Foreign Assistance: USAID and the Department of State Are	 
Beginning to Implement Prohibition on Taxation of Aid (20-FEB-04,
GAO-04-314R).							 
                                                                 
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.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-314R					        
    ACCNO:   A09329						        
  TITLE:     Foreign Assistance: USAID and the Department of State Are
Beginning to Implement Prohibition on Taxation of Aid		 
     DATE:   02/20/2004 
  SUBJECT:   Developing countries				 
	     Foreign aid programs				 
	     Foreign governments				 
	     International agreements				 
	     Reimbursements to government			 
	     Reporting requirements				 
	     Taxes						 
	     Tax exempt status					 
	     West Bank						 
	     Gaza						 

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GAO-04-314R

United States General Accounting Office Washington, DC 20548

February 20, 2004

The Honorable Mitch McConnell
Chairman
The Honorable Patrick Leahy
Ranking Minority Member
Subcommittee on Foreign Operations
Committee on Appropriations
United States Senate

The Honorable Jim Kolbe
Chairman
The Honorable Nita M. Lowey
Ranking Minority Member
Subcommittee on Foreign Operations,

Export Financing and Related Programs Committee on Appropriations House of
Representatives

Subject: Foreign Assistance: USAID and the Department of State Are
Beginning to Implement Prohibition on Taxation of Aid

In 2002, Congress learned that the Palestinian Authority had collected
$6.8 million1 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
2003,2 and provided for a 200 percent penalty for taxes levied but not
reimbursed.3 This legislation defines "taxes" and "taxation" as value
added taxes (VAT) and customs duties imposed on commodities

1These taxes had been collected at least since 1998.

2Division E, Title V, S: 579, Pub. L. No. 108-7 (2003).

3This prohibition applies only to funds appropriated in fiscal year 2003.

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.

To accomplish these objectives, we reviewed U.S. government bilateral
framework agreements with countries receiving USAID assistance, State
Department guidance to implement the prohibition, and other relevant
documentation and met with cognizant officials in USAID and State. As
agreed with congressional staff, we did not review bilateral agreements
that other U.S. government agencies, including State, have with recipient
governments. Also, we were unable to identify the amount of taxes levied
and reimbursed during fiscal year 20034 because State is still in the
process of collecting this information.

Results in Brief

Of the 90 countries or entities5 to which USAID provided bilateral
assistance in fiscal year 2003,6 77 have bilateral framework agreements7
that include some type of prohibition on taxation, 6 have other agreements
that include such prohibitions, and 7 do not have agreements that include
such prohibitions. Of the 77 bilateral agreements that have some type of
prohibition, 45 of them state that supplies, materials, equipment, or
other property may be imported into or acquired within country free from
any tariffs, customs duties, import taxes, and other taxes or similar
charges. The other 32 agreements contain prohibitions against taxing
commodities imported or introduced for use in assistance projects but do
not address commodities purchased in-country. USAID has arrangements or
agreements other than bilateral framework agreements with 6 countries and
entities that include tax prohibitions. For example, regarding assistance
to the West Bank and Gaza, USAID received a letter from the Palestinian
Authority in March 2002 stating that it would not assess

4This applies to the period from February 20 (the date that the
legislation was enacted) to September 30, 2003.

5USAID provides assistance to 2 entities that are not foreign governments.
It provides assistance to Kosovo through the United Nations and to the
West Bank and Gaza in coordination with the Palestinian Authority and the
Israeli Government.

6See enclosure I for a list of the 90 countries and entities and the USAID
assistance allocated to them for fiscal year 2003.

7Bilateral framework agreements are intended to identify the privileges
and immunities to be provided to USAID personnel overseas, set forth
USAID's policy that assistance should be exempt from host government
taxes, and list other general terms and conditions for USAID assistance.

VAT for any U.S. assistance activities. In addition, imported items are
exempt from customs duties through separate administrative procedures
involving the Palestinian Authority and the Israeli Customs Department. Of
the 7 countries without agreements that include the prohibition, 2 have
bilateral framework agreements with USAID, and 5 do not. USAID officials
noted that, although bilateral framework agreements are an important tool
for establishing the tax-exempt status of U.S. assistance, USAID has
additional tools to obtain tax exemptions in actual practice, such as
including tax prohibitions in individual grant agreements. However, USAID
officials told us they could not provide comprehensive information on the
use and effectiveness of such tools because they currently have no
mechanism for collecting such information from individual missions.

In response to the legislation's requirements, the State Department has
developed guidance on implementing the prohibition on taxation of U.S.
assistance and disseminated the guidance to all applicable offices and
U.S. missions for implementation. For taxes charged in fiscal year 2003,
State's guidance calls for the country to provide full reimbursement by
January 31, 2004. If it does not, the government is to withhold 200
percent of the unreimbursed taxes assessed in fiscal year 2003 from that
government's assistance allocation for fiscal year 2004. The guidance
calls for State to collect in December 2003 preliminary estimates of taxes
collected and reimbursed. As of mid-January 2004, State's Bureau of
Resource Management had received only partial reports from the regional
bureaus because some countries or programs had not yet provided the needed
information. State officials noted that, of the reports received thus far,
most countries or programs had reported that either no taxes had been
charged or that relatively minor amounts (generally less than $100,000)
had been charged. Of the few exceptions that were higher, none approached
the $7 million that had been previously charged under the West Bank/Gaza
program.8 State officials also noted that the interim reporting deadlines
were meant to provide preliminary information on the magnitude of the
problem and to ensure that fiscal year 2004 funds that may be subject to
the 200 percent penalty are not obligated for release to the central
government. Final reports will provide the basis for actually imposing the
200 percent penalty, if applicable, and are due to the Bureau of Resource
Management by May 17, 2004. State's guidance also contains suggested
language for implementing the prohibition, which is to be included in new
agreements and amendments to agreements that do not contain the
prohibition.

Background

USAID provided bilateral assistance estimated at more than $5 billion for
fiscal year 2003. A provision in the fiscal year 2003 Consolidated
Appropriations Resolution forbids assistance under that act through any
new bilateral agreement unless the agreement includes a provision stating
that such assistance shall be exempt from taxation or that taxes collected
shall be reimbursed. The act also provides that the

8The Palestinian Authority had refunded about $6 million of this amount as
of March 2002, according to USAID documentation.

Secretary of State shall expeditiously seek to negotiate amendments to
existing bilateral agreements, as necessary, to conform to this
requirement. If a country does not reimburse the United States for taxes
it charged, a 200 percent penalty is to be withheld from the country or
entity. Half of that amount may be reprogrammed consistent with the
purposes for which such funds were originally appropriated. The other half
of the funds were to be deposited in the General Fund of the Treasury by
September 6, 2004, on the basis of certifications provided by the
Secretary of State.9

USAID Bilateral Framework or Other Agreements with Most Aid Recipients
Contain Some Prohibition on Taxation

Of the 90 countries or entities to which USAID provided bilateral
assistance in fiscal year 2003, 77 of them have bilateral framework
agreements with USAID that include some type of prohibition on taxation,
although the comprehensiveness of the prohibitions varies. Similarly, 6
have project implementing agreements or other agreements with varying
degrees of tax prohibitions. Seven do not have agreements that include
prohibitions on taxation. USAID officials said that, although bilateral
framework agreements are an important tool for establishing tax-exempt
status for U.S. assistance, USAID has additional tools for obtaining tax
exemptions in actual practice. Figure 1 identifies the countries and
entities with which USAID (1) has bilateral framework agreements that
contain prohibitions against taxation of U.S. assistance, (2) has program
implementing and other agreements that contain these prohibitions, and (3)
does not have agreements that contain a prohibition.

9State Department officials said that the fiscal year 2004 Foreign
Operations Appropriations Act allows an amount representing the 200
percent penalty on fiscal year 2003 assessments to be reprogrammed instead
of returning half to the Treasury.

                    [This page is intentionally left blank]

Figure 1: Countries That Have and Do Not Have Agreements Containing Prohibitions
                                against Taxation

Comprehensiveness of Tax Prohibition Provisions Varies in 77 Bilateral
Framework Agreements

For the 77 countries and entities with bilateral framework agreements that
include some sort of prohibition on taxation of assistance, the
comprehensiveness of the prohibition provisions varies, with the most
recent agreements generally containing the most comprehensive language.
The most inclusive language states that supplies, materials, equipment,
and other property imported into or acquired in-country by the U.S.
government are exempt from any taxes on ownership or use of property. This
language also generally states that the import, export, purchase, use, or
disposition of any such property in connection with any assistance program
shall be exempt from any tariffs, customs duties, import taxes, and other
taxes or similar charges in that country. This language covers commodities
imported into the recipient country and those purchased locally and is in
4510 of the 77 agreements with tax prohibitions. Included among the 45
agreements with the most comprehensive language are all 7 agreements
implemented within the last 5 years (since 1998).

The remaining 32 agreements prohibit taxation of items imported or
introduced into the host country for use in assistance projects but do not
specifically discuss items acquired in-country, which is one basis for
assessing VAT. These agreements prohibit customs duties or import taxes on
any materials and equipment introduced into the country, but the
agreements do not specifically include items acquired in the host country.
Twenty-one of these agreements were signed between 1950 and 1971, while
the other 11, all with countries of the former Soviet Union, were
developed in the 1990s.

Six Other Arrangements Contain Prohibitions on Taxing Assistance

USAID and six countries or entities have entered into arrangements other
than bilateral framework agreements that provide some exemption from
taxation. For example, although USAID has no bilateral framework agreement
with the Palestinian Authority for assistance to the West Bank and Gaza,
it did receive a letter from the authority in March 2002 granting U.S.
assistance projects VAT-free status. In addition, USAID-financed goods are
exempted from customs duties through a separate administrative procedure
involving the Palestinian Authority and the Israeli Customs Department,
according to USAID officials.11 USAID documentation indicated that as of
March 2002, the Palestinian Authority had reimbursed about $6 million in
taxes it had collected. The estimated fiscal year 2003 USAID allocation
for the West Bank and Gaza program was $75 million.

10Six of these agreements, all with countries in the Latin American and
Caribbean region, use the generic term "property" when referring to items
eligible for tax exemption, rather than specifying supplies, materials,
and equipment.

11To obtain this exemption, contractors or grantees must submit a letter
identifying the products to be imported to the Palestinian Ministry of
Finance, which then forwards a request for tax exemption to the Ministry
of Civil Affairs for approval and coordination with the Israeli Customs
Department.

USAID stated that although it has no bilateral framework agreements with
Eritrea and Mozambique, it has grant agreements covering specific
assistance projects in both countries that include exemption from all
taxes, including customs duties and VAT. USAID has been attempting to
negotiate bilateral framework agreements with both governments since the
1990s. USAID expects to conclude an agreement with Mozambique containing
the appropriate tax and duty exemptions soon. Extensive negotiations had
been conducted with Eritrea, but the parties had not been able to reach
agreement on an acceptable document as of November 2003.

USAID has bilateral framework agreements with the Philippines and
Indonesia that do not include prohibitions on taxation of U.S. assistance.
However, it has grant and other agreements covering specific projects in
these countries that include exemptions from any taxation or fees on
commodity procurement transactions financed under these agreements,
including the import, export, purchase, use, or disposition of any
equipment or property. USAID also stated that it provides assistance to
Ireland through cash transfers to the International Fund for Ireland-a
tax-exempt organization.

Seven Countries Do Not Have Agreements with USAID Prohibiting Taxation of
U.S. Assistance

Seven countries that receive USAID assistance do not have agreements with
the agency that include prohibitions on taxation. Two of these
countries-Laos and Thailand-have bilateral framework agreements with
USAID, but these agreements, do not contain tax prohibition provisions.
USAID stated that currently it has no plans to renegotiate these bilateral
agreements since program activities in the two countries are not conducted
by USAID under government-to-government agreements, but rather are carried
out directly by nongovernmental organizations.

Regarding the other five countries, agency officials stated that they do
not have agreements with Cuba or China since assistance to these two
countries is also provided through private organizations outside of
official government channels. USAID does not have a bilateral agreement
with the Democratic Republic of the Congo because assistance to that
country had been prohibited for many years until June 2003. According to
USAID officials, since 1996 Burundi has been subject to the military coup
sanction of the Foreign Assistance Appropriations Act, which limits the
amount of assistance that USAID can provide. USAID stated that it might be
willing to initiate negotiations with the governments of the Democratic
Republic of the Congo and Burundi when it becomes feasible to resume
normal government-togovernment assistance programs. Finally, USAID does
not have a bilateral framework agreement with Cape Verde, where the agency
has no presence. The only assistance it currently provides to Cape Verde,
according to USAID, is Public Law 480 food assistance that is funded under
another statute and therefore is not subject to the tax prohibition.

USAID Has Other Tools for Obtaining Tax Exemption

USAID officials said that, although bilateral framework agreements are an
important tool for establishing tax-exempt status for U.S. assistance,
USAID has additional tools for obtaining tax exemptions. For example,
USAID inserts tax-exemption clauses into grant agreements with host
governments for individual projects. This mechanism can be used in cases
where bilateral agreements do not exist or where bilateral framework
agreements exist but do not contain prohibitions on taxation. It can also
be used in cases where bilateral framework agreements containing tax
prohibitions exist but where the relevant language is not sufficiently
comprehensive.

According to USAID officials, in cases where bilateral framework
agreements include tax prohibitions but do not specifically exempt items
acquired in the host country, USAID has interpreted such agreements to
implicitly include such an exemption. The officials added that such less
inclusive language had generally not been an obstacle to obtaining tax
exemption in actual practice because USAID had been able to persuade
recipient governments to accept its interpretation of the agreements.
However, USAID officials told us they could not provide comprehensive
information on the use and effectiveness of this approach or that of
inserting tax prohibitions into individual grant agreements, because the
situation varies at each overseas mission and a mechanism for collecting
such information from individual missions does not currently exist.

USAID officials told us that, in some countries, using these other tools
to obtain tax exemptions could be preferable to either negotiating a new
bilateral framework agreement or renegotiating an existing agreement. For
example, the U.S. Ambassador may want to avoid putting pressure on a
foreign government to renegotiate a bilateral framework agreement that is
politically controversial in that country. In other cases, the Ambassador
may want to avoid initiating negotiations that would provide an opening
for the foreign government to raise other issues that could have a
negative impact on U.S. foreign policy objectives.

State Department Has Issued Guidance for Implementing the Prohibition

As required by legislation, the State Department developed guidance on
implementing the prohibition on taxation and disseminated it in September
2003 to all applicable offices and U.S. missions for implementation. The
guidance calls for collecting in December 2003 preliminary estimates of
taxes collected and reimbursements owed and for reporting final
information by May 17, 2004. As of mid-January 2004, State's Bureau of
Resource Management had received only partial reports from the regional
bureaus because some countries or programs had not yet provided the needed
information. State officials noted that, of the reports received thus far,
most countries and programs had reported that either no or relatively
minor amounts of taxes had been collected. State officials said that the
interim estimates were intended primarily to (1) identify countries that
may be subject to withholding of assistance and (2) ensure that the
corresponding funds are not obligated from the fiscal year 2004
appropriations. The information provided in the final reports will form
the basis for actually imposing the 200 percent penalty and deducting it
from

each applicable country program allocation for 2004. State's guidance also
contains suggested language for new assistance agreements and for amending
existing agreements to ensure that they include a prohibition on taxation,
as required.

State Department's Guidance Provides Direction to Agencies and Overseas
Missions for Penalizing Taxing Governments and Preventing Future Taxation

State's guidance to overseas and Washington missions and bureaus outlines
the steps needed to prevent countries from imposing VAT and customs taxes
on commodities purchased with U.S. foreign assistance funds. Commodities
(defined in the guidance as any material, article, supplies, goods, or
equipment) subject to this provision are those that were acquired with
fiscal year 2003 or prior year foreign assistance funds and on which taxes
were assessed from February 20, 2003 (the date that the legislation was
enacted) through September 30, 2003.

Consistent with the de minimis exception provided for in the legislation,
State has defined this limit as $500 or more. Thus, the guidance states
that those providing reports are to include information on all VAT and
customs taxes charged on commodity transactions valued at $500 or more.

The guidance further restates the legislative requirements that if taxes
are charged, the country should provide full reimbursement, and that
funding for foreign assistance be withheld from the taxing government's
2004 allocations unless there is full reimbursement. In these cases, the
U.S. government is to withhold from fiscal year 2004 foreign assistance
funds to that country, 200 percent of the amount of unreimbursed taxes
assessed in fiscal year 2003. State officials said that, consistent with
the statute, such penalties would only be applied to funds allocated
directly to central governments and that they would not be deducted from
funds that are directed to nongovernmental and private voluntary
organizations, or other organizations that implement projects. These
officials added that if sufficient funding is not available to deduct the
full amount from programs directed to individual central governments, the
full amount of the penalty would not be deducted for that country.

The guidance also specifies what assistance should and should not be
considered as covered by the prohibition on taxation for purposes of
complying with the legislation. Assistance covered by the prohibition is
further divided into two categories- embassy-reported program assistance
and special Washington reporting office program assistance. See enclosure
II for a list of all embassy and special Washington reporting office
programs to be included for the purpose of complying with this legislation
and examples of specific assistance that is not to be reported under the
legislation.

Embassy Reports Will Provide Basis for Collecting Reimbursements and
Imposing Penalties

Embassies are required to collect and report information concerning any
VAT and customs duties charged by a foreign country or entity on commodity
transactions

during fiscal year 2003 valued at $500 or more. Embassies are also
required to collect information on reimbursements. According to the
guidance, taxation reports are to reflect all VAT or customs taxes
assessed during the same period on commodities acquired with foreign
assistance funds for program activities that received any fiscal year 2003
funding, regardless of whether the taxed commodities were actually
purchased with fiscal year 2003 funds. The guidance also states that
embassies and State regional bureaus were to urge the taxing foreign
country, no later than December 15, 2003, to provide complete
reimbursement by January 31, 2004.

The guidance calls for embassies to provide interim estimates in December
2003 on taxes levied and reimbursed. As of mid-January 2004, State's
Bureau of Resource Management had received only partial reports from the
regional bureaus because some countries or programs had not yet provided
the needed information. State officials noted that, of the reports
received thus far, most countries and programs had reported that no taxes
had been charged. Where taxes had been charged, they appeared to be
relatively minor, with a few exceptions. For most countries, the total was
less than $100,000. Although a few were higher, State officials said that
the amounts were far less than the $7 million that had previously been
charged under the West Bank/Gaza program. State would not provide more
detailed information on the interim estimates reported to date because
they view such information as preliminary in nature and only for State's
internal use.

State officials said that although some offices experienced delays in
collecting and reporting the estimated tax and reimbursement information,
the December time frame for providing interim estimates was meant to
provide preliminary information on the magnitude of the problem. According
to State officials, the final reports-due May 17, 2004-will form the basis
for actually imposing the 200 percent penalty and deducting it from each
applicable country program for 2004. The interim estimates therefore allow
fiscal year 2004 programs to move forward at least in part until the host
government can provide reimbursement and the final data can be collected.

The second report will update and finalize the information contained in
the interim report. Time frames for submitting the final reports are:

o  	April 16, 2004-Contractors, grantees, and U.S. government agencies and
entities administering or implementing foreign assistance programs are
required to submit their final report to embassies on VAT and customs
duties assessed against all commodity transactions valued at $500 or more,
from February 20 through September 30, 2003, as well as any reimbursements
received from the host government.

o  	May 3, 2004-Embassies and special Washington reporting offices are to
provide final consolidated information to the relevant regional bureaus.

o  	May 17, 2004-Regional bureaus are to provide consolidated reports to
State's Bureau of Resource Management on the net tax amount (taxes minus
reimbursements) by country and account. Decisions to withhold funds will
be based on these final net amounts.

Process for Collecting Reimbursements Varies by Country

The process for obtaining reimbursement for VAT and customs duties levied
by recipient governments varies from country to country, according to the
guidance. Embassies and program implementers are to work out the details
of collecting reimbursement on the basis of mechanisms already existing at
post. If no reimbursement mechanism exists, embassies are encouraged to
establish one with the host government since the State Department expects
this requirement to continue beyond fiscal year 2003. State officials said
that early indications are that embassy, contractor, nongovernmental
organization, and other officials are actively working with recipient
governments to ensure that reimbursements are received before penalties
are imposed.

Program implementing agencies, offices, and recipients are encouraged to
work closely with foreign government counterparts to seek reimbursement on
a regular basis where possible. To the extent that reimbursements are
still being processed and are not received within the time frame necessary
to be captured in the final report, the proper amount must be withheld in
fiscal year 2004, even though reimbursement would be forthcoming at a
later date.

New Bilateral Framework Agreements and Amendments to Existing Agreements
Must Include a Prohibition on Taxation

According to State's guidance, U.S. government agencies administering
assistance programs are required to include provisions in any new
bilateral framework agreements stating that the purchase of commodities
funded by U.S. foreign assistance shall be exempt from any VAT, and that
the import or entry of such commodities shall be exempt from any customs
duties. Otherwise, the recipient government must reimburse the U.S.
government for any such VAT and customs duties charged. No assistance is
to be provided under a new bilateral agreement unless it contains such a
provision.

The guidance also states that U.S. government agencies should
expeditiously negotiate amendments, as necessary, to existing agreements
to conform to the taxexemption and reimbursement requirements of the
legislation. The guidance adds that where existing agreements already
include a provision for tax exemption, this may suffice if assistance has
generally not been taxed or if any taxes charged have been reimbursed.

Agency Comments

We provided USAID and State with a draft copy of this report for review
and comment. USAID provided written comments on the draft (see enc. III).
USAID stated that it generally concurred with the report's findings. Both
USAID and State provided technical comments that we have incorporated as
appropriate.

Scope and Methodology

To determine the extent to which USAID bilateral framework agreements
include exemption from taxation and the extent of USAID's effort to ensure
that all agreements include such an exemption, we

o  	analyzed existing agreements to determine whether they included the
prohibition and, if so, whether the prohibition covered the types of taxes
identified in the legislation;

o  	reviewed USAID's guidance to its missions implementing the
legislation's reporting and tax reimbursement collection requirements; and

o  	met with cognizant officials at USAID headquarters to discuss efforts
USAID is making to ensure that its bilateral agreements comply with the
legislation.

To identify the State Department's progress in developing and implementing
guidance to identify taxes levied on U.S. assistance, and to ensure that
such amounts are reimbursed to the U.S. government or that an appropriate
penalty is levied against unreimbursed taxes, we

o  	analyzed the implementing guidance to determine whether it addressed
all of the legislative requirements and

o  	met with cognizant department officials to determine the status of
initial reporting efforts, including whether the required information was
being collected and reported.

Our review was conducted from July through December 2003 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional
committees, the Secretary of State, and the Administrator of USAID. We
will also make copies available to others upon request. In addition, this
report will be available at no charge on our Web site at
http://www.gao.gov.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-4128 or Michael Courts, Assistant Director, at
(202) 512-8980. Other key contributors to this report were Janey Cohen and
Edward Kennedy.

Jess T. Ford, Director International Affairs and Trade

Enclosure I

    USAID Estimated Assistance Allocations, by Country, for Fiscal Year 2003

         Country and entity, by region                        Total allocated 
                                                        (Dollars in millions) 
                     Africa                   
                     Angola                                             $16.2 
                     Benin                                               18.3 
                  Burkina Faso                                           10.1 
                    Burundi                                               4.0 
                   Cape Verde                                             3.5 
        Democratic Republic of the Congo                                 23.5 
                    Eritrea                                              11.9 
                    Ethiopia                                             77.3 
                     Ghana                                               53.7 
                     Guinea                                              26.4 
                     Kenya                                               58.8 
                    Liberia                                               6.2 
                   Madagascar                                            29.0 
                     Malawi                                              37.2 
                      Mali                                               34.6 
                   Mauritania                                             3.5 
                   Mozambique                                            62.4 
                    Namibia                                               7.0 
                     Niger                                                6.9 
                    Nigeria                                              65.2 
                     Rwanda                                              29.2 
                    Senegal                                              28.4 
                  Sierra Leone                                            3.9 
                    Somalia                                               2.9 
                  South Africa                                           61.4 
                     Sudan                                               22.3 
                    Tanzania                                             32.9 
                     Uganda                                              78.8 
                     Zambia                                              50.3 
                    Zimbabwe                                             16.1 
                    Subtotal                                           $881.9 
               Asia and Near East             
                      Asia                    
                   Bangladesh                                          $110.5 
                     Burma                                                6.5 
                    Cambodia                                             39.5 
                     China                                                5.0 
                   East Timor                                            19.0 
                     India                                              191.5 
                   Indonesia                                            141.5 
                      Laos                                                2.0 
                    Mongolia                                             12.0 
                     Nepal                                               37.7 
                    Pakistan                                            250.0 
                  Philippines                                            71.2 
                   Sri Lanka                                             10.1 
                    Thailand                                              3.3 
                    Vietnam                                              12.5 

                                  Enclosure I

                     Near East                    
                       Egypt                                            615.0 
                       Israel                                           800.0 
                       Jordan                                           250.0 
                      Lebanon                                            32.5 
                      Morocco                                             6.7 
                   West Bank/Gaza                                        75.0 
                       Yemen                                             10.0 
                      Subtotal                                       $2,701.5 
                 Europe and Eurasia               
                       Europe                     
                      Albania                                           $28.0 
                 Bosnia-Herzegovina                                      50.0 
                      Bulgaria                                           28.0 
                      Croatia                                            30.0 
                       Cyprus                                            15.0 
                      Ireland                                            29.0 
                       Kosovo                                            85.0 
                     Macedonia                                           50.0 
                      Romania                                            29.0 
               Serbia and Montenegro                                    135.0 
                      Eurasia                     
                      Armenia                                            70.0 
                     Azerbaijan                                          46.0 
                      Belarus                                             9.5 
                      Georgia                                            87.0 
                     Kazakhstan                                          43.0 
                     Kyrgyzstan                                          36.0 
                      Moldova                                            32.5 
                       Russia                                           148.0 
                     Tajikistan                                          22.5 
                    Turkmenistan                                          7.0 
                      Ukraine                                           155.0 
                     Uzbekistan                                          31.5 
                      Subtotal                                       $1,167.0 
            Latin America and Caribbean           
                      Bolivia                                           $62.3 
                       Brazil                                            18.5 
                        Cuba                                              6.0 
                 Dominican Republic                                      22.9 
                      Ecuador                                            29.4 
                    El Salvador                                          33.7 
                     Guatemala                                           52.2 
                       Guyana                                             3.2 
                       Haiti                                             47.4 
                      Honduras                                           40.3 
                      Jamaica                                            16.8 
                       Mexico                                            30.4 
                     Nicaragua                                           37.7 
                       Panama                                            10.5 

                                  Enclosure I

                       Paraguay                                          10.1 
                         Peru                                            78.2 
                       Subtotal                                        $499.6 
           Total - 90 countries and entities                         $5,250.0 

Source: USAID.

Enclosure II

 Embassy and Special Washington Reporting Office Programs to be Included in Tax
Collection and Reimbursement Reporting Requirement, and Programs That Are Not to
                                  Be Addressed

Part A: Embassy Programs That Are to Be Included in Tax Collection and
Reimbursement Reporting Requirement

o  Economic Support Fund;

o  	Nonproliferation, Anti-terrorism, Demining, and Related Programs
Export Control and Related Border Security Assistance programs;

o  Development Assistance;

o  Child Survival and Health;

o  International Disaster Assistance;

o  Transition Initiatives;

o  Support for East European Democracy;

o  Assistance for the Independent States,

o  Andean Counterdrug Initiative; and

o  International Narcotics Control and Law Enforcement.

Embassies will also be responsible for reporting on programs funded and
managed by the Peace Corps and any Treasury Technical Assistance programs
or other independent programs.

Part B: Special Washington Reporting Office Programs That Are to Be
Included in Tax Collection and Reimbursement Reporting Requirement

Embassies do not have responsibility for programs managed largely by
Washington offices (called special Washington reporting offices). These
offices are responsible for developing tax and reimbursement information
for the following programs:

o  	Migration and Refugees Assistance and Emergency Refugee and Migration
Assistance (provided other than as contributions to international
organizations);

o  International Military Education and Training;

o  	Foreign Military Financing Used for Foreign Military Sales and Direct
Commercial Contract Sales;

o  Peacekeeping Operations;

o  Anti-Terrorism Assistance;

o  Terrorist Interdiction Program;

o  Nonproliferation and Disarmament Fund;

o  Small Arms/Light Weapons Destruction;

o  Humanitarian Demining;

o  	Nonproliferation, Anti-terrorism, Demining, and Related
Programs/Science Centers;

Enclosure II

o  	Human Rights and Democracy Economic Support Fund, Support for European
Democracy, and Assistance for the Independent States programs administered
by the Department of State's Bureau of Democracy, Human Rights, and Labor;

o  	State's Bureau of Oceans and International Environmental Scientific
Affairs Initiatives programs funded with Economic Support Funds;

o  U.S. Trade and Development Agency programs;

o  Trafficking in Persons programs; and

o  	Selected Support for European Democracy and Assistance for the
Independent States programs implemented by non-State/USAID agencies, based
on embassy discussion with Army Corps of Engineers/Europe.

Part C: Assistance That Is Not to Be Included Under the Tax Collection and
Reimbursement Reporting Requirement

The guidance identifies specific assistance that is not to be reported on
under this legislation:

o  	Funds not for specific goods such as cash transfers and nonproject
assistance grants to, or debt relief for, a foreign government.

o  	Funds that consist of a general contribution to a public international
organization that typically funds the organization's general budget, or
special trust fund that does not identify specific goods and services for
funding.

o  	Funds that consist of loan guarantees (e.g., Development Credit
Authority agreements) or are with intermediate credit institutions for
services only.

o  	Funds that consist of assistance that is not funded by annual foreign
operations, export financing, and related programs appropriations acts.
Such nonforeign assistance appropriations act assistance includes, for
example, Department of Energy nuclear cities programs.

o  	The State Department may consider not imposing the withholding penalty
on taxes imposed on urgent disaster assistance used for relief and
rehabilitation (versus reconstruction).

                                 Enclosure III

          Comments from the U.S. Agency for International Development

                                    (320209)

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