ISLAMIC REPUBLIC OF AFGHANISTAN

MINISTRY OF FINANCE

MINISTRY OF FINANCE STRATEGY

FOR
AFGHANISTAN NATIONAL DEVELOPMENT STRATEGY
(WITH FOCUS ON PRIORITIZATION)

(DRAFT)
MINISTRY OFFICIAL RESPONSIBLE DR. ANWAR UL HAQ AHADY, MINISTER OF
AND DESIGNATION FINANCE
PILLAR-SUB-PILLAR-SECTOR AND PILLAR 3- ECONOMIC & SOCIAL
SUB-SECTOR DEVELOPMENT
SECTOR – ECONOMIC GOVERNANCE
DATE OF SUBMISSION NOVEMBER 7, 2006
Ministry of Finance Strategy (Draft) November 2006

SECTION ONE: OVERALL SECTOR GOALS AND RESULTS

SECTION TWO: CONTEXTUAL ANALYSIS

SECTION THREE: STRATEGY

SECTION FOUR: PROGRAMMING

1.1 Goals:

A stable, financially secure, and financially self-sufficient Afghanistan with a fiscally disciplined
government

1.2 Expected Results:

• Mobilizing revenue and managing Government finances

1. Revenues are dynamically growing and collected in a fair manner,
2. Adequate, predictable external assistance is going through the national budget
3. The budget is realistic, based on a sound multi-year fiscal strategy, and
implemented in a predictable manner
• Supporting economic management and promoting economic growth
4. The budget is comprehensive, policy-based, prepared in an orderly manner, and
supportive of the national development strategy,
5. Government’s high-level decisions take into account fiscal consequences, and
6. Legitimate economic activities of the private sector and individuals are facilitated, not
hindered
• Managing public wealth
7. Government’s assets and liabilities are adequately tracked and managed, and
8. Procurement activities optimize use of public funds.
• Promoting good governance
9. Information is available and transparently shared, and
10. Effective control and stewardship is exercised in the use of public funds so society is
protected from corruption.
• A best-practice leader within the Afghan public sector
11. Strategic focus on delivering services and achieving results, and
12. Professionally staffed with high standards of staff integrity.
• Coordination, management, and effective utilization of international assistance to Afghanistan
8. National ownership of the Afghan development process is ensured through
effective coordination and management of Aid.
9. Aid provided to Afghanistan is increasingly integrated into national policies and
priorities identified in the Afghanistan National Development Strategy (ANDS).
10. A forum for dialogue on Aid policies and strategies between the Government and
Donors has been established.
11. Information on donors’ assistance to Afghanistan is managed and disseminated.

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Ministry of Finance Strategy (Draft) November 2006

12. To ensure aid harmonization with the budget cycle, aid is coordinated and
managed at national level

1.2.1 Priority Expected Results:

Achievement of the Afghanistan Compact, IMF and WB benchmarks on financial management,
revenue mobilization, financial services and markets, and others are among the top priorities of the
ministry.

1.2.2 Other Expected Results

Other priority objectives are:

1. Submit to parliament and publish the core budget’s audited financial statements annually.
2. Introduce program budgeting (program structure).
3. Adopt financial regulations to support implementation of the new Public Finance and
Expenditure Law.
4. Adopt regulations to implement the new Procurement Law. Develop external audit of
procurement.
5. Adopt and implement new accounting manual.
6. Extend access of line ministries and provinces to the Afghanistan Financial Management
Information System (AFMIS), including payroll and asset management systems based on the
recommendations of the Systems study.
7. Introduce new mechanism for the core development budget to improve budget execution
rates,
8. Develop an Aid Policy by January 2008
9. Produce a “PFM Manual” by January 2008
10. Reached an agreement with the donor community to develop a Harmonized Reporting Format
(HRF) and a calendar for reporting data twice a year, coinciding with the national budget
timetable and the mid-year review

Achieving MOF’s five-year strategic objectives requires a clear and sequenced roadmap with step by
step annual priorities that will lead to the five-year goals. MoF expects to make meaningful progress
toward all of its 12 objectives each year, but it is prioritizing its efforts in order to properly sequence
the reform activities. Annual business plans for the Ministry and each Department are developed as
part of the annual budget process for MOF, and these plans are based on the annual priorities,
involving institutional actions (organizational structures, capacity development, internal management
improvements), policy decisions (legal and regulatory reforms, technical improvements), and
financial requirements.

2.1 Analysis of the Current State of the Sector

Private sector development in Afghanistan proceeds in a post-conflict context characterized by poor

infrastructure, weak banking and telecommunications, labor market rigidities, high unemployment
and poverty rates and precarious national security. The need for improved government financial
management is but one among many required reforms. MoF is at the center for the fiscal policy and
financial management issues affecting the government units responsible to lead the many reforms. It
has its own set of reform issues, as well. Through its strategic plan, it has defined a series of internal
and policy steps within its own spheres that have broader implications. The first year’s work at
accomplishing those steps is detailed below.

In previous years, projects in the core development budget were often unprepared, under-finance, and
excessively fragmented. In most cases, lists of projects submitted by line ministries are simply “wish
lists” and lacked prioritization. Such practices have led amounted to unrealistic budgets, low

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execution rates, and inefficient outcomes from the development budget. The MoF has developed a
mechanism to correct some these weaknesses and flaws in the current system. It is expected to
improve budget execution rates, quality of projects, cash management, and introduce flexibility to
optimize the use of donor assistance.

Provincial economic development has been neglected. As a result, more than half of the budget is
spent centrally resulting in poor service delivery in the province, and a negative perception in the
provinces of the reconstruction process. The Ministry of Finance intend to reverse that trend through
program and provincial budgeting by channeling more resources to the provinces and linking line-
ministries budget to I-ANDS priorities and objectives defined in provincial development plans. A
strategy will be put in place to improve capacity absorption and equity in fund allocation to provinces.

The results of the 2006 Survey on Monitoring the Paris Declaration, conducted by the Aid
Coordination Unit, indicate that there is a dire need for more coordination of Government-donor
activities. An often mentioned problem is the absence of a single position from the government with
respect to aid coordination and effectiveness. The result is that the existing principles established in
the Afghanistan Compact and Paris Declaration remains too broad to provide practical guidance.
In order to set realistic goals and begin implementation of the benchmarks in the coming year, the
ACU in consultation with its development partners has prioritized six benchmarks drawn from the
Paris Declaration and Annex II of the Afghanistan Compact. The benchmarks relates to ownership,
alignment, managing for results, and mutual accountability The GoA considers these to be the most
important elements of the government aid effectiveness agenda for the next year.
Over the next five years, the Ministry of Finance (MoF) will focus on increasing domestic revenues
through the customs and tax reform programs. While pursuing this reform agenda, the MoF will also
ensure that the existing system continues to remain operational so that trade activities are not affected
and state revenue continues to be collected.

The MoF Revenue Department, working in conjunction with DFID, with inputs from the ADB, IMF
and other donor communities, will enact legal changes to the Income Tax law of Afghanistan, will
implement tax administration reforms consistent with internationally accepted best practices, and will
establish a network of provincial revenue offices including a Large Taxpayer Office.

The MoF Customs Department, with the help of its donors including World Bank, DFID, EC, USAID
and US Government, will focus on several activities such as infrastructural development and
provision of modern customs clearance facilities including port handling equipment, automation of
customs clearance process and documentation, legislative development for introduction of customs
procedures consistent with international best practice, tariff rationalization to help boost the trade and
national economy, streamlining of border controls and introduction of risk management strategies,
implementation of efficient and least obtrusive intelligence and enforcement controls and capacity
building to strengthen the institutional strength of the department.

2.2 Analysis of Key Strategic Elements and Processes in Past Programming that Contributed to
Success

In line with international best practice, dual budgeting (i.e. the separation of the operating and
development budgets in both their formulation, execution and reporting) is currently being addressed
in the Government. Initial steps have been implemented and program budgeting is being introduced
in three pilot ministries for the next budget.

Budget formulation process has been improved and a standard budget calendar has been incorporated
in the budget process. Line ministries and donors were consulted through CG mechanism during the

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1386 budget formulation process. Line ministries were given more time to prepare their projects.
These steps also improved the overall quality of projects. With a pro-active role by the MoF to
improve budget execution, monitoring mechanism has been strengthened. Top 50 projects in line
ministries were monitored closely and regular support to line ministries by the MoF was further
strengthened. As a result, the execution rate for the core development budget improved to above 55
percent in 1385 from 44 percent in 1384.

Afghanistan is also developing its first Poverty Reduction Strategy Paper (PRSP) or as referred to
locally the Afghanistan National Development Strategy. Due to its efforts, Afghanistan has been
accepted into the Poverty Reduction Growth Facility (PRGF)-IMF supported program. All
performance criteria for end-September 2006 were met. The Government also met end-June 2006 and
end-September 2006 structural benchmarks, except those related to the state-owned banks. We missed
the end-June 2006 benchmark related to the appointment of a new Board of Directors at Bank
Pashtany and the end September 2006 benchmarks on the adoption of long-term restructuring plans
for Bank Pashtany, and on the publication of a statement announcing the liquidation of the Export
Promotion Bank or its merger with another commercial bank and finalizing the transfer of its deposits.
The non observance of these three benchmarks resulted from a shift in our banking reform strategy,
which was prompted by the banks’ limited operational capacity and the limited availability of
qualified managers.

Until further reforms of the Administration department take place, significant lead times must be
planned in order to implement projects with staffing and procurement targets for the Ministry of
Finance. The Ministry of Finance must seek to work with the donor community to allocate funds in
order to continue with its plans to open Provincial Revenue Offices.

The Ministry of Finance must allocate adequate funding for taxpayer outreach and public education
programs to support the implementation of new revenue products.

The Customs Department witnessed resistance and opposition by the business community to the latest
tariff amendments. The Code vests the power of making tariff changes in the Minister of Finance on
the recommendation of the Director General however it has been noted that tariff rationalization
should be a more consultative process involving traders, importers and concerned ministries to ensure
changes consistent with the multiple goals of revenue enhancement, consumer protection and
industrial growth.

2.3.A Analysis of Constraints, Restraints and Assumptions

2.3.1 Regulatory and Governance Environment; Summary of Major Policies

1. Summarize major regulations/procedures guiding your sector. These include both legislation
and overall government policies for the sector.

• Income Tax Law: The Income Tax Law is the key regulation that drives the work of the
Ministry of Finance’s work. It regulates the procedure of for revenue collection.
• Public Finance Expenditure Management Law (PFEM): It regulates the procedure in
allocation of assets.
• Insurance Procedures: Recently completed, they It provides a framework to develop an
insurance sector

2.3.2 Analysis of Constraints, Restraints and Assumptions: implementation of major

policies

2. Analyze if these are being implemented and observed effectively?

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• Income Tax Law – The MoF is making steady process in implementing the income tax law.
There is a great deal of misinformation regarding tax collection. This is being modified as the
MoF is aware of it. To further MoF’s knowledge as well as strengthen the business sector’s
knowledge, the MoF holds weekly working group meetings with business owners and NGO
personnel. The MoF has also held numerous workshops and maintains a close relationship
with the Afghan Investment Support Agency.

2.3.33. What Impact does of compliance/ or non-compliance with the regulatory

environment have on progress in the sector?

Key Constraints:

• Predictable revenue generation through government channels is compromised both in terms

of domestically generated revenues and international assistance. Domestic revenue
generation is challenged by the smallness of the income tax base and is overly dependant on
customs. The formal economy remains small, the “tax paying” culture is weak, and
enforcement mechanisms are still nascent. External revenue generation (through international
assistance) is still unpredictable and continues to circumvent the budget.
• The economic policy framework and management structure has been wholly rebuilt since
2002. As the economy moves from a state-controlled to market based principles, a wholesale
restructuring of the economic policy framework and management structure is required. This
has required putting in place new budget mechanisms, a new treasury system, restructuring
the department of revenues, as well as a raft of legal reforms in the budget, customs, and
income tax and banking arenas. State-owned enterprises have be privatized or liquidated.
• The management of public assets is constrained by the lack of a fully operational tracking
and management system, as well as need for reforms in procurement systems.
• Corruption and the lack of good governance generally are a major constraint on the Ministry
of Finance achieving its goals.
• A key risk to successful implementation of the strategic plan is capacity / physical / security
constraints at the provincial level.

Income Tax Law:

Non-compliance by taxpayers severely limits the Government of Afghanistan’s budget. Non-
compliance by large taxpayers is being remedied by the Large Taxpayers Office at the Ministry of
Finance. To date, revenue collection by the LTO has grown significantly.

Non-compliance by Mustofiat is a significant problem. The Mustofiat has not contributed significant
revenue to the GoA’s budget and there are numerous allegations of corruption.

42.3.4. Summarize Structural and policy reform process (ongoing but not yet complete) that
impact on your sector and their pros and cons

The Ministry of Finance will be rolling out extensive Mustofiat reform programs. Given the lack of
Mustofiat activity, there are no foreseen cons regarding the reform plans. There may be political
problems as a result of the Mustofiat reform.
Implementation of program and provincial budgeting along with budget integration requires a
complete restructuring of line-ministries and will require a minimum of five years to be fully
implemented. The lack of capacity at the national and provincial level is a major constrain as well as
the lack of coordination of the economic sector.

52.3.5. Identify any major regulatory, policy or and governance gaps (such as lack of legislation
or regulations) that should be addressed.

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There is a lack of legislation regarding the Insurance Sector. However, recent communications with
the legislation office of the Ministry of Justice (Taqnin) have proven to be unfavorable.
The lack of a provincial and municipal legal framework is a major obstacle for the implementation of
economic and fiscal strategies at the sub-national level.

2.3.6. Analysis of Analyze whether mechanisms are in place to ensure the accountability and
transparency of all key stakeholders in the sector, including not only government policy makers,
but donors as well. This includes mechanisms for reporting, oversight etc. The aim here is to
analyze the gaps in accountability mechanisms that might impair efficient implementation of
the strategy, and negatively impact the effectiveness of results.

Ministry of Finance faces an acute shortage of efficient and qualified managers who would not be
able to run and supervise the daily management of the departments but also monitor the effective and
transparent implementation of the reform process. At the moment several donors are engaged in the
reform process with the active consultation of the senior MoF management. However the reporting
and accounting mechanisms by the government are still not institutionalized and are informally
structured.

Most projects are granted by the international community and run by independent project offices
accountable to their own organizations and not directly to MoF or the government. Financial
information for many projects are hard to get and even harder to analyze. World Bank has recently
proposed Reform and Management Unit (RMU) to monitor the reform process of the Ministry for
1386.

Internal Audit Department of the Ministry is responsible for accountability and transparency;
however, the staff of the Internal AuditIA department is suffering fromlacks qualified staff. World
Bank has approved a project named Audit Training Project (ATP) for the Capacity building of the
IAthis departments. MoF has already started implementation of this project and has established a
separate training center for ATP and has signed a contract with ACCA/AIUM to provide training
services to IA staff. After the completion of the project, the capacity of the staff would be much
improved and it would ensure improved transparency in expended amounts and procurements by
various stakeholders.

2.3.B Capacity Analysis

MoF leads policy reforms in the Economic Governance and Private Sector Development sector. As
such it leads modernization of government financial management through both policy reform and
example. It also has a leading role in certain reforms related to fostering private sector growth and
development, for example in such matters as taxation and customs. Policy development is complex
and requires time, as is illustrated in the many steps reported above. Capacity development is
necessary to implement existing, new and anticipated changes. In all spheres within the Ministry and
in the wider government there is a deficit of the basic skills and knowledge needed to apply basic
international-standard financial management practices.

Learning Needs Analyses (LNA) conducted in MoF headquarters and in key Mustofiats reveals the
first tier of capacity gaps. Basic accounting/bookkeeping, planning, English, software applications,
internet applications, specific legal requirements for various relevant laws, general management,
communications/reporting and budgeting were indicated as needed in that order in a headquarters
LNA done in 1384. Comparable skill and knowledge deficits are noted in an early 1385 assessment
by Treasury of its Kabul-based staff. These LNA results reflected capacity gaps in specific legal
requirements and general understanding of the overall legal framework, modern Treasury functions,
basic software applications, basic business and IT application English, and basic accounting. Similar
skill deficits are noted in a needs assessment done to establish a Mustofiat reform program in the
Provinces. Beyond this basic preparation, technical capacity is weak in general management as well
as specific MoF fiscal policy and financial management functions.

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The higher skill gaps have been recently filled by donor-sponsored projects and personnel. Permanent
replacement of these temporary inputs is a MoF challenge, but the need for further donor support to
replace and develop capacity in this critical Ministry is not ended. The projects sponsored under the
Afghanistan Compact and other agreements are the key method for introducing and training on the
international standards to which MoF aspires.

Throughout MoF the distribution of human resources is according to previous government and
ministry priorities that are not necessarily consistent with anticipated directions. Much existing
human resource capacity is, therefore misused or underused. Parallel capacity gaps exist with
facilities and equipment. This situation is compounded by poor management, corruption and lack of
coordination.

The conditions in MoF mirror the realities of the remainder of the sector. Financial management skill
and knowledge gaps predominate at every level. Resource utilization, human and material, is dictated
by obsolete priorities. These factors seriously impair present ability to conduct government business.
Their presence in the private sector affects the growth and development needed for Afghanistan to
reduce poverty.

The MoF strategic plan directly addresses the internal capacity gaps and the overarching issues related
to countrywide fiscal policy and management. The priority for the coming year is to extend reform to
the Mustofiats, as seen in such initiatives as separation of Revenue and Treasury functions in those
offices. Its aim to serve as a best practice leader in government as well as its commitment to leading
financial management capacity building in line ministries contributes to government-wide capacity
development.

A key risk to successful implementation of the strategic plan is capacity / physical / security
constraints at the provincial level. This level is where much of the client contact and service
delivery work of MOF occurs, both with other parts of Government and with the private sector and
public. Failure to improve effectiveness and service delivery at the provincial level would put at risk
many of MOF’s strategic objectives. While making improvements will need to be a long-term,
sustained effort, and some of the risks e.g. associated with security are not under MOF’s control, the
key will be reform and restructuring of the provincial Moustufiats, which will comprise an important
part of the strategic plan at both Ministry and Department levels. Creation of separate Treasury and
Revenue units at the provincial level will be a central element of Moustufiat reform.
2.3.C Security Constraints
The anticipated policy and practice improvements will require a long-term, sustained effort which is
now made longer by security constraints. The risks associated with security are not under MOF’s
control. They especially affect the reform and restructuring of seven key Provincial Moustufiats, and
the implementation of the provincial budgeting reform which will comprise an important part of the
immediate strategic plan at both Ministry and Department levels. In Provinces where the
government’s role and credibility is threatened even the key Mustofiats will be more difficult to
reform. Throughout Afghanistan, there is no doubt that the security situation slows the progress of
reform in government. More importantly, regardless of the policy environment created by the reform
agenda, private sector development is strangled by security threats. This is especially the case in
attracting foreign direct investment and international business partnerships.

Overall Strategy for Achieving Expected Results:

3.1 Given the contextual analysis in Section Two, how do you plan to achieve your expected
results? What strategies do you propose? What options are available? Implementation
Strategy:

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Ministry of Finance Strategy (Draft) November 2006

Central to the achievement of the expected results are the following:

1. Under Mobilizing revenue and managing government finances, the three key
objectives are as follows; (1) Revenues are dynamically growing and collected in a
fair manner. (2) Adequate, predictable external assistance is going through the
national budget .(3)The budget is realistic, based on a sound multi-year fiscal
strategy, and implemented in a predictable manner
2. Under Supporting economic management and promoting economic growth, the
three key objectives are as follows; (1) The budget is comprehensive, policy-based,
prepared in an orderly manner, and supportive of the national development strategy,
(2) Government’s high-level decisions take into account fiscal consequences, and (3)
Legitimate economic activities of the private sector a nd individuals are facilitated,
not hindered
3. Under Managing public wealth the two key objectives are: (1) Government’s assets
and liabilities are adequately tracked and managed, and (2) Procurement activities
optimize use of public funds.
4. Under Promoting good governance, the two key objectives are: (1) Information is
available and transparently shared, and (2) Effective control and stewardship is
exercised in the use of public funds so society is protected from corruption.
5. Under A best-practice leader within the Afghan public sector the two key
objectives are: (1) Strategic focus on delivering services and achieving results, and
(2) Professionally staffed with high standards of staff integrity.
6. Under Ownership of the Aid Effectiveness agenda, the main objective of developing
an Aid Policy is to give the government the ability to determine its development
priorities by formulating credible strategies and mobilizing the financial and
institutional resources required to implement them. The Policy will be developed in
consultation with the donor community and the ANDS team.
7. Under Alignment of the Aid Effectiveness agenda, the main goal of the manual is to
increase understanding of the existing systems and procedures and thus facilitate
increased donors’ contributions to the core budget.
8. Under Mutual Accountability of the Aid Effectiveness Agenda, the main objective of
developing the Harmonized Reporting Format is to streamline and decentralize the
reporting process and a calendar for reporting data twice a year, coinciding with the
national budget timetable and the mid-year review. Accompanied by a reporting
timeline, the harmonized reporting format is intended to become a mutually agreed
mechanism for not only tracking the input side of aid, but an increasingly effective
tool for monitoring aid effectiveness and development outcomes. The Aid
Coordination Unit and donor-community will collaboratively working to achieve this
objective.
9. Develop a closer relationship with line-ministries and provinces; define through a
pilot project a model of provincial budgeting aligning line-ministries budget to
provincial development priorities.
10. Privatization Program of State Owned Enterprises
The Government is committed to divest all State Owed Enterprises by December
2009 according to Afghan National Development Strategy (ANDS).

3.2 Analyze each of the options for:

3.2.A Impact on the poor and sustainable poverty reduction:

Notably, this is the start and end point of the PRSP process and thus is the overarching objective.
Financing through the budget of provincial development plans in line with the I-ANDS should be the
major instrument for implementing the GoA’s poverty reduction strategy.

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Good or bad performance of customs has a direct impact on the national exchequer. Afghanistan is a
trading nation and a net importer of goods. By working efficiently and with more zeal and integrity,
GOA revenues can be further enhanced reducing the state’s reliance on donor funding and generally
enhancing government’s capability for increased spending on poverty reduction programs.

3.2.B Potential impact on economic growth:.

The implementation of provincial development plans will have a direct impact on economic growth.
The introduction of programs in the provinces will ensure a more efficient use of funds by channeling
funding to programs having the largest impact on the economic environment.
Decreasing time delays increases the profitability margin of the trader and has a good impact on the
national trade. It also ensures that goods not manufactured in the country are available to the
consumers on a reasonable price and of a reasonable quality.
Better facilities in the country will also increase its attractiveness as a major transit hub in the region
for the neighboring countries and will contribute towards positive economic growth.

3.2.C Potential impact on productivity increase

Increased availability of funds for public spending in key areas such as Health, Education and
Infrastructure is sure to increase productivity. As mentioned above speedy clearances and less
cumbersome customs procedures will also have a positive impact on the productivity of the human
capital invested in trade and trade related activities.

3.2.D Potential impact on employment and income generation.

Implementation of the strategy as enumerated in the Strategy Paper envisages an optimal increase in
the size and scope of the departments. This offers more employment opportunities for the educated
youth of the country. More importantly development of MoF infrastructure and encouraging private
sector to participate in customs related activities will generate additional employment and income
generation opportunities.

3.2.E Cost efficiency and cost effectiveness

.
Improved customs collections have a direct impact on cost efficiency and cost effectiveness strategies.
Automation of processes and reduction in documentation will have an overall positive impact not only
on the administrative and general expenses of the department but will also benefit the trade. Reduced
clearance times through the implementation of the new procedures will also result in substantial
saving on per employee basis in terms of costs and time.

3.2.F Longer term sustainability

.
The strategy devised is a product of long deliberations, consultations and broad based consensus with
national and international experts and donors. Long term sustainability is a key element of the
strategy. Focus on increasing local capacities and infrastructure developments are both measures
envisaged to benefit in the long term and ensure sustainability of the present efforts to achieve the
expected results.

3.2.G Potentials of external and government. Financing

MoF is aiming for a strategy which will reduce its dependence on external and govt. financing except
for the normal budgetary support. However it must be mentioned that successful implementation of
the strategy resulting in increased collection of customs duty has immense potential to attract
financing for future projects.

3.2.H Addressing the It should address how other cross-cutting issues such as( gender,
environment, anti-corruption, counter-narcotics and regional co-operation)

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Ministry of Finance Strategy (Draft) November 2006

are addressed.
Ministry of Finance should represent the priorities of the Government and meet its poverty reduction
goals so the strategies proposed should have a positive impact on the above.
Reviewing the development process of fiscal decentralization through a gender lens to identify entry
points for gender in the local governments & budgeting process. The initiative has been taken by the
MoF Budget dept to facilitate training and workshops on gender budgeting so that the budget officers
learn the tools and procedures in gender budgeting.

Budget department of MoF has prepared a sector strategy report on gender and has submitted to
ANDS for review, as soon it is approved by ANDS that it will be send out to all ministries and
budgetary units. Main purpose of this gender strategy paper is to reflect the gender budget impacts in
National Budget and introduce it as a gender policy tool.

Moreover, Ministry of Finance has prepared its own anti-corruption strategic plan and has already
started its implementation to remove or reduce corruption in the Ministry of Finance.

Regarding the counter-narcotics, it is vital for the Ministry of Finance to have regional cooperation in
different issues. Development of customs infrastructure at key economic border provinces such as
Helmand, Herat, Badakhshan, Balkh, Nangarhar, Khost, & Kandahar is essential to viable regional
cooperation in the areas of exchanging import/export data, customs harmonization, trade facilitation
etc. All the proposed projects for customs will have a measurable impact on enhancing regional
cooperation in the region.

3.3 Select and recommend an option or a combination of options based on the analysis above.
As mentioned in the 3.1 above.

3.4 3.4 Summary of change/amendments required in policies, legislations, regulations and

commitments by the government and the international community to address the strategic
options
Summary of any change/amendments required in policies, legislations, regulations and commitments
by the government and the international community to address the strategic option you recommend
and for achievement of the results identified.

Policy Changes

• Clarification of roles and responsibilities in border management.

• Civil service reforms specially related to recruitment and placement of customs officials.
• Accounting manual is needed to be renewed and there should be a new manual for Internal
Audit department.
• A centralized HR Unit is needed within the Ministry which is also mentioned in the Strategic
Plan of MoF.
• The responsibility for preparing Provincial Development Plan should be transferred to a
permanent government agency having the capacity of monitoring the planning process and
providing technical assistance in all provinces and capable of formulating policies in line with
the I-ANDS and MoF budget constrains. Provincial Development Plans should be prepared
within a fiscal envelop predetermined by the Ministry of Finance to avoid unrealistic plans.

Legislative Changes

Tariff Rationalization is under the process and will be made very soon. Labor law should be made
with new standards and GOA is currently working on it. Procurement law should be amended and its
procedures should be developed very soon.

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Customs Code was enacted in 1384 and changes at this stage are not recommended. It does suffer
from some deficiencies which need to be removed after a thorough review of the code at some later
stage.

Changes are required in some Acts related to other ministries such as the NGO laws which provide for
exemptions from all taxes without approval from the MOF which is in direct conflict with the
Customs Code.

Clarification of the role of Governors and Governors’ offices in relation to budgeting, planning,
program and project implementation is necessary within a new legal framework that needs to be
established at the sub-national level.
A better definition of the role and mission of the Provincial Development Committees is required.
Municipalities must be integrated in the sub-national administration. A reform of municipal taxes is
necessary.

Commitment by the International Community

Ministry of Finance would remain dependent on international support and technical advice for some
time to come though the proposed strategy does envisage reduced dependence on it in the future.
However there is a need for the international community to ensure mutual complementarily of goals
and to understand the Afghan environment in its proper context before introducing reforms.

3.55 It will be critically important to include a section on how Integration of your the strategy
will integrate with the elements and processes that led to past successes

This is a critical issue in the Ministry. World Bank has proposed Reform and Monitoring Unit (RMU)
for the 1386 development budget which will work for the lessons learned and monitor all the projects
and the five year Strategic Plan of MoF.

The recommended strategy is indeed built on the elements and processes that led to the past success
and would like to emulate those successes at a wider and broader scale.
4.1 Analyze programming requirements to implement option(s) proposed in Section Three.

The following programming requirements are identified to implement the proposed strategy
.
• A clear policy and reform plan- the 5YP is halfway through its planned life and needs
revision to incorporate the new requirements and changes required to be implemented in the
next stage of the reform process which would help in achieving the desired results. The
ministry has set some certain types of reform programs to achieve the overall objectives set in
the 5YP and contributes to achievement of Compact Benchmarks, IMF benchmarks and
World Bank benchmarks. The following is the list of existing and new programs:

• Establishment of a Reform & Monitoring Unit (RMU). The establishment of an RMU has
been proposed to be supported by the World Bank. Its overall goal is management,
continuation & monitoring of overall reforms & implementation of ministry strategic and
departmental plans at the MoF. As stated in the MoF strategic plan under risks and mitigation
measures, the establishment of sound and effective monitoring and feedback loops for
implementation of the strategic plan is needed. If there is no continuous monitoring
mechanism in place, then the implementation of a full MoF strategic plan won’t seem
feasible. Therefore, in order to provide continuous feedback to the MoF senior management
and department heads, there is dire need to establish a RMU which will be responsible to
manage reforms, ensure their continuation as needed, monitor overall reforms and ensure

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Ministry of Finance Strategy (Draft) November 2006

implementation of ministry strategic plan and departmental plans in the form of regular
feedback injected to the overall reform process and ministry plans.

• Establishment of Human Resources Management (HRM) Unit: This unit has also been
proposed by the World Bank. Its main goal is establishment of a modern human resources
unit in line with the requirements of the Civil Service Commission of Afghanistan and overall
management of the HR plans & activities at the ministry level.

• The MoF has an existing HR department. The department is engaged mainly in carrying out
routine works related to HR which is mainly in form of recruitment now at the MoF. Full
functions of a modern HRM unit is lacking at the MoF due to loss of strategic focus in
conducting HRM activities. Therefore, MoF will seek the assistance of an HR expert who will
be assigned two or three permanent MoF staff for capacity building and future running of a
modern HRM unit. The main tasks of this unit will be: (1) create an orientation system for
MoF employees (2) prepare & update performance evaluation schedules of the MoF
employees in close coordination with the RMU and inform department DGs accordingly, (3)
improve existing MoF employee database, (4) provide training to MoF HR department staff
in modern HRM practices, (5) propose and create a systems of rewards based on employee
performance management, (6) develop interview guidelines for MoF interviewers, (7) update
job descriptions of the MoF employees to meet changing needs of the job on a gradual basis,
(8) provide timely HR services (recruitment) to MoF departments, (9) ensure consistent
application of MoF staff policies and procedures, (10) monitor all recruiting activities and
participate in interviews as required, to ensure timely recruitment, (11) and improve and/or
create safe & proper filing system for MoF employees by considering the new needs of
personnel file management.

• Provision of Training in Audit & Accounting to MoF Internal Audit Staff: The
component 3 of the PACBP is to provide technical advisory services, equipment and training
to support the Internal Audit function within government. The directorate of Internal Audit
plan for the 1386 and beyond is to provide auditing and accounting training to 275 newly
recruited auditors from MoF and 125 auditors from CAO. Later on 100 auditors will get on
the job training by a consultancy firm and these 100 auditors will give on the job training to
the remaining auditors. During the same year work practices such as audit manual, audit work
programs and audit plan will also be established. The establishment of an effective Internal
Audit service will help to improve the public internal control environment and the
establishment of a sound financial management within the public sector.

• This plan will enable us to achieve our MoF strategic plan objective which is “To Exercise
effective control and stewardship in the use of public fund so society is protected from
corruption”

• The MoF Budget Department: Plans to further strengthen the National Budget process,
which is the central coordination mechanism for the allocation of funds to all core
Government functions, is one of the most important priorities of the Government. The Budget
Department is primarily responsible for strengthening the National Budget process. The
National Budget process also aims to establish confidence among international development
partners to channel their resources through the National Budget.
To improve the service delivery and distribution of resources among provinces, the Budget
Department has recently introduced program and provincial budgeting, which are the two
essential components of budget integration that will end the separation between the ordinary
and development budgets. It will help in formulating more coherent set of expenditure
policies.

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Ministry of Finance Strategy (Draft) November 2006

As mentioned above the new mechanism will be implemented from 1386. It is expected to
improve budget execution rates, quality of projects, cash management and introduce
flexibility to optimize the use of donor assistance.
The new mechanism introduces two specific categories in the core development budget: 1)
Approved Budget and 2) Projects in the Pipeline. The projects in the Approved Budget are
ready for implementation soon after the budget is approved by the Parliament. The Projects in
the Pipeline will move to the Approved Budget once they are approved for implementation
during the fiscal year. For the projects that are in the Projects in the Pipeline listing, some
funds will be available in the Ministry of Finance to fund feasibility studies and other
expenditures related to project design and preparation of projects. The mechanism will open a
window for the donors to finance projects within the year after budget approval which was
not feasible before without having to wait until the Mid Year Review.
The Budget Department wants to further align its core budget with the National Development
priorities and improve medium term budgeting. The medium term budget framework will be
developed into a medium term expenditure framework (MTEF) during 1387-1388, which will
further improve the links between the budget priorities and medium term National
Development priorities.
The Budget Department intends to provide active support to the key line ministries in project
appraisal and preparation. This includes assessing the viability of projects and determining the
ranking and rationalizing.
Improve monitoring and reporting mechanism during the 1386-88 periods to make the budget
process more transparent.
Improve the information management systems and database management to enhance the
efficiency of the public finance management and aid coordination is an important priority of
the Budget Department.
The MoF Budget Department, Aid Coordination Unit (ACU): Improving the effectiveness
of development assistance is a key concern of the Government of Afghanistan. Specific aid
effectiveness principles and commitments are provided in the Compact and the Paris
Declaration on Aid Effectiveness. Over the next year the ACU, in consultation with its
development partners, is prioritizing six benchmarks drawn from these documents as
priorities for improving aid effectiveness. The six benchmarks relate to ownership, alignment,
managing for results and mutual accountability. Please see Annex for details of carrying out
these tasks.

• Completion of the Government divestment strategy of SOEs by end 2009 (ANDS): The
SOE Department is responsible for the implementation of the Government policy regarding
divestment/ restructuring of State Owned Enterprises. The SOE Dept has commenced the
implementation of the program in 1385 and according to ANDS it will be completed by end
of 1389.

According to the plan for 1385, 12 SOEs will be divested from which 7 SOEs have been
approved by the Cabinet of Ministers and they are in different stages of liquidation process
and 4 other will be approved by the Cabinet of Ministers in near future. The SOE Dept has a
draft plan for 1386 which 11 SOEs will be initiated for divestment. Privatization and
liquidation program of SOEs result in the redundancy of their employees.

• Creation of an efficient and independent Program Management Unit in the CD- CURE
was established in the CD in July 2005 but due to various reasons has yet to evolve into an
effective PMU.

• An awareness program is required to motivate the general public to declare their goods
honestly, pay customs duty and contribute towards the rebuilding of the national economy.

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Ministry of Finance Strategy (Draft) November 2006

• Accountability mechanisms- the strategy also requires an inbuilt accountability mechanism

to ensure that the funds-even if donations or grants- are well spent and are not leaving the
country in shape of hefty salaries and luxurious living for the international consultants.

4.2 Identify major programs:

There are 22 new proposed projects for 1386 and there 19 carried forward projects to 1386. If you
need complete data, please read the files attached.

4.3 A clear explanation of how your major programs will achieve the expected result is critically
important.
State in brief how your programming will overcome constraints and integrate lessons learned,
both positive and negative.
Make a clear case for the relevance and importance of proposed programming for results
achievement. (It is critically important to ensure that in achieving results you are also meeting
all relevant benchmarks and targets in the ANDS, Afghanistan Compact, MDGs and
commitments to IFIs and others).

The major reform programs are built around the basic concept and principles laid down in the 5YP
and are primarily geared towards the achievement of the expected results as stated in Section One.
The World Bank funded projects are therefore an amalgam of technical advice, implementation of
ASYCUDA , development of physical infrastructure, developing the PPU and ATP,OTP and
AIMTEC projects for the Capacity Building of the Internal Audit Departments and other MoF staff;
EC is focusing on improving border infrastructure and providing port handling equipment while
USAID plans to continue its existing involvement in providing technical advice in key areas such as
Valuation, Tariff rationalization and simplification of procedures and in various areas of Treasury
Department. UNDP funded project is working various areas of Budget Department and ADB
providing technical assistance in working in different areas of MoF.
By implementing the programming with the suggested requirements, MoF can ensure that the
independent projects are not only complementing each other but are also in consonance with the goals
determined by the CD for itself. It would also ensure that lessons learnt in the past are fully integrated
in the new plans and that are relevant to all the benchmarks and targets in the ANDS and other
documents.
(To be elaborated Later)
1. Use of LOG Frame as attached- Objectives, Impact, Outcome and Outputs and Indicators
2. Use of Monitoring Matrices Input and Output Data

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 Ministry of Finance Strategy (Draft) November 2006
SECTION - 5: ROLE ANALYSIS

SECTION -6 : PRIORITIZATION OF PROJECTS FOR 1386 BUDGET

Prioritization of Projects (For 1386 Budget)

Priority 1 Group Budget Priority 2 Group Budget Priority 3 Group Budget Priority 4 Budget
(list projects in order of (list projects in (list projects in order of Group
priority) order of priority) priority) (list
projects in
order of
priority)
Project 1 – Project 1 – 4.8m USD Project 1 – Proposed
Making Budgets Work AFG/0597905 1386 Setting up a Project project
Project to Build the Capacity Financial Facilitating and Monitoring
of Budget Department Management Unit
(External funded) Consultants
Project 2 – 2.3 m USD Project 2 – 1 m USD for Project 2 – 0.20m USD
AFG/0597903 Strengthening for 1386 AFG/0572301/02/04 1386 AFG/01204 Capacity 1386
Internal Audit Operation Mustofait Building Building for the Ministry of
funded by World Bank Construction Finance
Project 3 – Project 3 – Project 3 –
AFG/0597906 Procurement AFG/06292 Administrative and HR 1.5 m USD
Policy Unit 2.3 m USD Mustofait Reform reforms, project will start
for 1386 ADB funded project in December 07
(External)
Project 4 – Project 4 – 0.85 m USD Project 4 –
AFG/04374 Transformation AFG/06294 Verified for 1386 AFG/0647302Ministry of
and modernization of the Payroll Plan Finance revenue 0.12 m
budget formulation enhancement project USD for
(External) 1386

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 Ministry of Finance Strategy (Draft) November 2006
Project 5 – AFG/06477 2.58m USD Project 5 – 0.12 m USD Project 5 –
Provision of port handling for 1386 AFG/06473 for 1386 Budget and Asset
equipment at selected Construction of Management Unit
locations. Laboratories

Project 6- 2.0 m USD Project 6- Project 6 Development of

AFG/07277 Training for 1386 Assessment of the MTEF in key
Institution for Public financial accounting sectors/ministries with a
Finance Management system development one year pilot phase
task (ANDS/(ADB- The
Services Group/UNDP –
Making Budgets
Work//DFID -Maxwell
Stamp)
Project 7—AFG/07279 Hi- .72 m USD Project 7- 5.83 m USD
Tec equipment for anti- for 1386 AFG/03519 Customs for 1386
corruption and seals & modernization and
stamps and vehicles trade facilitation
Project 8 6.5 m USD Project 8 1.68 m USD Liquidation of the State
AFG/7273-5-6 Enhancement AFG/06683 Social for 1386 Owned Banks (SOB)
of AFMIS and roll out support to displaced
employees of Govt.
enterprises
Project 9 – DFID funded Project 9 2m afs
ASI Tax Administration AFG/07281 Vehicle
Reform project registration review
project
Project 10 – Tax 50m afs Project 10 2m afs
Administration Software Implementation of
(CIDA funded?) revised Income Tax
Law
Project 11 – Mustofiat 49.47m afs Project 11 –
Reform project (“revenue”
component)

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 Ministry of Finance Strategy (Draft)
SECTION - 7: MONITORING AND EVALUATION
Strategic Goal – To support the government’s fiscal management strategies through effective revenue mobilization and professional administration that is supported and
trusted by business and the community
Objectives Expected Results
Program – Central Impact –
government takes 1. Revenue targets met
increasing and effective 2. National compliance gap
control of domestic between potential and actual
revenue collection revenues falls
3. National cost of collections
within established benchmarks
Project 1 – Effective Outcome 1 –
organization for 1. Link between provincial and
revenue administration headquarters tax collection
based upon taxpayer established
segments 2. Tax collection progressively
detached from budget execution
3. Large Taxpayer Office
operational
4. Model offices operational
November 2006
Annex A
Indicators Risk *
1. IMF quarterly and annual revenue targets met 1. Unpredictable changes in government
2. IMF benchmark and policy action targets met policy occur
3. ADB benchmark targets met 2. Factors outside Revenue Department
4. Afghanistan Compact target of revenues to reach 8% of control impede meeting benchmark
GDP by 1389 met targets
1. Kabul provincial revenue office commences (by 1 Mizan 1. Lack of will for reform to organization
1385) alignments between provincial offices and
2. New Headquarters structure implemented (by 1 Jeddi revenue headquarters
1385) 2. Lack of support for large taxpayer
3. Nangarhar provincial revenue office commences (by 1 reforms
Jeddi 1385) 3. Security situation deteriorates so that
4. Herat Phase 1 provincial office commences (by 1 Hamal provincial reforms cannot be implemented
1386) to schedule
5. Balkh provincial revenue office commences (by 1
Saratan 1386)
6. Parwan provincial revenue office commences (by 1 Jeddi
1386)
7. Implementation of Revenue Board (by 1 Jeddi 1386)
8. Herat Phase 2 provincial office commences (by 1 Hamal
1387)
9. Kunduz & Kandahar provincial revenue offices
commence (by 1 Jeddi 1387)
10. Evaluation of Parwan & Kunduz pilot offices complete
(by 1 Hamal 1388)
11. PRR approval obtained for remaining 27 provincial
revenue offices (by 1 Mizan 1388)
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 Ministry of Finance Strategy (Draft)
Project 2 – Outcome 2 –
Comprehensive 1. Enactment of modern taxation
legislative base for code
revenue policy and 2. International double taxation
administrative reform agreements
Project 3 – Outcome 3 –
Administrative means 1. Roles and responsibilities of
for fully functioning government agencies involved in
and independent tax collection and enforcement
revenue administration clarified
across the whole of
government
Project 4 – Professional Outcome 4 –
and committed 1. Recruitment program completed
workforce through to schedule
innovative human 2. Performance management
resource systems system established and managed
effectively
3. Staff redeployment program
operating effectively
4. Revenue mobilization staff
incentive program operating
effectively
November 2006
1.MoF Tax Policy position paper completed (by 1 Jeddi 1.Lack of will for reforms to tax laws
1385) 2. Unpredictable shifts in government
2. Tax simplification law amendments enacted (by 1 Hamal policy occur
1386)
3. Vehicle registration reviewed (by 1 Mizan 1386)
4. Negotiations commence for Double Tax Agreements for
major trading partners and
investors (1 Mizan 1386)
5.Enactment of new Taxation Code (by 1 Hamal 1387)
6. International Double Tax Agreements in place (by 1
Hamal 1389)
7. VAT law enacted (by 1 Hamal 1390)
1. Appeals Office commences within the revenue 1. Lack of will to reform machinery of
administration (by 1 Mizan 1385) government and distribution of powers
2. Courts ready to handle appeals arising from decisions of across agencies covering tax collection
the Appeals Office (by 1 Jeddi 1385) enforcement
3. Protocol on roles and responsibilities governing tax law
development between MoJ and MoF in place (by 1 Mizan
1386)
4. Implementation of Revenue Board (by 1 Jeddi 1386)
5. Enactment of new Taxation Code (by 1 Hamal 1387)
6. Protocol on the distribution & execution of collection
enforcement powers across government agencies and the
court system is in place (by 1 Jeddi 1387)
1. Recruitment and staff selection for Kabul provincial 1. Failure to attract suitable staff to
revenue office (by 1 Mizan 1385) Ministry under recruitment program
2. Recruitment and staff selection for Revenue 2. There is an unacceptable level of staff
Headquarters (by 1 Jeddi 1385) turnover
3. Recruitment and staff selection for Nangarhar provincial 3. Staff remuneration is uncompetitive for
revenue office (by 1 Jeddi 1385) trained staff
4. Recruitment and staff selection for Herat provincial
revenue office phase 1 (by 1 Hamal 1386)
5. Recruitment and staff selection for Balkh provincial
revenue office (by 1 Saratan 1386)
6. Recruitment and staff selection for Parwan provincial
revenue office (by 1 Jeddi 1386)
7. Staff performance management system in place (by 1
Jeddi 1386)
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 Ministry of Finance Strategy (Draft) November 2006
8. Staff incentive scheme for national revenue mobilization
and institution building introduced (by 1 Jeddi 1386)
9. Recruitment and staff selection for Herat provincial
revenue office phase 2 (by 1 Hamal 1387)
10. Recruitment and staff selection for Kunduz & Kandahar
provincial revenue offices (by 1 Jeddi 1387)
11. Recruitment and selection plans for remaining
provincial revenue offices prepared (by 1 Jeddi 1388)
Project 5 – Appropriate Outcome 5 – 1. Code of Conduct for revenue officials is reviewed and 1. Lack of will to tackle corruption
policies, procedures, 1. Code of conduct in place and updated (by 1 Jeddi 1385)
governance standards operating effectively 2. Disciplinary protocols for breaches of the Code of
and controls that 2. Internal audit established and Conduct are determined (by 1 Hamal 1386)
demand from staff the effective 3. Internal audit function is in place (by 1 Saratan 1386)
highest ethical 3. Taxation code reflects model 4. Anti-corruption workshops provided to all staff (by 1
standards, respect for governance arrangements for an Saratan 1386)
the rule of law and independent revenue authority 5. Model governance arrangements for an independent
reflect community revenue authority are incorporated in the taxation code (by
expectations for 1 Hamal 1387)
accountable and
transparent revenue
administration
Project 6 – Rapidly Outcome 6 – 1. On-the-job training in accounting and auditing skills for 1. Staff are not released for training
build capacity and 1. Training and capacity core staff in the Large Taxpayer Office complete (by 1
develop a professional development in line with strategy Hamal 1386)
work force that is and delivery plans 2. Tax administration knowledge and skills training
capable of 2. Skills development methodology delivered to core staff in Kabul provincial revenue office
administering a modern developed, applied and modified as (by 1 Hamal 1386)
revenue administration appropriate 3. Executive level training and development opportunities
in a transition economy and senior staff exchanges in “partner” revenue
and is responsive to the administrations implemented (by 1 Hamal 1386)
needs of government for 4. Tax administration knowledge and skills training
taxation reform delivered to core staff in Revenue Headquarters (by 1
Saratan 1386)
5. Training in integrated computer system delivered to core
staff in Revenue Headquarters (by 1 Saratan 1386)
6. Tax administration knowledge and skills training
delivered to core staff in Nangarhar provincial revenue
office (by 1 Saratan 1386)

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 Ministry of Finance Strategy (Draft) November 2006
7. Training in integrated computer system delivered to core
staff in Kabul provincial revenue office (by 1 Mizan 1386)
8. Tax administration knowledge and skills training
delivered to core staff in Balkh provincial revenue office
(by 1 Jeddi 1386)
9. Gap analysis of available knowledge and competencies
for core staff in Revenue Headquarters, Kabul and
Nangarhar provincial revenue offices complete (by 1 Jeddi
1386)
10. Gap analysis of available knowledge and competencies
for core staff in Balkh provincial revenue office (by 1
Saratan 1387)
11. Tax administration knowledge and skills training
delivered to core staff in Parwan provincial revenue office
(by 1 Saratan 1387)
12. Training in integrated computer system delivered to
core staff in priority provinces outside Kabul (by 1 Mizan
1387)
13. Tax administration knowledge and skills training
delivered to core staff in Herat provincial revenue office (by
1 Mizan 1387)
14. Network of trainers is in place across all priority
provinces and train the trainer strategy implemented (by 1
Saratan 1388)
15. Tax administration knowledge and skills training
delivered to core staff in Kunduz & Kandahar provincial
revenue offices (by 1 Saratan 1388)
16. Gap analysis of available knowledge and competencies
for core staff in other priority provincial revenue offices
complete (by 1 Jeddi 1388)
Project 7 – Revenue Outcome 7 – 1. Rehabilitation survey of building needs in Revenue 1. Technical inputs cannot be mobilized
administration is 1. Rehabilitation, reconstruction Headquarters and priority provincial revenue offices on time and at appropriate cost
adequately equipped, and fit-out of revenue completed (by 1 Jeddi 1385) 2. Unpredictable shifts in donor policy
furnished and office administration offices consistent 2. Minimum level office fit-out and accommodation occur
accommodated to with national infrastructure plan standards established for all sites (by 1 Jeddi 1385) 3. Security situation deteriorates so that
permit effective 3. Furniture roll-out for Kabul provincial revenue office provincial reforms cannot be implemented
functioning complete (by 1 Jeddi 1385) to schedule
4. Furniture roll-out for Revenue Headquarters complete

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 Ministry of Finance Strategy (Draft) November 2006
(by 1 Jeddi 1385)
5. Furniture roll-out for Nangarhar provincial revenue office
complete (by 1 Jeddi 1385)
6. Office equipment and computer hardware roll-out for
Revenue Headquarters complete (by 1 Saratan 1386)
7. Furniture roll-out for Balkh provincial revenue office
complete (by 1 Saratan 1386)
8. Office equipment and computer hardware roll-out for
Kabul provincial revenue office complete (by 1 Mizan
1386)
9. Furniture roll-out for Parwan provincial revenue office
complete (by 1 Jeddi 1386)
10. Furniture roll-out for Herat provincial
revenue office complete (by 1 Hamal 1387)
11. Office equipment and computer hardware roll-out for
non-Kabul priority provincial revenue offices complete (by
1 Mizan 1387)
12. Furniture roll-out for Kunduz & Kandahar provincial
revenue offices complete (by 1 Jeddi 1387)
13. Minimum level office rehabilitation completed in all
priority provincial revenue offices (by 1 Jeddi 1387)
Project 8 – Information Outcome 8 – 1. Self assessment of all taxes in Large Taxpayer Office 1. Lack of will to adopt self assessment
technology and new 1. Integrated technology platform commences (by 1 Mizan 1385) processes
work practices in released to sites on schedule 2. Management information processes reviewed (by 1 Jeddi 2. Lack of will to adopt computerized
support of self 2. Elimination of manual systems 1385) systems
assessment, market 3. Improvements in data integrity 3. Existing LTO cases reviewed against selection criteria,
segmentation and and accuracy and consistency of those not meeting it being transferred to Kabul Mustufiat.
principles of modern calculations Largest taxpayers in the provinces reviewed against the
revenue administration criteria and decision made on how best to meet their tax
needs (by 1 Hamal 1386)
4. Integrated technology platform available to the Large
Taxpayer Office (by 1 Saratan 1386)
5. Integrated technology platform available to Kabul
provincial revenue office (by 1 Mizan 1386)
6. Self assessment of all taxes in the Kabul provincial
revenue office (by 1 Mizan 1386)
7. Integrated technology platform available to non-Kabul
priority provincial offices (by

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 Ministry of Finance Strategy (Draft) November 2006
1 Mizan 1387)
8. Self assessment of all taxes in non-Kabul priority
provincial offices (by 1 Mizan 1387)
Project 9 – Revenue Outcome 9 – 1. Industry consultation processes on new taxation measures 1. Lack of will to adopt advisory activities
systems and procedures 1. Industry liaison arrangements formalized (by 1 Jeddi 1385) for businesses
that minimize the costs established and effective 2. Tax rulings program formalized (by 1 Jeddi 1385) 2. Security situation deteriorates so that
of compliance, increase 2. Taxation rulings program 3. Business taxation advisory activities commence in Kabul provincial reforms cannot be implemented
business confidence and established and effective (by 1 Hamal 1386) to schedule
certainty about taxation 4. Business taxation advisory activities commence in major
affairs & maximize centres (by 1 Hamal 1387)
their ability to 5. Business taxation liaison committees established in major
voluntarily comply centres (by 1 Hamal 1387)
6. Industry specialization program commences (by 1
Saratan 1387)
7. TIN introduced as whole of government business
identifier (by 1 Hamal 1388)
Project 10 – Educate Outcome 10 – 1. Taxpayer service facilities established in Large Taxpayer 1. Lack of will to adopt taxpayer service
the Afghan community 1. Taxpayer revenue mobilization Office (by 1 Mizan 1385) facilities
on the need for revenue awareness program established and 2. Liaison established and memorandum of understanding signed 2. Lack of funding for public awareness
mobilization for the effective with Kabul University (by 1 Jeddi 1385) activities
3. Taxpayer service facilities established in Kabul provincial
central government and 2. Rights and responsibilities 3. Unpredictable shifts in donor policies
revenue office (by 1 Jeddi 1385)
build grass roots charter established and effective 4. Taxpayer awareness public education campaign pilot occur
community confidence commences in Kabul (by 1 Jeddi 1385) 4. Security situation deteriorates so that
in a fair & honest 5. Taxpayer service facilities established in Nangarhar provincial provincial reforms cannot be implemented
revenue administration revenue office (by 1 Jeddi 1385) to schedule
6. Taxpayer service facilities established in Balkh provincial
revenue office (by 1 Saratan 1386)
7. Taxpayer service facilities established in Parwan provincial
revenue office (by 1 Jeddi 1386)
8. Taxpayer service facilities established in Herat provincial
revenue office (by 1 Hamal 1387)
9. Taxpayer service facilities established in Kunduz & Kandahar
provincial revenue offices (by 1 Jeddi 1387)
10. A charter of taxpayer rights and revenue administration
obligations is nationally adopted (by 1 Jeddi 1387)
Project 11 – Effective Outcome 11 – 1. Compliance and risk management strategies developed Lack of will to adopt compliance and risk
and diverse set of 1. Levels of compliance with for Large Taxpayer Office (by 1 Hamal 1386) management strategies
enforcement responses revenue laws and quantification of 2. Approval and implementation of national compliance
in order to improve the revenue gap management plan (by 1 Hamal 1386)
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 Ministry of Finance Strategy (Draft) November 2006
level of compliance in 3. Compliance and risk management strategies developed
the taxation system and for Kabul provincial revenue office (by 1 Saratan 1386)
manage the highest 4. Compliance and risk management strategies developed
risks to non-compliance for non-Kabul priority provincial revenue offices (by 1
Saratan 1387)
Project 12 – Timely Outcome 12 – 1. Appeals Office within the revenue administration commences Lack of impartiality by Appeals Office
and impartial 1. Dispute resolution processes (by 1 Mizan 1385) and/or Court staff
mechanisms for the established and effective 2. Courts ready to handle appeals arising from decisions of the
review of revenue Appeals Office (by 1 Jeddi 1385)
3. Review operation of dispute resolution processes and determine
decisions and the
whether greater efficiency can be obtained through introduction of
resolution of disputes a quasi-judicial tribunal which can hear both taxation and customs
appeals (by 1 Jeddi 1386)
Project 13 – Integration Outcome 13 – Improved public By January 2007 (IMF benchmark), introduce program 1. Lack of capacity and enthusiasm in
of Operating and expenditure management through budgeting in 4 line ministries. some of pilot ministries
Development budgets introduction of program and 2. Lack of ownership and support
through Program provincial budgeting
Budgeting in line
ministries (Maxwell
Stamp/DFID)
Project 14 – Development Outcome 14- The budget is based 1. Budget formulation includes sector ceilings for budget 1. Lack of technical ability and
of MTEF in key on a sound multi-year fiscal year. timeliness of costings for sector
sectors/ministries with a strategy and supportive of the 2. An MTEF is piloted in the 1387 budget with full strategy
one year pilot phase ANDS implementation by 1388 budget. 2. Lack of capacity to develop strategies
(ANDS/(ADB- The
in budgetary units
Services Group/UNDP –
Making Budgets
Work//DFID -Maxwell
Stamp)
Project 15 – Setting up Outcome 15 - The budget is 1. Core Development budget execution rates (target 75% in 1. Lack of capacity in budget
a Project Facilitation implemented in a predictable 1385). execution in budgetary units
and Monitoring Unit manner, is comprehensive, policy 2. Consistency of programs and projects with ANDS and 2. Security situation
based, and supportive of the ANDS MDGs.
Project 16 – Outcome 16 – Information is National Budget and other relevant documentation posted 1. Lack of technical support to
Establishing a web available and transparently shared on website. develop and manage system
based interactive system and civil society engaged in Web based system established by end 1388.
and a citizen facilitation national budget.
centre
• NB: For more details on risks refer Risk Management Matrix attached as Annex C

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 Ministry of Finance Strategy (Draft) November 2006
Annex C
Risk Management Matrix

Risk description Probability Impact Risk Management Responsibility

Institutional and political
Lack of will for reform to organisation • Regular liaison and discussion between Ministry of Ministry of Finance
alignments between Mustufiats and Revenue Finance Deputy Ministers. Management team
Department M H • Support for reforms from IFIs.
Lack of will to reform machinery of government • Minister of Finance to facilitate highest level Minister of Finance
and distribution of powers across agencies government consideration.
covering tax collection enforcement. L H • Support for reforms from IFIs.
Human resource risks
Failure to attract suitable staff to Ministry under • Externally advertise positions and utilise paid Director-General of
recruitment program M H advertising Revenue
• Liaise with CSC on mitigation strategies and review
of designated Priority Reform and Restructuring
salary levels.
There is an unacceptable level of staff turnover • Promote career opportunities in the revenue Director-General of
M M administration Revenue
• Include staff retention approaches in skills Capacity Building Advisor
development strategies.
Staff remuneration is uncompetitive for trained • Investigate remuneration or other retention strategies Deputy Minister Revenue
staff H H for inclusion in the HRD plan. and Customs.
• Review remuneration as compared to other ministries Director-General of
and private sector. Revenue
• Incorporate remuneration issues into revenue
mobilisation incentive program
• Consider outsourcing highest risk functions – e.g.
information technology positions.
Staff are not released for training L H • Liaise with senior managers and Deputy Minister to Capacity Building Advisor,
convey value of training and discuss constraints on Director-General of
participation. Revenue
Risk description Probability Impact Risk Management Responsibility
External risks
Security situation deteriorates so that provincial • Levels of provincial revenues mobilised to be closely Director-General of
reforms cannot be implemented to schedule M M/H monitored. Revenue
• Office sites to be selected after careful security
24
 Ministry of Finance Strategy (Draft)
Unpredictable shifts in donor policies occur M
Program implementation risks
Technical inputs cannot be mobilised on time
and at appropriate cost.
No Benchmark
Afghanistan has ownership of
its development strategy
through a PRSP with clear
1 strategic priorities linked to a
medium-term expenditure
framework and reflected in
annual budgets.
Increase the proportion of
donor assistance channeled
directly through the core
2 •
budget, as agreed bilaterally
between the Government and
each donor, as well as through
November 2006
assessment.
H • Regular donor liaison meetings Office of Deputy Minister
• Regular donor liaison to see if other donors can fund Office of Deputy Minister
M H particular inputs. Reform program Working
• Review technical inputs to see whether they can be Group
reduced in scope.
Annex E
Action plan for achieving the Aid Effectiveness agenda over the next year
Specific Outcomes Baseline Specific Actions Responsible Parties
ANDS development:
• Preparation of sector strategies
• Provincial planning
consultations
Development of full ANDS: • Cross-cutting strategies
• ANDS incorporating sector strategies, • Consultations on full-ANDS
provincial development planning
Interim ANDS:
inputs, and cross-cutting strategies is Aid Policy:
• Presented 2006
finalized, including aid policy • Government prepares first draft • MoF-ACU
policy in consultation with • ANDS
Aid Policy: • Donors
Aid Policy: ANDS and other stakeholders
• Framework for aid policy
• Aid Policy providing guidelines to
exists in AC and PD • Donors and other stakeholders
mobilize external aid in support of the provide input through the
ANDS and framing aid commitments JCMB and AEWG mechanisms
for 3-5 years finalized • Consultation over 3-5 year aid
commitments
• Present the final policy at the
2008 ADF as part of the
completed ANDS
PFM Manual:
PFM Manual:
• The Manual will increase • MoF
• Review of PFM systems
understanding of existing systems and
• Present the first draft to AEWG • Donors
procedures to encourage donors to
and stakeholders • OECD
contribute more to core budget and
• Finalize and publish
increase proportion of discretionary
25
 Ministry of Finance Strategy (Draft)
other more predictable core
budget funding modalities in
which the Afghan Government
participates, such as the
Afghanistan Reconstruction
Trust Fund (ARTF), the Law
and Order Trust Fund for
Afghanistan (LOTFA) and the
Counter-Narcotics Trust Fund
(CNTF); Increased use of
country PFM systems.
Strengthen government
capacity by coordinated
support through technical
cooperation programmes;
endeavour to (i) harmonize the
delivery of technical assistance
in line with Government
3 priorities and reduce
duplication and transaction
costs and (ii) design external
assistance in such a manner as
to build capacity in the
Government as well as the
private sector and non-profit
sector.
No Benchmark
Use Afghan materials in the
implementation of projects, in
particular for infrastructure,
and for supplies for civilian
4 and military activities.
Increasingly use Afghan
national implementation
partners (private sector, public
sector and non-profit)
Endeavour to establish a
5 results-oriented reporting and
assessment framework that
funds.
Capacity Development
Capacity Development Strategy: Strategy:
• Capacity-building strategy including • Under development by
implementation plan is put in place Capacity Building
Committee
Gap Analysis of TA Requirements:
• Gap analysis provides basis for Gap Analysis:
assessing strategic capacity-building • DfID developed TA matrix
requirements focusing on supply-side.
Demand analysis required
Specific Outcomes Baseline
Procurement Study:
Procurement Study:
• Results of the study analyzed and
• Study completed on behalf
incorporated into aid policy and
of MoF
procurement action plan
Assessment Framework: Assessment Framework:
• World Bank and the Ministry of • JCMB decision made
Finance develop framework based on • CMRS structure developed
26
November 2006
• Present the completed manual in
the next ADF
Capacity Development Strategy:
• Capacity Building Committee
presents first draft at 2007 ADF
• Stakeholder comments
incorporated
• Final strategy presented
• Capacity Building
Committee (IARCSC
Gap Analysis:
lead)
• Develop terms of reference and
• MoF-ACU
mobilize resources to conduct
study
• Study conducted
• Results incorporated into
implementation of capacity
development activities
Specific Actions Responsible Parties
Procurement Study:
• Follow up on the
recommendations of
procurement study • PDT
• Hold bilateral meetings with • ARDS
donors to discuss increasing • MoF
their procurement of local goods • Donors
and services
• Develop joint action plans to
increase local procurement
Reporting and Assessment • MoF
Framework: • ANDS
• Jointly develop framework • World Bank
 Ministry of Finance Strategy (Draft)
monitor progress against (i)
the national development
strategy and (ii) sector
programs.
Provide timely, transparent
and comprehensive information
on foreign aid flows, including
levels of pledges, commitments,
and disbursements in a format
that will enable the Afghan
Government to plan its own
6
activities and present
comprehensive budget reports
to the National Assembly; this
covers the nature and amount
of assistance being provided to
Afghanistan through the core
and external budget.
the JCMB decision for monitoring
ANDS benchmarks
Joint Portfolio Reviews:
• JPRs with a larger group of donors
and government ministries on a
regular basis
Harmonized Reporting Format:
• Harmonized Reporting Format with
percentage of aid data captured
increased to 80%
Improved DAD:
• DAD restructured based on HRF and
decentralized
Joint Portfolio Reviews:
• During 2006, some donors
including the World Bank,
ADB, and the US
conducted JPRs
Harmonized Reporting
Format:
• HRF developed in
consultation with donors
Improved DAD:
• 40% of 1385 external
disbursements recorded
27
November 2006
principles • Donors
• Pilot with aid effectiveness
benchmarks
• Ensure effective linkage with
CMRS
Joint Portfolio Reviews:
• Conduct regular joint reviews
with all the donors to improve
performance.
Harmonized Reporting Format:
• Government and donors agree
on the final version of the
format
• Conduct financial reviews of
donors twice a year
• MoF – ACU
Improved DAD: • Donors
• Upgrade DAD to reflect the
new format
• Improve aid data percentage and
accuracy
• Decentralize DAD reporting
mechanism