The Impact of Corruption on Tax Revenues, Tax Compliances and Economic Development: Prevailing Trends and Mitigation Actions in Afghanistan
IJRAR, Volume 7, Issue 1, February 2020
9 Pages Posted: 22 Apr 2020
Date Written: 2020
Abstract
Corruption in Afghanistan undermines the provision of basic services, enables the production and trafficking of narcotics and fuels instability. In the short term, official development assistance has prevented the collapse of the Afghan state’s core functions. However, donors’ highly fragmented, poorly executed stabilization and democratization measures have strengthened structures of neo-patrimonial governance and allowed parallel structures of service delivery to develop. Moreover, an unknown but significant amount of development assistance ends up funding various armed factions. The government has adopted an anti-corruption strategy and made reforms to Afghanistan’s legal code. Nonetheless, gaps remain in the institutional framework and lack of enforcement continues to be a barrier to state-building. This is aggravated by the fact that the government of Afghanistan has been unable to meet the country’s fiscal needs for the past thirteen years, due in large part to the absence of an effective tax management mechanism. Accordingly, the government of Afghanistan should revisit its approach to revenue management and mobilize domestic revenues more effectively to limit its dependency on international support. The article shows that corruption impacts negatively on the operating environment in which tax administrations collect revenue in that compliance levels decline and tax evasion increases. The analysis in this article suggests that in order to improve the operating environment, Afghanistan governments should promote transparency and accountability, encourage and protect whistleblowers and promote leadership in the service of citizens. Without these steps, institutions dominated by patronage networks will fail to detect flows of funds that escape taxation, either through corruption, money laundering, tax evasion or avoidance strategies.
Keywords: Corruption, Trafficking, Stabilization, Democratization, Neo-Patrimonial, Tax Evasion, Whistle-blowers, Money Laundering
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