PAKISTANI SEASONAL TAXES HINDERING AFGHANISTAN'S

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