GAO-04-314R Taxation of U.S. Assistance 

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 million1

 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 2003,2

 and provided for a 200 percent penalty for taxes 

levied but not reimbursed.3

 This legislation defines “taxes” and “taxation” as value 

added taxes (VAT) and customs duties imposed on commodities

 

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. 

United States General Accounting Office 

Washington, DC 20548 
Page 2 GAO-04-314R Taxation of U.S. Assistance 

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 20034 because State is still in the process of 

collecting this information. 

Results in Brief 

Of the 90 countries or entities5

 to which USAID provided bilateral assistance in fiscal 

year 2003,6 77 have bilateral framework agreements7 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 

 

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. 

 
Page 3 GAO-04-314R Taxation of U.S. Assistance 

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.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 

 

8

The Palestinian Authority had refunded about $6 million of this amount as of March 2002, according 

to USAID documentation. 
Page 4 GAO-04-314R Taxation of U.S. Assistance 

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.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. 

 

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.
Page 5 GAO-04-314R Taxation of U.S. Assistance 

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Page 6 GAO-04-314R Taxation of U.S. Assistance 

Figure 1: Countries That Have and Do Not Have Agreements Containing Prohibitions against Taxation 
Page 7 GAO-04-314R Taxation of U.S. Assistance 
Page 8 GAO-04-314R Taxation of U.S. Assistance 

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 4510 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.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. 

 

10Six 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. 

11To 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. 
Page 9 GAO-04-314R Taxation of U.S. Assistance 

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-togovernment 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. 
Page 10 GAO-04-314R Taxation of U.S. Assistance 

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 
Page 11 GAO-04-314R Taxation of U.S. Assistance 

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 
Page 12 GAO-04-314R Taxation of U.S. Assistance 

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. 
Page 13 GAO-04-314R Taxation of U.S. Assistance 

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 taxexemption 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. 
Page 14 GAO-04-314R Taxation of U.S. Assistance 

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. 
Page 15 GAO-04-314R Taxation of U.S. Assistance 

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
Enclosure I 

Page 16 GAO-04-314R Taxation of U.S. Assistance 

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

Country and entity, by region Total allocated 

(Dollars in millions) 

Africa 

Angola $16.2 

Benin 18.3 

Burkina Faso 10.1 

Burundi 4.0 

Cape Verde 3.5 

Democratic Republic of the Congo 23.5 

Eritrea 11.9 

Ethiopia 77.3 

Ghana 53.7 

Guinea 26.4 

Kenya 58.8 

Liberia 6.2 

Madagascar 29.0 

Malawi 37.2 

Mali 34.6 

Mauritania 3.5 

Mozambique 62.4 

Namibia 7.0 

Niger 6.9 

Nigeria 65.2 

Rwanda 29.2 

Senegal 28.4 

Sierra Leone 3.9 

Somalia 2.9 

South Africa 61.4 

Sudan 22.3 

Tanzania 32.9 

Uganda 78.8 

Zambia 50.3 

Zimbabwe 16.1 

 Subtotal $881.9 

Asia and Near East 

Asia

Bangladesh $110.5 

Burma 6.5 

Cambodia 39.5 

China 5.0 

East Timor 19.0 

India 191.5 

Indonesia 141.5 

Laos 2.0 

Mongolia 12.0 

Nepal 37.7 

Pakistan 250.0 

Philippines 71.2 

Sri Lanka 10.1 

Thailand 3.3 

Vietnam 12.5 
Enclosure I 

Page 17 GAO-04-314R Taxation of U.S. Assistance 

Near East

Egypt 615.0 

Israel 800.0 

Jordan 250.0 

Lebanon 32.5 

Morocco 6.7 

West Bank/Gaza 75.0 

Yemen 10.0 

 Subtotal $2,701.5 

Europe and Eurasia 

Europe

Albania $28.0 

Bosnia-Herzegovina 50.0 

Bulgaria 28.0 

Croatia 30.0 

Cyprus 15.0 

Ireland 29.0 

Kosovo 85.0 

Macedonia 50.0 

Romania 29.0 

Serbia and Montenegro 135.0 

Eurasia

Armenia 70.0 

Azerbaijan 46.0 

Belarus 9.5 

Georgia 87.0 

Kazakhstan 43.0 

Kyrgyzstan 36.0 

Moldova 32.5 

Russia 148.0 

Tajikistan 22.5 

Turkmenistan 7.0 

Ukraine 155.0 

Uzbekistan 31.5 

 Subtotal $1,167.0 

Latin America and Caribbean 

Bolivia $62.3 

Brazil 18.5 

Cuba 6.0 

Dominican Republic 22.9 

Ecuador 29.4 

El Salvador 33.7 

Guatemala 52.2 

Guyana 3.2 

Haiti 47.4 

Honduras 40.3 

Jamaica 16.8 

Mexico 30.4 

Nicaragua 37.7 

Panama 10.5 
Enclosure I 

Page 18 GAO-04-314R Taxation of U.S. Assistance 

Paraguay 10.1 

Peru 78.2 

 Subtotal $499.6 

Total – 90 countries and entities $5,250.0 Source: USAID. 
Enclosure II 

Page 19 GAO-04-314R Taxation of U.S. Assistance 

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; 
Enclosure II 

Page 20 GAO-04-314R Taxation of U.S. Assistance 

• 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). 
Enclosure III 

Page 21 GAO-04-314R Taxation of U.S. Assistance 

Comments from the U.S. Agency for International Development 

(320209)
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