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OO RUEHDBU RUEHIK RUEHYG
DE RUEHBUL #0775/01 0650918
ZNR UUUUU ZZH
O 060918Z MAR 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6627
INFO RUCNAFG/AFGHANISTAN COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0349
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 3721

UNCLAS SECTION 01 OF 08 KABUL 000775 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/FO DAS GASTRIGHT, SCA/RA, SCA/PB AND SCA/A 
CENTCOM FOR CG CFC-A 
NSC FOR AHARRIMAN 
AID FOR ANE/AA MWARD AND SKEYVANSHAD 
TREASURY PASS TO LMCDONALD, ABAUKOL, AND JCIORCIARI 
OSD FOR BRZEZINSKI 
 
E.O. 12958 N/A 
TAGS: ECON ETRD EFIN EINV PREL AF
SUBJECT: U.S.-AFGHANISTAN STRATEGIC PARTNERSHIP 
PROSPERITY WORKING GROUP, FEBRUARY 21, 2007 
 
Ref: Kabul 692 
 
SUMMARY 
 
¶1. (SBU) In the second meeting of the Afghan-U.S. 
Strategic Partnership Prosperity Working Group, Afghan 
and USG dels reaffirmed their commitment to a long-term 
economic partnership and advanced preparations for the 
March 13-14 Strategic Partnership plenary in Kabul to be 
co-led by Under Secretaries Burns and Edelman.  Both 
delegations noted that the meeting provided an excellent 
forum for reviewing joint efforts towards achieving 
Afghanistan Compact goals.  The Afghans made a strong 
pitch for donor assistance in urgently enhancing Kabul?s 
electricity before the 2009 general elections.  USDEL 
stressed its strong commitment to supporting GOA efforts 
in the energy sector and indicated its willingness to 
look at funding additional power generation capacity for 
Kabul, based on GOA acceptance of key conditionalities 
(action cable on Kabul electricity follow up has been 
transmitted reftel).  USdel identified an imperative to 
provide budget support for road maintenance.  Both sides 
agreed that airport planning, operations, and management 
need urgent attention. 
 
¶2. (SBU) The Afghans highlighted their concern about the 
surging recurrent cost obligations from donor spending 
and ANA/ANP expansion and pay increases.  Revenue is not 
growing as quickly.  USdel stressed the need for fiscal 
discipline and revenue enhancement through improving tax 
administration and enacting new taxes.  The Border 
Management Initiative could have a large positive impact 
on customs collections, but the GOA needs to push forward 
on creation of a Border Management Commission and ensure 
participation of all ministries with a stake in the 
issue.  USdel agreed to share with the GOA an analysis of 
customs revenue losses. On development budget execution, 
the Finance Ministry advised it is moving forward with 
program budgeting and provincial budgeting initiatives to 
create greater flexibility and more effective development 
project implementation at the province and district 
levels.  USdel noted its willingness to put more 
resources through the GOA development budget in line with 
GOA capacity to absorb and manage such funds.  US 
delegation head Ward proposed that our teams discuss two 
possible pilot projects involving capacity building and 
concomitant channeling of direct support to the Afghan 
core budget. 
 
¶3. (SBU) USdel praised GOA for enacting four commercial 
laws in January and encouraged the Afghans to move nine 
other laws to enactment by the end of the year.  USdel 
acknowledged capacity constraints at the Justice Ministry 
and pledged assistance to alleviate this bottleneck in 
the legislative process.  USdel announced USAID?s 
sponsorship of the first Agricultural Trade Fair, 
scheduled for April.  After a discussion of regulatory 
bottlenecks for exports, the GOA undertook to announce at 
the trade fair a specific plan to reduce red tape 
hampering Afghan exports.  In the discussion of 
Reconstruction Opportunity Zones, the Afghans promised to 
provide a paper on suitable products and locations and a 
broader concept paper.  On Afghan-Pakistan transit trade, 
the GoA advised that it offered to host the Joint 
Economic Commission in Kabul on March 14-15, but Pakistan 
had not yet responded.  The Afghans also indicated that 
Pakistan had offered to host the next Regional Economic 
Cooperation Conference (RECC).  The illicit finance 
discussion highlighted the importance of increasing the 
registration of hawaladars and beginning enforcement of 
U.N. terrorist lists.  The GOA committed to brief 
 
KABUL 00000775  002 OF 008 
 
 
Strategic Partnership principals on a draft plan to shut 
down unregistered hawaladars.  The two delegations 
recognized that access to credit is crucial for economic 
growth, but that the high risk environment, including a 
recent wave of bank robberies, is constraining the growth 
of the financial sector.  USAID discussed how its new 
ARIES project would be addressing some of these 
constraints while providing significant levels of credit. 
The GOA agreed to take strong steps to improve the 
security of financial institutions and their assets. 
Concluding the session, both sides agreed to name focal 
points and hold regular quarterly meetings at the working 
level in Kabul. 
END SUMMARY. 
 
PROGRESS SINCE MARCH 2006 STRATEGIC PARTNERSHIP TALKS: 
 
¶4. (SBU) U.S. and Afghan inter-agency delegations held 
their second Strategic Partnership Prosperity Working 
Group session in Kabul on February 21, 2007.  USDEL was 
led by USAID Acting Assistant Administrator for Asia and 
the Near East Mark Ward.  He was joined from Washington 
by State Department South Central Asia Bureau DAS John 
Gastright, NSC Senior Director Tony Harriman, Treasury 
South Asia Director Andrew Baukol, USTR Director Robert 
Gerber, and EB Economic Officer Marybeth Goodman, and 
supported by embassy staff.  The Afghan side was led by 
Deputy Finance Minister Wahedullah Shahrani.  Their 
delegation also included Central Bank Governor Norullah 
Delawarie and the head of the bank?s Financial 
Information Unit; Afghan National Development Strategy 
Director Adib Farhady; and Deputy Minister-level 
representatives from the Ministries of Commerce and 
Industry (MoCI), Water and Energy (MoEW), Agriculture 
(MoA), Ministry of Rural Reconstruction and Development 
(MRRD), Ministry of Urban Development (MoUD), Ministry of 
Mines (MoM), and the Ministry of Women?s Affairs. 
 
¶5. (SBU) Also on the Afghan side was Afghan International 
Chamber of Commerce CEO Hamidullah Farooqi, representing 
the private sector; a representative of the Civil Service 
Commission; and the chief of the Ministry of Interior?s 
Criminal Investigation Unit. During introductory remarks, 
both sides reaffirmed their commitment to a long-term 
partnership between Afghanistan and the United States. 
They stated that, while significant progress has been 
made (growth of national income, infrastructure 
improvements, private sector development, etc), much 
remains to be done in key areas (investment climate, 
budget, revenue generation, etc).  DM Shahrani expressed 
appreciation to the United States as Afghanistan?s most 
significant international partner.  Both delegations 
noted that the Prosperity Working Group provided a useful 
forum for reviewing joint efforts to achieve Afghanistan 
Compact benchmarks. 
 
LEGAL AND REGULATORY FRAMEWORK 
 
¶6. (SBU) ECON Counselor stated that a functioning 
commercial legal and regulatory framework was critical to 
investment and job creation and, while commending the 
recent passage of four commercial laws (arbitration, 
mediation, corporations, and partnerships), urged 
continued priority action in this area.  DM Shahrani 
pledged to meet the Afghanistan Compact benchmark by 
presenting to Parliament by the end of 2007 six 
additional commercial laws (agencies, contracts, 
copyrights, patents, standards, and trademarks) and three 
financial laws (negotiable instruments, secured 
transactions, and mortgages).  These are among a group of 
20 priority laws that the government has notified to the 
 
KABUL 00000775  003 OF 008 
 
 
JCMB.  Accepting the GOA?s assertion of capacity 
constraints at the Taqneen (the Justice Ministry?s 
legislative review department), USDel head Mark Ward 
offered to increase the existing support to build 
capacity at the Taqneen to facilitate the movement of 
priority laws.  USDEL noted that to meet its Afghanistan 
Compact benchmark, the GOA also needs to begin working on 
the drafting and adoption of regulations and procedures 
to implement these new laws.  DM Shahrani advised that 
draft regulations must be approved by the cabinet, but 
procedures may be approved by the responsible ministry. 
Mark Ward advised that a USAID-funded study on the 
commercial legal framework should be ready within a 
month. 
 
RURAL DEVELOPMENT/EMPLOYMENT/AGRICULTURE 
 
¶7. (SBU) The Deputy Minister of Reconstruction and Rural 
Development (MRRD) briefed that the National Solidarity 
Program (NSP), the flagship of the five ongoing programs 
under MRRD, has extended the presence of the GOA to 
approximately 65% of rural communities.  The second phase 
of this program has begun and MRRD hopes to increase 
coverage to 100% within three years at cost of $525M. 
Both sides encouraged the ministries to work through the 
Community Development Councils, and to engage the private 
sector at the community level.  AIDOFF enumerated USAID 
assistance to agriculture, stressing its focus on 
supporting the growth of commercial agriculture and 
agribusiness.  He announced the first Agriculture Trade 
Fair, to be held in Kabul on April 21-23. He stressed 
that new USAID programs would be able to support the 
emerging GOA integrated approach to rural development. 
The Deputy Minister of Urban Development urged parallel 
attention to the urban poor and offered to provide 
documents; Mark Ward requested that the Deputy Minister 
provide a paper identifying his proposals. 
 
EXPORT DEVELOPMENT 
 
¶8. (SBU) AIDOFF stated that while Afghanistan used to be 
a significant exporter of numerous products, its economy 
is now almost completely dependent on imports.  In 
sectors where it still exports, almost all value-adding 
takes outside the country.  AIDOFF indicated that we 
believe that, while volume and quality of goods produced 
in Afghanistan are an issue, the larger problem is 
regulatory and procedural impediments that increase the 
risk and cost of exporting.  It takes 66 days and 
approval of seven documents to export a product from 
Afghanistan.  The World Bank recently ranked Afghanistan 
as 152nd of 175 countries for ease of cross-border trade. 
DM Shahrani responded that the GoA needs to simplify its 
procedures and address corruption.  DM Reza (Ministry of 
Commerce and Industry - MoCI) added that there needs to 
be a clear division of responsibilities between MOCI and 
Ministry of Finance.  The parties agreed to use USAID 
programs on commercial legal framework and economic 
governance to support GOA objectives.  In addition, DM 
Shahrani stated that the GOA would present a detailed and 
specific plan to reduce regulatory impediments and costs 
for export at the Agriculture Trade Fair on April 21-23. 
The USG requested a draft at the Principals? meeting in 
one month. 
 
RECONSTRUCTION OPPORTUNITY ZONES 
 
¶9. (SBU) ECONOFF advised that President Bush proposed the 
ROZ concept in 2006 as an attempt to promote private 
sector development and job creation through duty-free 
imports to the US.  With USG support, an Afghan 
 
KABUL 00000775  004 OF 008 
 
 
delegation recently visited Jordan to observe its 
successful Qualified Industrial Zone program.  The USG 
will prepare necessary legislation and consult with 
Congress.  Simultaneously, the MOCI will prepare (1) a 
short paper on suitable products and locations 
(subsequently provided on 2/23/07), and (2) an ROZ 
concept paper.  Both sides emphasized the need for 
development of supporting initiatives (trade 
facilitation, labor rights, infrastructure, matchmaking 
services, etc.) to make this program work.  DM Shahrani 
stated that he had received assurance in Washington in 
March 2006 that this program could cover all of 
Afghanistan?s borders, including borders with northern 
neighbors. 
 
REGIONAL TRADE INTEGRATION 
 
¶10. (SBU) DM Reza (MOCI) advised that it is prepared to 
table a revised text for a bilateral transit trade 
agreement with Pakistan at next Afghanistan-Pakistan 
Joint Economic Committee meeting.  He stated that the GOA 
has proposed that the JEC meet in Kabul on March 14-15; 
however, Pakistan has not yet accepted the dates.  USTR 
Director indicated that USG will raise transit trade with 
the GOP and encourage flexibility in the negotiations. 
He also praised Afghanistan?s leadership on regional 
trade policies in the context of the Regional Economic 
Cooperation Conference at New Delhi in November.  DM Reza 
noted that Pakistan has agreed to host the next Regional 
Economic Cooperation Conference. 
 
BUSINESS BUILDING BRIDGES 
 
¶11. (SBU) When dates and delegation composition are 
finalized, the Embassy will contact the GOA to begin 
arrangements for the visit. 
 
STRONGER CONTROLS AGAINST ILLICIT FINANCE 
 
¶12. (SBU) The Central Bank?s Financial Intelligence Unit 
(FIU) Director said that since 2006, the FIU has been 
receiving monthly reports and suspicious transaction 
reports from the 14 commercial banks.  The Central Bank 
has begun registering hawaladars and requiring travelers 
at Kabul International Airport to provide a declaration 
of cash being carried.  Currently, only 30 of 
approximately 280 hawaladars in Kabul are registered.  A 
January raid of an unlicensed hawaladar induced a brief 
upsurge in registration.  The Central Bank will increase 
registration of hawaladars, spread implementation of 
border cash controls, and report on progress to next 
Strategic Partnership Prosperity Working Group meeting. 
USDel Lead Mark Ward requested that the GOA provide a 
draft plan to shut down illegal hawaladars at the 
upcoming plenary session.  Deputy ECON Counselor stressed 
the importance of working with banks to identify and 
freeze accounts of entities on the UNSCR 1267 terrorist 
list.  Embassy Treasury Attache advised that it will 
continue to sustain technical assistance to the FIU and 
Bank Supervision Department. 
 
INCREASING ACCESS TO CREDIT 
 
¶13. (SBU) AIDOFF stated that access to credit on a 
commercial basis is a major impediment to investment and 
job creation in Afghanistan.  Banks that are willing to 
make loans are charging prohibitive interest rates (20%), 
while the banks that maintain lower rates lend only on a 
very narrow relational basis.  Various credit and 
microfinance programs have provided some assistance but 
cannot substitute for a functional banking sector. 
 
KABUL 00000775  005 OF 008 
 
 
AIDOFF made clear that perceptions of high risk are the 
foundation for high interest rates.  To address 
institutional sources of risk, AIDOFF identified four 
priority reforms of (1) legal and regulatory framework 
for recovery of assets, (2) credit information system, 
(3) international reporting, accounting, and auditing 
standards, and (4) better training for banks that would 
have a positive impact on the market.  Deputy ECON 
Counselor noted that risk from crime is a growing 
concern; there have been six major bank robberies (cash 
in transit) in Kabul in six months.  Further thefts could 
lead insurers to cancel policies and force banks to 
depart the country (one insurer has declined to renew one 
bank?s policy).  To address the risk associated with 
theft, the GOA agreed to take strong steps to insure the 
security of financial institutions and their assets. 
 
ROADS AND AIRPORTS 
 
¶14. (SBU) Some 1600 km of the 2500 km ring road has been 
completed.  Donors and the GoA have spent some $1.5 
billion on this road and border connector roads, and are 
adding another 1,000 km of roads each year, including 
secondary and tertiary roads.  To protect this 
investment, Deputy Minister of Public Works Rasooli 
stressed that the GoA will have to spend $30 million per 
year on maintenance.  By 2017, the ministry estimates 
that road maintenance costs will rise to $50-80 million. 
USAID's Mark Ward said that USAID?s original road 
construction plan included funding for maintenance for 
several years, but that this money had been diverted to 
build roads in response to urgent needs, including the 
insurgency.  Ward suggested linking the labor-intensive 
road maintenance with counter-narcotics resources, 
because road repairs would employ young men and provide 
income in rural areas.  Ward discouraged the GoA from 
expecting US help in building the 800 km east-west road 
directly from Herat to Kabul via Ghor and Bamyan 
provinces, estimated to cost some $500 million.  Rasooli 
said the GoA is seeking donors for this new road to 
handle some of the high volume of truck traffic on the 
Kabul-Kandahar-Herat segments of the ring road. Truck 
traffic between Kabul and Kandahar is said to be 
averaging 12,000 trucks per day.  The road was designed 
to handle only 7,000 per day. 
 
¶15. (SBU) On civil aviation, Deputy Minister of 
Transportation Alami briefed that Japan will spend $27 
million and the GOA $8 million to construct a new 
international terminal for Kabul International Airport. 
The project will be completed in 2-3 years.  In addition, 
the ADB has provided $35 million for rehabilitation of 7 
regional airports.  The FAA advisor to the GOA added that 
there was a pressing need for capacity building in the 
Ministry.  He referred to budget coordination problems 
but said that the dialogue between the Ministries of 
Transportation and Finance had improved in recent months. 
One of the challenges he highlighted was the transition 
over time of the management of airports and airspace from 
ISAF to the civilian authorities. 
 
POWER SUPPLY 
 
¶16. (SBU) The Afghan delegation made a strong pitch for 
donor assistance in enhancing the supply of power to 
Kabul.  Deputy Minister of Energy and Water Mir Sediq 
noted that the Energy Sector Master Plan for Kabul 
envisions a demand of 950 MW.  Currently, he said 
Afghanistan has an immediate need for over 300 MW to 
provide lighting alone to those already on the grid. 
Sediq pleaded for donor assistance in standing up 200 MW 
 
KABUL 00000775  006 OF 008 
 
 
of new power immediately.  In this connection, he drew 
attention to the high diesel requirements ? 310,000 
liters per day -- of the old generators at the North West 
Kabul Power plant.  Shahrani said that $34 million had 
been included in the budget for this diesel fuel, with 
the remainder to come from the national power company?s 
tariff collections, but noted that fuel costs will remain 
a challenge for the budget.  ANDS official Farhadi 
underscored the political imperative of increasing the 
power supply in Kabul in the near term, particularly in 
light of the election timetable for 2009. 
 
¶17. (SBU) Sediq pointed to some missing pieces in NEPS, 
including funding for a dispatch center and for some 
substations.  He highlighted the urgency of upgrading the 
distribution network in Kabul.  He also mentioned the 
proposed Sheberghan gas fire power plant as an important 
project on the horizon and he urged greater attention to 
renewable energy by the GOA and the donor community. 
Shahrani provided a brief read-out of the 
commercialization of the public utility Da Afghanistan 
Breshna Moassessa (DABM), emphasizing the need to set 
strong benchmarks, reduce leakages and put in place a 
modern management system and a trained work force.  Sediq 
reminded Shahrani that progress on DABM commercialization 
was being delayed by the failure of the Finance Ministry 
to approve some rules and procedures for privatization of 
state-owned enterprises. DM Shahrani promised to sort 
things out. 
 
¶18. (SBU) USAID Mission Director Waskin reiterated the 
strong USG commitment to supporting GOA efforts in the 
energy sector.  He congratulated the GOA on the formation 
of the Inter-Ministerial Commission on Energy (ICE) as a 
coordinating agency and on its decision to raise power 
tariffs, which underscores the importance of cost 
recovery.  Acknowledging the urgent need that the GOA has 
identified for additional power in Kabul, Waskin signaled 
USG willingness to assist with funding and technical 
assistance if the GOA would step up to the table with 
certain commitments: 
-- identify GOA funds quickly to contribute to the 
capital costs for additional generator sets for Kabul; 
-- budget for fuel costs and operations and maintenance 
for the additional generation equipment; 
-- accelerate DABM commercialization, including 
outsourcing of metering, billing and collection in Kabul; 
-- appoint a NEPS coordinator; and 
-- work with USG support to establish a legal and 
regulatory framework to attract Independent Power 
Producers. 
 
¶19. (SBU) Sharani asked for U.S. assistance in exploring 
technical and financing options for enhancing Kabul 
power.  USAID Director Waskin reported that USAID had 
already tasked its contractor Black and Veatch to look at 
technical options for increased generating capacity for 
the city. 
 
BUDGET EXECUTION, FLEXIBILITY, AND SUSTAINABILITY 
 
¶20. (SBU) DM Shahrani outlined the fiscal pressures GOA 
is experiencing due to increasing security (e.g., ANA and 
ANP) and some non-security (e.g., teachers) expenditures. 
The IMF agreement allows for increased security 
expenditures (beyond the 1386 operational budget envelope 
agreed with the IMF) only if they are donor funded or 
revenues are increased proportionately.  He noted the 
significant expenditures paid through the external budget 
that GOA will eventually have to pick up (e.g., U.S. 
funding of the National Directorate of Security is 
 
KABUL 00000775  007 OF 008 
 
 
scheduled to end in September 2008).  Fuel for Kabul 
power is another area of budgetary pressure.  Only $34 
million is included in the 1386 budget, but the IMF 
agreed that if MOD fails to meet its ANA recruitment 
targets, unspent funds from the ANA salary budget could 
be used to pay for fuel for electricity generation. 
 
¶21. (SBU) MOF Director General for Budget Mastoor 
described their work earlier in the 1386 budget process 
with line ministries, provincial level governments, and 
international donors (through the ANDS working and 
consultative groups) to prepare a more professional and 
rationalized budget for 1386.  The budget also 
establishes a better link with the ANDS process; the MOF 
budget department has been reorganized along ANDS 
sectoral lines.  Two useful pilot projects were created 
to develop and improve provincial and programmatic 
budgeting.  In 1386, the provincial budgeting program 
will be extended from three provinces to ten.  Dr. 
Mastoor referenced the new budget mechanism to provide 
flexibility in implementation of the development budget. 
The goal is to make the process among ministries more 
competitive and reduce the type of project ?wish lists? 
that have been produced by ministries in the past. 
 
¶22. (SBU) In the discussion on improved development 
budget execution and expenditure management, USAID 
Program Officer highlighted USAID?s Afghan?s Building 
Capacity program and the plans to target specific 
ministries for capacity building.  Consistent with 
USAID?s aid effectiveness policy statement from the 
London Conference, AID noted it will put more resources 
through the GOA budget and national programs in line with 
GOA capacity to absorb and manage such funds.  By the 
time of plenary, USDel Head Mark Ward agreed the US and 
GOA should identify ministries as part of a pilot that in 
addition to capacity building would involve the direct 
disbursement of USAID funds into the GoA core development 
budget for agreed purposes. 
 
¶23. (SBU) US Treasury Official Andrew Baukol led the 
exchange on fiscal discipline and managing recurrent 
costs, and increasing budget flexibility to meet 
unexpected future needs.  He commended GOA for making the 
budget process more professional.  He noted the medium- 
term sustainability challenge which the U.S. is trying to 
help GOA meet by providing earlier notice about US funded 
programs that GOA will have to cover.  He emphasized the 
importance of civil service reform and the good balancing 
act GOA has done under the IMF program constraints. 
Deputy Minister Shahrani said he is determined not to 
seek a waiver to the Compact benchmark on GOA funding 58% 
of recurrent costs with revenues by 2010-11. 
 
¶24. (SBU) The session on revenue generation focused on 
the Border Management Initiative (BMI), and improving the 
tax regime to meet Afghan Compact revenue targets.  The 
Embassy?s Afghanistan Reconstruction Group (Ed Smith) 
emphasized the cross-cutting nature of BMI and the need 
for the Ministries of Interior and Commerce to be more 
active participants. The U.S. will work with the MOF to 
accelerate the BMI work and push for a GOA inter- 
ministerial Border Management Commission.  The MOF 
Director General for Customs Ahmad agreed that BMI could 
help customs expand revenue collection, but described the 
substantial challenges.  There are at least 74 illegal 
border points, while BMI intends to support 14 official 
border crossings.  When the customs collection capacity 
has increased (e.g., Herat), traders and importers go to 
less developed crossings (e.g., Farah). 
 
 
KABUL 00000775  008 OF 008 
 
 
¶25. (SBU) Deputy Minister Shahrani said the revenue goal 
for 1386 is $715 million, which is also in the IMF 
agreement, but this is not an increase that is 
proportionate with increasing expenditures.  The Director 
General for Customs suggested that revenue goals should 
be given to line ministries, not only MOF.  Shahrani 
asked the US to help calculate how much potential customs 
revenue GOA loses each year, which would assist them in 
reducing leakages.  We agreed to help in this area. 
Director General for Revenue Jalali outlined his efforts 
on non-customs revenues, adding that they have drafted a 
tax policy paper on which they would welcome comments. 
MOF has created a large taxpayers office and is expanding 
this into the provinces.  There are currently four major 
taxes (business receipts tax, wage withholding tax, sales 
withholding tax, and corporate income tax).  Baukol 
discussed the 3 main ways for GOA to boost revenues: 
customs, tax administration, and tax policy.  The latter 
may be the best option given the GOA?s limited capacity. 
The elimination of nuisance taxes is a good step, and the 
creation of a generalized consumption tax will be 
important for the medium term.  Jalali replied that they 
plan to present to Parliament a broad-based consumption 
tax by the end of 1387.  Shahrani said he supports an 
aggressive approach to tax reforms, but not necessarily 
new taxes. 
 
¶26. (SBU) During concluding remarks, both sides agreed 
to a robust follow-up mechanism, including naming focal 
points and holding regular quarterly working group 
meetings at the in Kabul. 
 
¶27. (SBU) COMMENT: The Economic Working Group was 
notable for its constructive and open discussion of 
concrete issues and projects, as well as the impressive 
preparation on the Afghan side led by the Finance 
Ministry.  Key issues requiring further attention during 
the March 13-14 Strategic Partnership plenary include USG 
responsiveness on Kabul electricity needs; efforts to 
strengthen Afghan customs and revenue generation 
including by bolstering the Border Management Initiative; 
and further impetus to building capacity in the Afghan 
government in project development, budgeting, and 
legislative work. 
 
NEUMANN