Foreign Assistance: USAID and the Department of State Are Beginning to Implement Prohibition on Taxation of Aid
KeywordsGovernment accountability -- United States.
tax policy and administration
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AbstractCorrespondence issued by the General Accounting Office with an abstract that begins "In 2002, Congress learned that the Palestinian Authority had collected $6.8 million in taxes on U.S. humanitarian assistance meant for the people of the West Bank and Gaza and subsequently learned that some other foreign governments were also taxing U.S. assistance. U.S. Agency for International Development (USAID) officials estimate that at least several million dollars in taxes are collected annually on U.S. assistance programs, although some of this amount is reimbursed by recipient governments. This situation raised concerns in Congress that U.S. assistance funds for programs to help developing country populations were instead being diverted to the treasuries of foreign governments. In response to these concerns, Congress included a prohibition against such taxation in its Consolidated Appropriations Resolution for fiscal year 2003, and provided for a 200 percent penalty for taxes levied but not reimbursed. This legislation defines "taxes" and "taxation" as value added taxes (VAT) and customs duties imposed on commodities financed with U.S. assistance for programs for which funds are appropriated by the act. This report responds to a requirement in that legislation that we report to the committees on appropriations concerning these provisions. In discussions with staff of the House Appropriations' Subcommittee on Foreign Operations, Export Financing and Related Programs, we agreed to determine (1) the extent to which USAID bilateral framework agreements or other arrangements include exemption from taxation and (2) the progress that the Department of State has made in developing and distributing guidance to implement the prohibition."