Economy of Afghanistan

Afghanistan's rough physical geography and its landlocked status have been cited as reasons why the country has always been among the least developed in the modern. The country imports over $7 billion worth of goods but exports only $784 million, mainly fruits and nuts. It has $2.8 billion in external debt. The service sector contributed the most to the GDP (55.9%) followed by agriculture (23%) and industry (21.1%).<br>Da Afghanistan Bank serves as the central bank of the nation and the Afghani (AFN) is the national currency, with an exchange rate of about 75 Afghanis to 1 US dollar. A number of local and foreign banks operate in the country, including the Afghanistan International Bank, New Kabul Bank, Azizi Bank, Pashtany Bank, Standard Chartered Bank, and the First Micro Finance Bank.<br>Afghanistan's economy faces significant challenges due to years of conflict and instability. The country's economy relies heavily on agriculture, with opium production being a significant contributor.

Top Sectors in Afghanistan

Agriculture in Afghanistan

Agricultural production is the backbone of Afghanistan's economy and has traditionally dominated the economy, employing about 40% of the workforce as of 2018. The country is known for producing pomegranates, grapes, apricots, melons, and several other fresh and dry fruits. Afghanistan is also one of the world's top producers of cannabis.

Mining in Afghanistan

The country's natural resources include: coal, copper, iron ore, lithium, uranium, rare earth elements, chromite, gold, zinc, talc, barite, sulfur, lead, marble, precious and semi-precious stones, natural gas, and petroleum. In 2010, US and Afghan government officials estimated that untapped mineral deposits located in 2007 by the US Geological Survey are worth at least $1 trillion.

Tourism in Afghanistan

Band-e Amir National Park Tourism is a small industry in Afghanistan due to security issues. Nevertheless, some 20,000 foreign tourists visit the country annually as of 2016. In particular, an important region for domestic and international tourism is the picturesque Bamyan Valley, which includes lakes, canyons, and historical sites, helped by the fact it is in a safe area away from insurgent activity. Smaller numbers visit and trek in regions such as the Wakhan Valley, which is also one of the world's most remote communities. From the late 1960s onwards, Afghanistan was a popular stop on the famous hippie trail, attracting many Europeans and Americans. Coming from Iran, the trail traveled through various Afghan provinces and cities including Herat, Kandahar, and Kabul before crossing to northern Pakistan, northern India, and Nepal. Tourism peaked in 1977, the year before the start of political instability and armed conflict.

Communication in Afghanistan

Telecommunication services in Afghanistan are provided by Afghan Telecom, Afghan Wireless, Etisalat, MTN Group, and Roshan. The country uses its own space satellite called Afghansat, which provides services to millions of phone, internet, and television subscribers. By 2001 following years of civil war, telecommunications was virtually a non-existent sector, but by 2016 it had grown to a $2 billion industry, with 22 million mobile phone subscribers and 5 million internet users. The sector employs at least 120,000 people nationwide.

Transportation in Afghanistan

Due to Afghanistan's geography, transport between various parts of the country has historically been difficult. The backbone of Afghanistan's road network is Highway, often called the "Ring Road", which extends for 2,210 kilometres and connects five major cities: Kabul, Ghazni, Kandahar, Herat, and Mazar-i-Sharif, with spurs to Kunduz and Jalalabad and various border crossings, while skirting around the mountains of the Hindu Kush.The Ring Road is crucially important for domestic and international trade and the economy. A key portion of the Ring Road is the Salang Tunnel, completed in 1964, which facilitates travel through the Hindu Kush mountain range and connects northern and southern Afghanistan. It is the only land route that connects Central Asia to the Indian subcontinent. Several mountain passes allow travel between the Hindu Kush in other areas. Air transport in Afghanistan is provided by the national carrier, Ariana Afghan Airlines, and by the private company Kam Air. Airlines from a number of countries also provide flights in and out of the country. These include Air India, Emirates, Gulf Air, Iran Aseman Airlines, Pakistan International Airlines, and Turkish Airlines.

Afghanistan - Key Economic Indicators

Exports and Imports

Afghanistan's main exports include agricultural products such as fruits, nuts, and carpets. Import commodities typically include machinery, petroleum products, and food. The country faces trade deficits due to its reliance on imports for many goods and services.

Infrastructure

Afghanistan's infrastructure, including roads, bridges, and utilities, has been severely damaged by years of conflict. Efforts to rebuild and improve infrastructure are ongoing, with international aid playing a crucial role in reconstruction efforts.

Balance of Trade

The balance of trade in Afghanistan is skewed towards imports, resulting in trade deficits. Efforts to boost exports and reduce reliance on imports are crucial for improving the country's trade balance.

Fiscal policy

Afghanistan's fiscal policy involves government spending and taxation aimed at promoting economic growth, reducing poverty, and improving public services. However, challenges such as corruption and limited fiscal capacity hinder effective fiscal management.

Monetary policy

The central bank of Afghanistan, Da Afghanistan Bank (DAB), implements monetary policy to regulate the country's money supply, control inflation, and stabilize the currency. However, the effectiveness of monetary policy is constrained by factors such as political instability and limited financial infrastructure.

Trade agreements

Afghanistan is a member of various trade agreements, including the South Asian Free Trade Area and the Afghanistan-Pakistan Transit Trade Agreement. These agreements aim to promote regional trade and economic cooperation.

Environmental regulations

Afghanistan faces environmental challenges, including deforestation, soil erosion, and water scarcity. Efforts to address these issues include the development of environmental regulations and initiatives to promote sustainable development practices.

Tax System in Afghanistan

Capital Gains Tax: Afghanistan does not have a specific capital gains tax on profits from investments.
Corporate Tax Rate: The corporate tax rate in Afghanistan is 20% on net profits for companies operating in banking, insurance, telecommunications, and money exchange services. For other businesses, the corporate tax rate is 15%.
Sales Tax: Afghanistan imposes a value-added tax (VAT) on goods and services at a standard rate of 10%. Some essential goods may be exempt from VAT.
Property Tax: Property tax is not widely implemented in Afghanistan. However, municipalities may impose property taxes at their discretion.
Payroll Tax: There is no specific payroll tax in Afghanistan. However, employers are required to contribute to social security funds, which are used to provide benefits to employees.
Tax Deductions and Credits: Afghanistan's tax system includes various deductions and credits aimed at reducing the tax burden for businesses and individuals. These may include deductions for certain business expenses, investment incentives, and tax credits for specific activities or industries.
Tax Compliance: Tax compliance in Afghanistan faces challenges due to factors such as limited administrative capacity, informal economic activity, and widespread corruption. Efforts to improve tax collection efficiency and reduce tax evasion are ongoing but remain a significant challenge.
Tax Burden: The overall tax burden in Afghanistan is relatively low compared to many other countries. However, the effectiveness of tax collection and the distribution of the tax burden across different income groups and sectors of the economy can vary.

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