscal year 
2003, State's guidance calls for the country to provide full 
reimbursement by January 31, 2004. If it does not, the government is to 
withhold 200 percent of the unreimbursed taxes assessed in fiscal year 
2003 from that government's assistance allocation for fiscal year 2004. 
The guidance calls for State to collect in December 2003 preliminary 
estimates of taxes collected and reimbursed. As of mid-January 2004, 
State's Bureau of Resource Management had received only partial reports 
from the regional bureaus because some countries or programs had not 
yet provided the needed information. State officials noted that, of the 
reports received thus far, most countries or programs had reported that 
either no taxes had been charged or that relatively minor amounts 
(generally less than $100,000) had been charged. Of the few exceptions 
that were higher, none approached the $7 million that had been 
previously charged under the West Bank/Gaza program.[Footnote 8] State 
officials also noted that the interim reporting deadlines were meant to 
provide preliminary information on the magnitude of the problem and to 
ensure that fiscal year 2004 funds that may be subject to the 200 
percent penalty are not obligated for release to the central 
government. Final reports will provide the basis for actually imposing 
the 200 percent penalty, if applicable, and are due to the Bureau of 
Resource Management by May 17, 2004. State's guidance also contains 
suggested language for implementing the prohibition, which is to be 
included in new agreements and amendments to agreements that do not 
contain the prohibition.

Background:

USAID provided bilateral assistance estimated at more than $5 billion 
for fiscal year 2003. A provision in the fiscal year 2003 Consolidated 
Appropriations Resolution forbids assistance under that act through any 
new bilateral agreement unless the agreement includes a provision 
stating that such assistance shall be exempt from taxation or that 
taxes collected shall be reimbursed. The act also provides that the 
Secretary of State shall expeditiously seek to negotiate amendments to 
existing bilateral agreements, as necessary, to conform to this 
requirement. If a country does not reimburse the United States for 
taxes it charged, a 200 percent penalty is to be withheld from the 
country or entity. Half of that amount may be reprogrammed consistent 
with the purposes for which such funds were originally appropriated. 
The other half of the funds were to be deposited in the General Fund of 
the Treasury by September 6, 2004, on the basis of certifications 
provided by the Secretary of State.[Footnote 9]

USAID Bilateral Framework or Other Agreements with Most Aid Recipients 
Contain Some Prohibition on Taxation:

Of the 90 countries or entities to which USAID provided bilateral 
assistance in fiscal year 2003, 77 of them have bilateral framework 
agreements with USAID that include some type of prohibition on 
taxation, although the comprehensiveness of the prohibitions varies. 
Similarly, 6 have project implementing agreements or other agreements 
with varying degrees of tax prohibitions. Seven do not have agreements 
that include prohibitions on taxation. USAID officials said that, 
although bilateral framework agreements are an important tool for 
establishing tax-exempt status for U.S. assistance, USAID has 
additional tools for obtaining tax exemptions in actual practice. 
Figure 1 identifies the countries and entities with which USAID (1) has 
bilateral framework agreements that contain prohibitions against 
taxation of U.S. assistance, (2) has program implementing and other 
agreements that contain these prohibitions, and (3) does not have 
agreements that contain a prohibition.

Figure 1: Countries That Have and Do Not Have Agreements Containing 
Prohibitions against Taxation:

[See PDF for image]

[End of figure]

Comprehensiveness of Tax Prohibition Provisions Varies in 77 Bilateral 
Framework Agreements:

For the 77 countries and entities with bilateral framework agreements 
that include some sort of prohibition on taxation of assistance, the 
comprehensiveness of the prohibition provisions varies, with the most 
recent agreements generally containing the most comprehensive language. 
The most inclusive language states that supplies, materials, equipment, 
and other property imported into or acquired in-country by the U.S. 
government are exempt from any taxes on ownership or use of property. 
This language also generally states that the import, export, purchase, 
use, or disposition of any such property in connection with any 
assistance program shall be exempt from any tariffs, customs duties, 
import taxes, and other taxes or similar charges in that country. This 
language covers commodities imported into the recipient country and 
those purchased locally and is in 45[Footnote 10] of the 77 agreements 
with tax prohibitions. Included among the 45 agreements with the most 
comprehensive language are all 7 agreements implemented within the last 
5 years (since 1998).

The remaining 32 agreements prohibit taxation of items imported or 
introduced into the host country for use in assistance projects but do 
not specifically discuss items acquired in-country, which is one basis 
for assessing VAT. These agreements prohibit customs duties or import 
taxes on any materials and equipment introduced into the country, but 
the agreements do not specifically include items acquired in the host 
country. Twenty-one of these agreements were signed between 1950 and 
1971, while the other 11, all with countries of the former Soviet 
Union, were developed in the 1990s.

Six Other Arrangements Contain Prohibitions on Taxing Assistance:

USAID and six countries or entities have entered into arrangements 
other than bilateral framework agreements that provide some exemption 
from taxation. For example, although USAID has no bilateral framework 
agreement with the Palestinian Authority for assistance to the West 
Bank and Gaza, it did receive a letter from the authority in March 2002 
granting U.S. assistance projects VAT-free status. In addition, USAID-
financed goods are exempted from customs duties through a separate 
administrative procedure involving the Palestinian Authority and the 
Israeli Customs Department, according to USAID officials.[Footnote 11] 
USAID documentation indicated that as of March 2002, the Palestinian 
Authority had reimbursed about $6 million in taxes it had collected. 
The estimated fiscal year 2003 USAID allocation for the West Bank and 
Gaza program was $75 million.

USAID stated that although it has no bilateral framework agreements 
with Eritrea and Mozambique, it has grant agreements covering specific 
assistance projects in both countries that include exemption from all 
taxes, including customs duties and VAT. USAID has been attempting to 
negotiate bilateral framework agreements with both governments since 
the 1990s. USAID expects to conclude an agreement with Mozambique 
containing the appropriate tax and duty exemptions soon. Extensive 
negotiations had been conducted with Eritrea, but the parties had not 
been able to reach agreement on an acceptable document as of November 
2003.

USAID has bilateral framework agreements with the Philippines and 
Indonesia that do not include prohibitions on taxation of U.S. 
assistance. However, it has grant and other agreements covering 
specific projects in these countries that include exemptions from any 
taxation or fees on commodity procurement transactions financed under 
these agreements, including the import, export, purchase, use, or 
disposition of any equipment or property. USAID also stated that it 
provides assistance to Ireland through cash transfers to the 
International Fund for Ireland--a tax-exempt organization.

Seven Countries Do Not Have Agreements with USAID Prohibiting Taxation 
of U.S. Assistance:

Seven countries that receive USAID assistance do not have agreements 
with the agency that include prohibitions on taxation. Two of these 
countries--Laos and Thailand--have bilateral framework agreements with 
USAID, but these agreements, do not contain tax prohibition provisions. 
USAID stated that currently it has no plans to renegotiate these 
bilateral agreements since program activities in the two countries are 
not conducted by USAID under government-to-government agreements, but 
rather are carried out directly by nongovernmental organizations.

Regarding the other five countries, agency officials stated that they 
do not have agreements with Cuba or China since assistance to these two 
countries is also provided through private organizations outside of 
official government channels. USAID does not have a bilateral agreement 
with the Democratic Republic of the Congo because assistance to that 
country had been prohibited for many years until June 2003. According 
to USAID officials, since 1996 Burundi has been subject to the military 
coup sanction of the Foreign Assistance Appropriations Act, which 
limits the amount of assistance that USAID can provide. USAID stated 
that it might be willing to initiate negotiations with the governments 
of the Democratic Republic of the Congo and Burundi when it becomes 
feasible to resume normal government-to-government assistance 
programs. Finally, USAID does not have a bilateral framework agreement 
with Cape Verde, where the agency has no presence. The only assistance 
it currently provides to Cape Verde, according to USAID, is Public Law 
480 food assistance that is funded under another statute and therefore 
is not subject to the tax prohibition.

USAID Has Other Tools for Obtaining Tax Exemption:

USAID officials said that, although bilateral framework agreements are 
an important tool for establishing tax-exempt status for U.S. 
assistance, USAID has additional tools for obtaining tax exemptions. 
For example, USAID inserts tax-exemption clauses into grant agreements 
with host governments for individual projects. This mechanism can be 
used in cases where bilateral agreements do not exist or where 
bilateral framework agreements exist but do not contain prohibitions on 
taxation. It can also be used in cases where bilateral framework 
agreements containing tax prohibitions exist but where the relevant 
language is not sufficiently comprehensive.

According to USAID officials, in cases where bilateral framework 
agreements include tax prohibitions but do not specifically exempt 
items acquired in the host country, USAID has interpreted such 
agreements to implicitly include such an exemption. The officials added 
that such less inclusive language had generally not been an obstacle to 
obtaining tax exemption in actual practice because USAID had been able 
to persuade recipient governments to accept its interpretation of the 
agreements. However, USAID officials told us they could not provide 
comprehensive information on the use and effectiveness of this approach 
or that of inserting tax prohibitions into individual grant agreements, 
because the situation varies at each overseas mission and a mechanism 
for collecting such information from individual missions does not 
currently exist.

USAID officials told us that, in some countries, using these other 
tools to obtain tax exemptions could be preferable to either 
negotiating a new bilateral framework agreement or renegotiating an 
existing agreement. For example, the U.S. Ambassador may want to avoid 
putting pressure on a foreign government to renegotiate a bilateral 
framework agreement that is politically controversial in that country. 
In other cases, the Ambassador may want to avoid initiating 
negotiations that would provide an opening for the foreign government 
to raise other issues that could have a negative impact on U.S. foreign 
policy objectives.

State Department Has Issued Guidance for Implementing the Prohibition:

As required by legislation, the State Department developed guidance on 
implementing the prohibition on taxation and disseminated it in 
September 2003 to all applicable offices and U.S. missions for 
implementation. The guidance calls for collecting in December 2003 
preliminary estimates of taxes collected and reimbursements owed and 
for reporting final information by May 17, 2004. As of mid-January 
2004, State's Bureau of Resource Management had received only partial 
reports from the regional bureaus because some countries or programs 
had not yet provided the needed information. State officials noted 
that, of the reports received thus far, most countries and programs had 
reported that either no or relatively minor amounts of taxes had been 
collected. State officials said that the interim estimates were 
intended primarily to (1) identify countries that may be subject to 
withholding of assistance and (2) ensure that the corresponding funds 
are not obligated from the fiscal year 2004 appropriations. The 
information provided in the final reports will form the basis for 
actually imposing the 200 percent penalty and deducting it from each 
applicable country program allocation for 2004. State's guidance also 
contains suggested language for new assistance agreements and for 
amending existing agreements to ensure that they include a prohibition 
on taxation, as required.

State Department's Guidance Provides Direction to Agencies and 
Overseas Missions for Penalizing Taxing Governments and Preventing 
Future Taxation:

State's guidance to overseas and Washington missions and bureaus 
outlines the steps needed to prevent countries from imposing VAT and 
customs taxes on commodities purchased with U.S. foreign assistance 
funds. Commodities (defined in the guidance as any material, article, 
supplies, goods, or equipment) subject to this provision are those that 
were acquired with fiscal year 2003 or prior year foreign assistance 
funds and on which taxes were assessed from February 20, 2003 (the date 
that the legislation was enacted) through September 30, 2003.

Consistent with the de minimis exception provided for in the 
legislation, State has defined this limit as $500 or more. Thus, the 
guidance states that those providing reports are to include information 
on all VAT and customs taxes charged on commodity transactions valued 
at $500 or more.

The guidance further restates the legislative requirements that if 
taxes are charged, the country should provide full reimbursement, and 
that funding for foreign assistance be withheld from the taxing 
government's 2004 allocations unless there is full reimbursement. In 
these cases, the U.S. government is to withhold from fiscal year 2004 
foreign assistance funds to that country, 200 percent of the amount of 
unreimbursed taxes assessed in fiscal year 2003. State officials said 
that, consistent with the statute, such penalties would only be applied 
to funds allocated directly to central governments and that they would 
not be deducted from funds that are directed to nongovernmental and 
private voluntary organizations, or other organizations that implement 
projects. These officials added that if sufficient funding is not 
available to deduct the full amount from programs directed to 
individual central governments, the full amount of the penalty would 
not be deducted for that country.

The guidance also specifies what assistance should and should not be 
considered as covered by the prohibition on taxation for purposes of 
complying with the legislation. Assistance covered by the prohibition 
is further divided into two categories--embassy-reported program 
assistance and special Washington reporting office program assistance. 
See enclosure II for a list of all embassy and special Washington 
reporting office programs to be included for the purpose of complying 
with this legislation and examples of specific assistance that is not 
to be reported under the legislation.

Embassy Reports Will Provide Basis for Collecting Reimbursements and 
Imposing Penalties:

Embassies are required to collect and report information concerning any 
VAT and customs duties charged by a foreign country or entity on 
commodity transactions during fiscal year 2003 valued at $500 or more. 
Embassies are also required to collect information on reimbursements. 
According to the guidance, taxation reports are to reflect all VAT or 
customs taxes assessed during the same period on commodities acquired 
with foreign assistance funds for program activities that received any 
fiscal year 2003 funding, regardless of whether the taxed commodities 
were actually purchased with fiscal year 2003 funds. The guidance also 
states that embassies and State regional bureaus were to urge the 
taxing foreign country, no later than December 15, 2003, to provide 
complete reimbursement by January 31, 2004.

The guidance calls for embassies to provide interim estimates in 
December 2003 on taxes levied and reimbursed. As of mid-January 2004, 
State's Bureau of Resource Management had received only partial reports 
from the regional bureaus because some countries or programs had not 
yet provided the needed information. State officials noted that, of the 
reports received thus far, most countries and programs had reported 
that no taxes had been charged. Where taxes had been charged, they 
appeared to be relatively minor, with a few exceptions. For most 
countries, the total was less than $100,000. Although a few were 
higher, State officials said that the amounts were far less than the $7 
million that had previously been charged under the West Bank/Gaza 
program. State would not provide more detailed information on the 
interim estimates reported to date because they view such information 
as preliminary in nature and only for State's internal use.

State officials said that although some offices experienced delays in 
collecting and reporting the estimated tax and reimbursement 
information, the December time frame for providing interim estimates 
was meant to provide preliminary information on the magnitude of the 
problem. According to State officials, the final reports--due 
May 17, 2004--will form the basis for actually imposing the 200 percent 
penalty and deducting it from each applicable country program for 2004. 
The interim estimates therefore allow fiscal year 2004 programs to move 
forward at least in part until the host government can provide 
reimbursement and the final data can be collected.

The second report will update and finalize the information contained in 
the interim report. Time frames for submitting the final reports are 
April 16, 2004--Contractors, grantees, and U.S. government agencies and 
entities administering or implementing foreign assistance programs are 
required to submit their final report to embassies on VAT and customs 
duties assessed against all commodity transactions valued at $500 or 
more, from February 20 through September 30, 2003, as well as any 
reimbursements received from the host government.

May 3, 2004--Embassies and special Washington reporting offices are to 
provide final consolidated information to the relevant regional 
bureaus.

May 17, 2004--Regional bureaus are to provide consolidated reports to 
State's Bureau of Resource Management on the net tax amount (taxes 
minus reimbursements) by country and account. Decisions to withhold 
funds will be based on these final net amounts.

Process for Collecting Reimbursements Varies by Country:

The process for obtaining reimbursement for VAT and customs duties 
levied by recipient governments varies from country to country, 
according to the guidance. Embassies and program implementers are to 
work out the details of collecting reimbursement on the basis of 
mechanisms already existing at post. If no reimbursement mechanism 
exists, embassies are encouraged to establish one with the host 
government since the State Department expects this requirement to 
continue beyond fiscal year 2003. State officials said that early 
indications are that embassy, contractor, nongovernmental 
organization, and other officials are actively working with recipient 
governments to ensure that reimbursements are received before penalties 
are imposed.

Program implementing agencies, offices, and recipients are encouraged 
to work closely with foreign government counterparts to seek 
reimbursement on a regular basis where possible. To the extent that 
reimbursements are still being processed and are not received within 
the time frame necessary to be captured in the final report, the proper 
amount must be withheld in fiscal year 2004, even though reimbursement 
would be forthcoming at a later date.

New Bilateral Framework Agreements and Amendments to Existing 
Agreements Must Include a Prohibition on Taxation:

According to State's guidance, U.S. government agencies administering 
assistance programs are required to include provisions in any new 
bilateral framework agreements stating that the purchase of commodities 
funded by U.S. foreign assistance shall be exempt from any VAT, and 
that the import or entry of such commodities shall be exempt from any 
customs duties. Otherwise, the recipient government must reimburse the 
U.S. government for any such VAT and customs duties charged. No 
assistance is to be provided under a new bilateral agreement unless it 
contains such a provision.

The guidance also states that U.S. government agencies should 
expeditiously negotiate amendments, as necessary, to existing 
agreements to conform to the tax-exemption and reimbursement 
requirements of the legislation. The guidance adds that where existing 
agreements already include a provision for tax exemption, this may 
suffice if assistance has generally not been taxed or if any taxes 
charged have been reimbursed.

Agency Comments:

We provided USAID and State with a draft copy of this report for review 
and comment. USAID provided written comments on the draft (see enc. 
III). USAID stated that it generally concurred with the report's 
findings. Both USAID and State provided technical comments that we have 
incorporated as appropriate.

Scope and Methodology:

To determine the extent to which USAID bilateral framework agreements 
include exemption from taxation and the extent of USAID's effort to 
ensure that all agreements include such an exemption, we 

analyzed existing agreements to determine whether they included the 
prohibition and, if so, whether the prohibition covered the types of 
taxes identified in the legislation;

reviewed USAID's guidance to its missions implementing the 
legislation's reporting and tax reimbursement collection requirements; 
and; 

met with cognizant officials at USAID headquarters to discuss efforts 
USAID is making to ensure that its bilateral agreements comply with the 
legislation.

To identify the State Department's progress in developing and 
implementing guidance to identify taxes levied on U.S. assistance, and 
to ensure that such amounts are reimbursed to the U.S. government or 
that an appropriate penalty is levied against unreimbursed taxes, we:

analyzed the implementing guidance to determine whether it addressed 
all of the legislative requirements and:

met with cognizant department officials to determine the status of 
initial reporting efforts, including whether the required information 
was being collected and reported.

Our review was conducted from July through December 2003 in accordance 
with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of State, and the Administrator of USAID. We 
will also make copies available to others upon request. In addition, 
this report will be available at no charge on our Web site at http://
www.gao.gov.

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4128 or Michael Courts, Assistant Director, at 
(202) 512-8980. Other key contributors to this report were Janey Cohen 
and Edward Kennedy.

Jess T. Ford, Director:

International Affairs and Trade:

Signed by Jess T. Ford: 

USAID Estimated Assistance Allocations, by Country, for Fiscal Year 
2003:

Country and entity, by region: 

(Dollars in millions) 

Region: Africa: 

Country/Entity: Angola; 
Total allocated: $16.2.

Country/Entity: Benin; 
Total allocated: 18.3.

Country/Entity: Burkina Faso; 
Total allocated: 10.1.

Country/Entity: Burundi; 
Total allocated: 4.0.

Country/Entity: Cape Verde; 
Total allocated: 3.5.

Country/Entity: Democratic Republic of the Congo; 
Total allocated: 23.5.

Country/Entity: Eritrea; 
Total allocated: 11.9.

Country/Entity: Ethiopia; 
Total allocated: 77.3.

Country/Entity: Ghana; 
Total allocated: 53.7.

Country/Entity: Guinea; 
Total allocated: 26.4.

Country/Entity: Kenya; 
Total allocated: 58.8.

Country/Entity: Liberia; 
Total allocated: 6.2.

Country/Entity: Madagascar; 
Total allocated: 29.0.

Country/Entity: Malawi; 
Total allocated: 37.2.

Country/Entity: Mali; 
Total allocated: 34.6.

Country/Entity: Mauritania; 
Total allocated: 3.5.

Country/Entity: Mozambique; 
Total allocated: 62.4.

Country/Entity: Namibia; 
Total allocated: 7.0.

Country/Entity: Niger; 
Total allocated: 6.9.

Country/Entity: Nigeria; 
Total allocated: 65.2.

Country/Entity: Rwanda; 
Total allocated: 29.2.

Country/Entity: Senegal; 
Total allocated: 28.4.

Country/Entity: Sierra Leone; 
Total allocated: 3.9.

Country/Entity: Somalia; 
Total allocated: 2.9.

Country/Entity: South Africa; 
Total allocated: 61.4.

Country/Entity: Sudan; 
Total allocated: 22.3.

Country/Entity: Tanzania; 
Total allocated: 32.9.

Country/Entity: Uganda; 
Total allocated: 78.8.

Country/Entity: Zambia; 
Total allocated: 50.3.

Country/Entity: Zimbabwe; 
Total allocated: 16.1.

Subtotal; 
Total allocated: $881.9.

Region: Asia and Near East: 

Region: Asia: 

Country/Entity: Bangladesh; 
Total allocated: $110.5.

Country/Entity: Burma; 
Total allocated: 6.5.

Country/Entity: Cambodia; 
Total allocated: 39.5.

Country/Entity: China; 
Total allocated: 5.0.

Country/Entity: East Timor; 
Total allocated: 19.0.

Country/Entity: India; 
Total allocated: 191.5.

Country/Entity: Indonesia; 
Total allocated: 141.5.

Country/Entity: Laos; 
Total allocated: 2.0.

Country/Entity: Mongolia; 
Total allocated: 12.0.

Country/Entity: Nepal; 
Total allocated: 37.7.

Country/Entity: Pakistan; 
Total allocated: 250.0.

Country/Entity: Philippines; 
Total allocated: 71.2.

Country/Entity: Sri Lanka; 
Total allocated: 10.1.

Country/Entity: Thailand; 
Total allocated: 3.3.

Country/Entity: Vietnam; 
Total allocated: 12.5.

Region: Near East: 

Country/Entity: Egypt; 
Total allocated: 615.0.

Country/Entity: Israel; 
Total allocated: 800.0.

Country/Entity: Jordan; 
Total allocated: 250.0.

Country/Entity: Lebanon; 
Total allocated: 32.5.

Country/Entity: Morocco; 
Total allocated: 6.7.

Country/Entity: West Bank/Gaza; 
Total allocated: 75.0.

Country/Entity: Yemen; 
Total allocated: 10.0.

Subtotal; 
Total allocated: $2,701.5.

Region: Europe and Eurasia: 

Region: Europe: 

Country/Entity: Albania; 
Total allocated: $28.0.

Country/Entity: Bosnia-Herzegovina; 
Total allocated: 50.0.

Country/Entity: Bulgaria; 
Total allocated: 28.0.

Country/Entity: Croatia; 
Total allocated: 30.0.

Country/Entity: Cyprus; 
Total allocated: 15.0.

Country/Entity: Ireland; 
Total allocated: 29.0.

Country/Entity: Kosovo; 
Total allocated: 85.0.

Country/Entity: Macedonia; 
Total allocated: 50.0.

Country/Entity: Romania; 
Total allocated: 29.0.

Country/Entity: Serbia and Montenegro; 
Total allocated: 135.0.

Region: Eurasia: 

Country/Entity: Armenia; 
Total allocated: 70.0.

Country/Entity: Azerbaijan; 
Total allocated: 46.0.

Country/Entity: Belarus; 
Total allocated: 9.5.

Country/Entity: Georgia; 
Total allocated: 87.0.

Country/Entity: Kazakhstan; 
Total allocated: 43.0.

Country/Entity: Kyrgyzstan; 
Total allocated: 36.0.

Country/Entity: Moldova; 
Total allocated: 32.5.

Country/Entity: Russia; 
Total allocated: 148.0.

Country/Entity: Tajikistan; 
Total allocated: 22.5.

Country/Entity: Turkmenistan; 
Total allocated: 7.0.

Country/Entity: Ukraine; 
Total allocated: 155.0.

Country/Entity: Uzbekistan; 
Total allocated: 31.5.

Subtotal; 
Total allocated: $1,167.0.

Region: Latin America and Caribbean: 

Country/Entity: Bolivia; 
Total allocated: $62.3.

Country/Entity: Brazil; 
Total allocated: 18.5.

Country/Entity: Cuba; 
Total allocated: 6.0.

Country/Entity: Dominican Republic; 
Total allocated: 22.9.

Country/Entity: Ecuador; 
Total allocated: 29.4.

Country/Entity: El Salvador; 
Total allocated: 33.7.

Country/Entity: Guatemala; 
Total allocated: 52.2.

Country/Entity: Guyana; 
Total allocated: 3.2.

Country/Entity: Haiti; 
Total allocated: 47.4.

Country/Entity: Honduras; 
Total allocated: 40.3.

Country/Entity: Jamaica; 
Total allocated: 16.8.

Country/Entity: Mexico; 
Total allocated: 30.4.

Country/Entity: Nicaragua; 
Total allocated: 37.7.

Country/Entity: Panama; 
Total allocated: 10.5.

Country/Entity: Paraguay; 
Total allocated: 10.1.

Country/Entity: Peru; 
Total allocated: 78.2.

Subtotal; 
Total allocated: $499.6.

Total  90 countries and entities: Total allocated: $5,250.0.

Source: USAID.

[End of table]

Embassy and Special Washington Reporting Office Programs to be Included 
in Tax Collection and Reimbursement Reporting Requirement, and Programs 
That Are Not to Be Addressed:

Part A: Embassy Programs That Are to Be Included in Tax Collection and 
Reimbursement Reporting Requirement:

Economic Support Fund;

* Nonproliferation, Anti-terrorism, Demining, and Related Programs 
* Export Control and Related Border Security Assistance programs;
* Development Assistance;
* Child Survival and Health;
* International Disaster Assistance;
* Transition Initiatives;
* Support for East European Democracy;
* Assistance for the Independent States,
* Andean Counterdrug Initiative; and:
* International Narcotics Control and Law Enforcement.
* Embassies will also be responsible for reporting on programs funded 
and managed by the Peace Corps and any Treasury Technical Assistance 
programs or other independent programs.

Part B: Special Washington Reporting Office Programs That Are to Be 
Included in Tax Collection and Reimbursement Reporting Requirement:

Embassies do not have responsibility for programs managed largely by 
Washington offices (called special Washington reporting offices). These 
offices are responsible for developing tax and reimbursement 
information for the following programs:

* Migration and Refugees Assistance and Emergency Refugee and 
Migration Assistance (provided other than as contributions to 
international organizations);
* International Military Education and Training;
* Foreign Military Financing Used for Foreign Military Sales and 
Direct Commercial Contract Sales;
* Peacekeeping Operations;
* Anti-Terrorism Assistance;
* Terrorist Interdiction Program;
* Nonproliferation and Disarmament Fund;
* Small Arms/Light Weapons Destruction;
* Humanitarian Demining;
* Nonproliferation, Anti-terrorism, Demining, and Related Programs/
Science Centers;
* Human Rights and Democracy Economic Support Fund, Support for 
European Democracy, and Assistance for the Independent States programs 
administered by the Department of State's Bureau of Democracy, Human 
Rights, and Labor;
* State's Bureau of Oceans and International Environmental Scientific 
Affairs Initiatives programs funded with Economic Support Funds;
* U.S. Trade and Development Agency programs;
* Trafficking in Persons programs; and:
* Selected Support for European Democracy and Assistance for the 
Independent States programs implemented by non-State/USAID agencies, 
based on embassy discussion with Army Corps of Engineers/Europe.

Part C: Assistance That Is Not to Be Included Under the Tax Collection 
and Reimbursement Reporting Requirement:

The guidance identifies specific assistance that is not to be reported 
on under this legislation:

* Funds not for specific goods such as cash transfers and nonproject 
assistance grants to, or debt relief for, a foreign government.
* Funds that consist of a general contribution to a public 
international organization that typically funds the organization's 
general budget, or special trust fund that does not identify specific 
goods and services for funding.
* Funds that consist of loan guarantees (e.g., Development Credit 
Authority agreements) or are with intermediate credit institutions for 
services only.
* Funds that consist of assistance that is not funded by annual 
foreign operations, export financing, and related programs 
appropriations acts. 
* Such nonforeign assistance appropriations act assistance includes, 
for example, Department of Energy nuclear cities programs.
* The State Department may consider not imposing the withholding 
penalty on taxes imposed on urgent disaster assistance used for relief 
and rehabilitation (versus reconstruction).

Comments from the U.S. Agency for International Development:

USAID:

U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT:

February 12, 2004:

Jess T. Ford:

Director, International Affairs and Trade 
U.S. General Accounting Office:

441 G Street, N.W. 
Washington, D.C. 20548:

Dear Mr. Ford:

I am pleased to provide the U.S. Agency for International Development's 
(USAID's) formal response on the draft GAO report entitled "USAID and 
State Beginning to Implement Prohibition on Taxation of Aid" (February 
2004).

We have no significant problems with the draft report and have 
appreciated very much the opportunity to work with Mr. Kennedy and Mr. 
Courts in their preparation of the report. We have informally provided 
to them comments of a technical nature, including on some of the data 
presented in the report, and would hope that these comments will be 
considered in preparation of the final report.

Again, thank you for the opportunity to respond to the GAO draft report 
and for the courtesies extended by your staff in the conduct of this 
review.

Signed by: 

John Marshall: 
Assistant Administrator Bureau for Management:

(320209):

FOOTNOTES

[1] These taxes had been collected at least since 1998. 

[2] Division E, Title V,  579, Pub. L. No. 108-7 (2003).

[3] This prohibition applies only to funds appropriated in fiscal year 
2003. 

[4] This applies to the period from February 20 (the date that the 
legislation was enacted) to September 30, 2003. 

[5] USAID provides assistance to 2 entities that are not foreign 
governments. It provides assistance to Kosovo through the United 
Nations and to the West Bank and Gaza in coordination with the 
Palestinian Authority and the Israeli Government. 

[6] See enclosure I for a list of the 90 countries and entities and the 
USAID assistance allocated to them for fiscal year 2003. 

[7] Bilateral framework agreements are intended to identify the 
privileges and immunities to be provided to USAID personnel overseas, 
set forth USAID's policy that assistance should be exempt from host 
government taxes, and list other general terms and conditions for USAID 
assistance.

[8] The Palestinian Authority had refunded about $6 million of this 
amount as of March 2002, according to USAID documentation. 

[9] State Department officials said that the fiscal year 2004 Foreign 
Operations Appropriations Act allows an amount representing the 200 
percent penalty on fiscal year 2003 assessments to be reprogrammed 
instead of returning half to the Treasury.

[10] Six of these agreements, all with countries in the Latin American 
and Caribbean region, use the generic term "property" when referring to 
items eligible for tax exemption, rather than specifying supplies, 
materials, and equipment.

[11] To obtain this exemption, contractors or grantees must submit a 
letter identifying the products to be imported to the Palestinian 
Ministry of Finance, which then forwards a request for tax exemption to 
the Ministry of Civil Affairs for approval and coordination with the 
Israeli Customs Department.