VZCZCXRO8443
OO RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #2682 2461905
ZNR UUUUU ZZH
O 031905Z SEP 09 ZDK
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1314
RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS KABUL 002682 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR D-LEW, S/SRAP, SCA/A, AND EEB/BTA 
DEPT PASS USTR 
 
E.O. 12958 N/A 
TAGS: ETRD PREL EFIN AF
SUBJECT: PAKISTANI SEASONAL TAXES HINDERING AFGHANISTAN'S 
AGRICULTURAL EXPORTS 
 
REF: Kabul 2659 
 
¶1. (SBU) SUMMARY: Pakistan has imposed seasonal taxes on Afghan 
fruits and vegetables, raising the taxes from seven to twenty-five 
percent in order to protect its domestic production.  Afghan farmers 
are feeling the tax pinch, and the tax increases reportedly have 
been passed on to the Pakistani consumer, resulting in reduced 
sales.  Embassy Kabul believes it would be useful for Deputy 
Secretary Lew to raise this issue with the Pakistani Minister of 
Finance during his upcoming visit to Islamabad.  END SUMMARY. 
 
¶2. (SBU) Afghan Minister of Commerce and Industry (MOCI) told 
Coordinating Director for Development and Economic Assistance, Amb. 
Wayne in a September 3 phone conversation that the Pakistani 
government in recent weeks had increased tariffs dramatically on 
Afghan fruits and vegetables entering Pakistan.  He noted he had 
received a letter from the Pakistan Chamber of Commerce in Peshawar 
noting an eleven-fold increase in the tariffs/taxes over the last 
two weeks.  The Minister said he had briefed President Karzai twice 
on this issue in the past week and was attempting to make contact 
with Pakistani counterparts to seek redress, and was trying to 
arrange a visit to Islamabad for face to face talks.  He said he 
would very much appreciate any efforts the USG could make to flag 
concern to the Pakistanis.  (Note: The Econ section obtained a copy 
of the letter, which cites an income tax increase from two to four 
percent plus an additional eighteen percent sales tax on the 
produce.  The author of the letter expressed concern, too, that 
Afghanistan might retaliate against Pakistani exports in the coming 
months.  End note.) 
 
¶3. (SBU) Deputy Minister of Commerce and Industry Farhadi reports 
that under Pakistan's tax law, the GOP can impose a seasonal tax on 
imported fruit and vegetables varying from seven to twenty-five 
percent.  In this case, Pakistan exercised its right to increase the 
tax to the maximum amount in order to protect its domestic 
production.  Farhadi opined Pakistan's tax hike was directed 
principally against imports from Kashmir, India and that Afghanistan 
had been caught in the middle.  He said GIRoA would write a formal 
letter to Islamabad requesting that a waiver be granted for Afghan 
produce. 
 
¶4. (SBU) Post previously passed to S/SRAP Economic Advisors recent 
reports that Afghan trucks of potatoes and onions were being charged 
2700 Pak Rupees per 1000 kilos (approximately $32) at the border 
vice the previous rate 112 Pak Rupees ($1.35) per 1000 kilos. 
Deputy Minister Farhadi clarified that this action was just another 
measure of the effect of raising the sales tax from seven to 
twenty-five percent.  He noted some fruits, principally pomegranates 
and grapes, were also affected. 
 
¶5. (SBU) Farhadi said Afghan producers had met with Commerce 
Minister Shahrani regarding the increases, complaining that 
Pakistani wholesalers were passing the taxes onto the consumers, 
making goods too expensive and cutting into their sales.  Farhadi 
noted that Afghanistan would not/not raise this issue during the 
next round of Af-Pak Transit Trade Agreement talks as he feared it 
would derail both sides' ability to tackle outstanding issues in the 
agreement. 
 
¶6. (SBU) Comment:  Embassy Kabul believes it would be beneficial for 
Deputy Secretary Lew to raise this issue during his upcoming 
meetings in Pakistan.  Pakistan's decision to dramatically raise 
taxes on Afghanistan's produce jeopardizes the good will between the 
two countries and restricts Afghanistan's agricultural trade 
potential.  However, this issue does not appear to have shaken the 
resolve of the GIRoA to realize an APTTA by the end of 2009. End 
comment. 
 
EIKENBERRY