Poppy field Square

How Western sin taxes drive Taliban funding

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IN 1848, a few years after the first Anglo-Afghan wars, Lord Palmerston stood in the Houses of Parliament and said “we have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.”

This quote is often cited as the epitome of cold practicality in foreign relations. With regards to Afghanistan in 2021, however, it seems remarkably contemporary.

Indeed, it is only eight weeks ago that pictures of Afghanis fleeing the incoming Taliban saturated the airwaves. The world saw men desperate to flee their country risking life and limb by hanging on to the outside of departing cargo planes. Comparisons between Saigon 1975 and Kabul 2021 were easy to make.

America, once again, was humbled by a much simpler foe with the sole mission of freeing its land from oppression as its followers saw it – and “no watches to speak of but plenty of time” as soldiers on the ground used to joke.

It is not only the cost in blood and money from our poor decisions that has been extraordinary. It is also that we have by our collective failures strengthened very bad actors.

Indeed, Afghanistan is understood by Pakistan’s military leadership and Inter-Services Intelligence agency as part of its zone of influence and, as such, is seen as the cornerstone of its strategy of defence in depth against any potential Indian encroachment. The nature of these complex relationships are described elegantly in Peter Tomsen’s book published nearly a decade ago entitled “The Wars of Afghanistan”.

The retreat of the West is, simply put, a Pakistani victory funded in the main by Western tax-payers. In life, though, victories are seldom permanent.

In order to make the outcome of the Afghan conflict work for Pakistan some kind of stability needs to be brought to the region.

Pakistan is a poor country. On every single metric, the country wallows at the bottom of the pile. Take education, arguably the most important metric of all. Pakistan is sandwiched between Gambia and the Central African Republic for “countries with the lowest-ranked educational systems and their estimated adult literacy rates” according to the World Population Review, a not-for-profit.

Pakistan, the great winner of the two decades conflict with the West, is now left with Afghanistan as the chalice. At over 40 million, the latter’s population is close to that of Spain’s. The average age of its population is a mere 18. By comparison, at 45, Spain’s population is 2.5 times older.

The country is very young, unemployed and, courtesy of America, armed to the teeth with the best weaponry the West could offer. The future, at first glance, doesn’t look very bright for Afghanistan. To make matters worse, the country’s access to foreign direct investment seems constrained – to say the least.

As the victor in this epochal conflict, Pakistan’s meagre resources could very well be stretched to breaking point soon now that the West has withdrawn – and the aid tap to Afghanistan turned off for good. In order to move from fighting insurgency and war – to society-building and generate a semblance of legitimacy, investment across sectors will be required.

However, the ability of the Taliban to establish a consensual, broadly based tax-raising infrastructure is unlikely. Most Afghans live on the land in tribal groupings. Further, the strict implementation of Sharia means that the Taliban is bound to keep hitting the global headlines for what many investors might consider “the wrong reasons”.

The Taliban’s recent statement that extreme punishments including executions and hand amputations will resume will act as a deterrent to investors. As Mullah Nooruddin Turabi, the new Head of Prisons told Associated Press: “No one will tell us what our laws should be. We will follow Islam and we will make our laws on the Quran.”

This indicates two broad points.

The first is that illegality will, by necessity, remain the funding mainstay of the ruling regime in Kabul. The United Nations Office of Drugs and Crime (UNODC) reminds us that Afghanistan accounts for close to 90 per cent of the world’s illegal opium production. Opium cultivation employs over 3 million people in the country, representing nearly 40 per cent of the entire male adult population.

Opium has generated over a tenth of the country’s entire revenue. However, other, seemingly more mundane but no less important, areas of criminality such as the illicit tobacco market and its trafficking feature highly in the new Afghan authority’s access to hard cash. Interestingly, the World Bank values the global trade in illicit tobacco at close to $50 billion per annum.

In 2010 a UN Security Council investigative body established a link between excise fraud and the financing of terrorism. Millions of dollars from illicit tobacco went straight to terrorist organisations, including the Taliban. Experience tells us that when government makes it too difficult for consumers to access legal products or services, they create an incentive for the development of black markets. In short, the higher the tax on a legal products, the greater the attraction of cheaper but illegal products.

When tobacco products become 10 per cent more expensive relative to the incomes of those who purchase those products, the illegal trade in those products grows by 7 per cent. It is called “cause and effect”.

The second point takes us back to Viscount Palmerston. The world is full of grey areas and must be dealt with as they are, not as some ideologues would like them to be.  If we in the United Kingdom want to try to avoid our country being flooded with illegal substances and their derivative products, we can do two things:

One deals with the internal politics of Afghanistan – the country must be able to trade legally with the rest of the world to ensure that illegality and criminality are not the only funding options available to the Afghans;

The other is to drop the notion that so-called “sin taxes” are consequence free here in the UK.

Not only do they add costs on the poorest – but also increase the likelihood of pushing people naturally towards finding cheaper alternatives outside the realms of legality. The mix of “criminality as the only funding solution” in Afghanistan and high taxes on legal goods in the Western world, is bound to create a seriously unpleasant blow back – as Pakistan will soon experience.

Right on cue, Sir Simon Gass, Boris Johnson’s special representative, met this week with the Taliban in Kabul to discuss aid and establishing formal relations.

Is it too much to hope that lower UK taxes are next on the agenda?

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