© USIP 2016 • All rights reserved.

United States Institute of Peace • www.usip.org • Tel. 202.457.1700 • 

UNITED STATES INSTITUTE OF PEACE

@usip

“Afghanistan’s impressive 

revenue turnaround in 2015 was 

genuine and predominantly 

reflected better collection efforts 

as well as new tax measures...”

February 2016

Afghanistan’s Revenue Turnaround 

in 2015

William A. Byrd

Email: wbyrd@usip.org

M. Khalid Payenda

Email: khalid.payenda@gmail.com

PEACEBRIEF201

The 2015 Revenue Turnaround1

After growing rapidly post-2001 and peaking at 11.6 percent of Afghanistan’s gross domestic 

product (GDP) in 2011/12, total budgetary revenue stagnated and declined, falling to 9.7 percent 

of GDP in 2013 and 8.7 percent in 2014, when it dropped by 8.3 percent in absolute terms. These 

developments precipitated a fiscal crisis toward the end of 2014, with a large estimated year-end 

Summary

• After stagnation and decline in 2013–14, Afghanistan’s total budgetary revenue increased 

by nearly 22 percent in 2015—an extraordinary turnaround of 30 percent as compared to 

the 8 percent drop in 2014.

• Only one-fifth of this revenue growth reflected currency depreciation and other macroeconomic trends; a little less than a quarter of the increase was the result of new and 

increased taxes, and more than half was due to stronger tax collection efforts, including 

better control of corruption.

• Some of the key success factors for the revenue growth in 2015 included strong, consistent 

leadership; high-level political backing; firing corrupt managers; solid processes and competent human capital in the Ministry of Finance; tight monitoring of customs and tax units; 

and political outreach to justify tax increases and manage political blowback.

• The revenue performance shows that targeted progress is possible amidst Afghanistan’s 

current difficulties; political management and engagement with the legislature can be effective; existing inefficiencies and unexploited potential provide space to improve performance, at least in the short run; and institutional and capacity development can pay off.

• The outlook for revenue in 2016 is fairly good, but squeezing more revenue from the existing 

system will run into diminishing returns. The long-term challenge will be to grow the economy and develop new, buoyant revenue sources, which will not be easy given poor prospects 

for mineral revenues and for additional revenues from the proposed Value Added Tax.

• Afghanistan’s impressive revenue performance in 2015 has been very beneficial at the 

margin and helps avoid short-run fiscal crises such as the one in late 2014, but it will not 

diminish the country’s massive overall fiscal gap or its large aid requirements for the foreseeable future.
© USIP 2016 • All rights reserved.

Afghanistan’s Revenue Turnaround in 2015

Page 2 • PB 201 • February 2016

budgetary shortfall, accumulation of arrears, and “emergency” requests for aid.2 Sharply lower GDP 

growth—which fell from near double-digit levels in the decade before 2012 to 3.7 percent in 2013 

and 1.3 percent in 2014—constrained revenue potential. However, revenue mobilization efforts 

weakened as well, reflecting most notably the lack of high-level government focus on, and prioritization of, revenue collection. The long, drawn-out election process was a distraction and may have 

led to revenue leakages to fund political activities. The short time horizons for government officials 

may have also played a significant role—thinking they might be replaced after the election, many 

may have tried to maximize their incomes through corrupt activities. Further, existing mechanisms 

for monitoring and enforcement in the Ministry of Finance (MoF) may have been weakened. 

The recovery of revenue from the 2014 nadir started slowly but built momentum during 2015. 

For the year as a whole, revenue reached Afs 121.8 billion, an increase of Afs 21.7 billion (close to 

22 percent)—impressive in itself and a turnaround of around 30 percent compared to the previous 

year’s decline. As a ratio to GDP, revenue strongly recovered to 10.3 percent in 2015, in part reflecting 

low GDP growth (projected at 1.3 percent—no higher than in 2014) and negligible inflation in 2015. 

Most of this increase in revenue was not due to currency depreciation or economic growth and 

inflation. Rough estimates suggest that only Afs 3.3 billion of increased revenue (15.2 percent of 

the total increase) was attributable to nominal growth of imports (which was 7.4 percent in 2015, 

reflecting currency depreciation plus any change in the volume of imports), and Afs 1.1 billion (5.1 

percent) to the nominal increase in GDP (real economic growth plus inflation).3

New tax measures introduced in 2015 had an estimated positive impact on revenue of Afs 5.1 

billion (23.5 percent of the total increase in revenue). These measures included doubling the Business Receipts Tax (BRT) from 2 to 4 percent, increased levies on imported fuel and gas, a 10 percent 

tax on mobile phone top-ups, and an increase in the overflight fee for commercial airliners. Some 

of these measures were not popular, and political will and outreach on the part of the government 

were required to get them passed by Parliament. 

More than half (56.2 percent) of the total revenue increase in 2015 reflected a stronger revenue 

mobilization effort and more efficient tax collection.4 Collection of arrears and one-off payments 

amounted to Afs 8.8 billion (40.6 percent of the total increase in revenue). The remaining Afs 3.4 

billion comprised other increased revenue collection, most of which (Afs 2.8 billion) occurred in the 

Customs Department.5

These calculations demonstrate that Afghanistan’s impressive revenue turnaround in 2015 was 

genuine and predominantly reflected better collection efforts as well as new tax measures rather 

than revenue inflation attributable to currency depreciation or other macroeconomic trends.

Success Factors and Lessons

Interestingly, the 2015 revenue turnaround was engineered by the MoF, a relatively wellestablished agency in the Afghanistan context with low staff turnover and considerable capacity 

built up over time. In this largely stable institutional context, the most salient factors behind the 

substantial progress achieved in 2015 included the following:

• Strong leadership, focused attention, and follow-up from the top level of government and 

in the MoF itself were key. For example, provincial governors and other subnational officials 

were ordered to support revenue collection, and the Minister of Finance personally followed 

revenue developments closely. 

• The unprecedented firing of forty corrupt or inefficient senior staff, including some ten 

customs and revenue directors and thirty managers, sent a powerful signal to improve tax 

collection efforts and discouraged bad behavior among other staff.6
© USIP 2016 • All rights reserved.

Afghanistan’s Revenue Turnaround in 2015

Page 3 • PB 201 • February 2016

• Tight monitoring of revenue collection by MoF leadership created pressure to improve performance. The decision to transfer the customs police from the Ministry of Interior to the MoF 

(a long delayed reform finally initiated in 2015) also should be helpful in this regard.

• The changing political context was important as well; the end of uncertainty over the election 

and the formation of the National Unity Government, however protracted and imperfect, put 

an end to some major sources of distraction and politicization. 

• Adroit political outreach to the legislature and other stakeholders enabled significant new 

revenue measures to be enacted by Parliament, albeit with some delay;7 consistent engagement with Parliament also helped minimize political blowback from the large-scale firing of 

MoF senior staff.8

• Finally, building upon a sound base, the MoF’s technical systems and processes continued to be reformed and improved, and its human capital remained relatively strong among Afghan ministries.9

This experience demonstrates that targeted progress can be achieved, even in Afghanistan’s 

challenging political and security environment. Focused leadership and prioritization make a major 

difference when complemented by solid implementation capacity and processes. The pursuit of 

institutional strengthening and capacity development in the MoF for well over a decade paid off 

when combined with the other elements required to address revenue issues. Political management and outreach clearly are important as well and, based on the revenue experience, are not 

impossible even in the current fractured political context. And for revenue as well as probably in 

other areas, existing inefficiencies and unexploited potential provide space to improve performance, at least in the short run.

Current Issues and Prospects

The outlook for revenue in 2016 is reasonably good, not least since the full-year impact of tax 

increases initiated in late 2015 should more than offset the negative effect of no longer having 

such large arrears to collect. The net positive impact is roughly estimated at Afs 4.5 billion, equivalent to 3.7 percent of the 2015 revenue.10 However, revenue growth may not approach 2015’s 20 

percent-plus pace, especially given the continuing weakness of the economy.

Moreover, squeezing more revenue from the existing system will run into diminishing returns as 

available tax potential increasingly gets exploited. The tiny group of large taxpayers in Afghanistan 

is already taxed at high rates, and imports also are subject to fairly high total taxation (customs 

duties, BRT collected on imports, fixed taxes, and other levies). While there is scope for additional 

tax measures, further over-taxation of the small part of the Afghan economy that can be taxed 

relatively easily should be avoided.

The long-term challenge will be to grow the economy and develop new, buoyant revenue 

sources. This will not be easy because envisaged mining revenues will not materialize anytime 

soon,11 and the proposed Value Added Tax (VAT) would not bring in much more revenue compared 

to BRT (which VAT would replace) in the initial years of implementation. 

In conclusion, Afghanistan’s impressive revenue performance in 2015 reflected a combination of 

effective, consistent leadership which prioritized revenue collection; adroit political management and 

outreach; strong administrative sanctions (firings); legislative changes (tax increases); and continuing 

technical and process improvements. The revenue turnaround has been very beneficial at the margin 

and helps avoid short-run fiscal crises, such as the one in late 2014, but it will be difficult to maintain 

high revenue growth in coming years, unless the economy improves. Moreover, the progress 

achieved in 2015 and which can reasonably be expected over the next several years will not diminish 

the massive overall fiscal gap or the country’s large aid requirements for the foreseeable future.
© USIP 2016 • All rights reserved.

Afghanistan’s Revenue Turnaround in 2015

Page 4 • PB 201 • February 2016

Notes

1. Numbers in this Brief, based on MoF preliminary data for 2015, are the authors’ own estimates, 

subject to revision. Final reconciliation of revenue data may result in adjustments. Financial figures are in Afghan currency; the exchange rate was 57.4 Afs per U.S. dollar on average in 2014 

and 60.8 in 2015. The Afghan fiscal year runs approximately from December 21 to December 

20; calendar years in this brief refer to the corresponding Afghan fiscal year.

2. For a discussion of the 2014 fiscal “perfect storm,” see William A. Byrd, “Afghanistan’s Continuing 

Fiscal Crisis: No End in Sight,” Peace Brief no. 185 (Washington, DC: U.S. Institute of Peace, May 

2015), www.usip.org/publications/2015/05/15/afghanistans-continuing-fiscal-crisis-no-endin-sight. See also Omar Joya, Afghanistan Economic Update, April 2015 (World Bank), www.

openknowledge.worldbank.org/handle/10986/21894, which provides details on the crisis and 

the government’s response.

3. This is the amount by which revenue other than that collected by the Customs Department 

would have increased if the ratio of revenue to nominal GDP had remained unchanged in 

2015. The estimated nominal GDP growth used for this calculation is 2 percent, but it probably was even lower, with real GDP growth projected at only 1.3 percent and inflation in the 

consumer price index estimated at virtually zero in 2015 (based on year-end levels), or at -1.5 

percent (based on average levels during the year).

4. This amount has been calculated as the residual after the impact of currency depreciation and 

economic growth and inflation is subtracted from total revenue growth.

5. Total revenue collected by the Customs Department (customs duties, BRT levied at point of 

import, fixed taxes, and other levies) increased by Afs 10.1 billion in 2015, of which Afs 3.3 billion is attributable to the nominal growth of import value, Afs 4.0 billion to new tax measures, 

and the remaining Afs 2.8 billion to stronger revenue mobilization efforts. 

6. In the past, corrupt or inefficient managers in government agencies typically were not fired 

but instead were transferred to other positions, representing a much weaker form of administrative sanction which left open the possibility that these persons might be restored to their 

previous position later, or moved to another lucrative appointment.

7. For example, MoF leadership emphasized to the National Assembly that the tax increases were 

essential to fund projects in the discretionary development budget, thereby getting approval 

in the end. There was also outreach to businesses and traders affected by the tax increases, so 

that even though they were opposed to the changes, they were not surprised.

8. Another example of effective outreach to Parliament by the MoF is the 2016 budget process; 

the budget was approved by the legislature in a timely manner and without drastic or problematic changes. During the run-up to the submission of the budget, the MoF’s budget team 

had almost daily meetings with the Parliament’s finance and budget committee, and the 

Minister interacted socially with many Parliamentary representatives.

9. Numerous “technical” process improvements and reforms were implemented in 2015. In Customs these included upgrading the ASYCUDA software and its implementation in 90 percent 

of customs units; implementation of valuation, risk management, and border management 

modules; commencement of E-payment in two customs houses; and initiation of auto-messaging to customers. In the Afghanistan Revenue Department (ARD), a number of policy and 

technical measures were implemented (ARD, Achievements Report FY1394, December 2015).

10. The full-year impact of new tax measures instituted during 2015 is estimated at Afs 15.8 billion, 

which implies a net increase in 2016, as compared to 2015, of around Afs 10.6 billion. According 
© USIP 2016 • All rights reserved.

Afghanistan’s Revenue Turnaround in 2015

Page 5 • PB 201 • February 2016

USIP provides the analysis, training, and 

tools that prevent and end conflicts, 

promotes stability, and professionalizes 

the field of peacebuilding.

For media inquiries, contact the office 

of Public Affairs and Communications, 

202.429.4725.

2301 Constitution Ave.

Washington, DC 20037

202.457.1700

2301 Constitution Ave., NW

Washington, D.C. 20037

2301 Constitution Ave.

Washington, DC 20037

202.457.1700

eISBN: 978-1-60127-516-5

to MoF estimates, an additional Afs 1.7 billion of arrears could be collected in 2016; thus, the 

net decrease in revenue on this account would be Afs 6.1 billion. 

11. Exploitation of large “mega-resources” such as the Aynak copper and Hajigak iron mines will 

be long delayed, while smaller resources are being wantonly extracted by politically-connected power-holders with negligible revenues accruing to the government. See Javed Noorani, 

“Afghanistan’s Emerging Mining Oligarchy,” Special Report no. 358 (Washington, DC: U.S. Institute of Peace, 2015), www.usip.org/publications/afghanistan-s-emerging-mining-oligarchy.

About This Brief

William A. Byrd is a senior expert 

at the U.S. Institute of Peace, 

and M. Khalid Payenda is senior 

adviser to Afghanistan’s Minister of 

Finance and leads the Macro-Fiscal 

Performance Department in the 

Ministry of Finance. Both authors 

are economists and have been 

following the Afghan economy and 

fiscal and revenue developments 

for a number of years. The views 

expressed in this brief are those 

of the authors and should not be 

attributed to the Government of 

the Islamic Republic of Afghanistan 

or the Ministry of Finance, or to the 

U.S. Institute of Peace, which does 

not take policy positions.