01/18/2011 01:38 pm ET Updated May 25, 2011

Afghan Government Seeks To Tax Foreign Contractors

Afghanistan's government is on course for conflict over plans to tax foreign contractors operating in the country.

The New York Times reports that the plan, out of Afghanistan's Ministry of Finance, has run into "robust resistance" from The U.S. and other governments, who do not want to see their contractors taxed.

Those contractors respond that taxing them is an absurdity, because foreign companies are here spending military and other foreign aid money that, by United States law and plain common sense, ought to be tax exempt.

U.S. law forbids other countries from taxing money given as aid or government assistance and a series of bilateral agreements between the U.S. and Afghan government also prohibits U.S. aid being taxed.

The Washington Post reports that the wording of the agreements is vague and the two governments now disagree on what "tax-exempt" means.

Said Mubin Shah, Afghanistan's deputy minister of finance was unrepentant. "Companies profit, why don't they pay tax for the profit they make? We don't tax the donation," he said, "we tax the company that is gaining from this donation."

Contractors are now turning to the U.S. State and Defence department for guidance in dealing with unexpected tax demands.

They have been told simply to ignore the bills and "stand up for our rights," said one official of an American company that has multiple U.S defense contracts in Afghanistan.

Read more at the Washington Post.