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Office for Afghanistan and Pakistan Affairs (OAP A)

REQUEST FOR CATEGORICAL EXCLUSION

AMENDMENT 3

PROGRAM/ACTIVITY DATA

Country Code: Strategic Objective: Country or Region: Activity Name: Funding period: Life of Project Amount: RCE prepared by: Date: RCE Amendment: yes

306 Performance and Legitimacy of GIRoA Improved Afghanistan Afghanistan Public Financial Management (APFM) July 27, 2015 - Dec 26-2017 $18.1 million Muhammad Nassim Attahi 6/5/2017 Original IEE: OAPA-12-SEP-AFG-0060, approved 9/6/2012 Amendment!: OAPA-14-APR-AFG-0034, approved 4/2/2014 Amendment 2: OAP A-16-June-AFG-0023, approved 6/10/2016

ENVIRONMENTAL ACTION RECOMMENDED: Categorical Exclusion [X] Deferral [ ] Positive Determination [ ] Negative Determination [ ] Negative Determination With [ ] Exemption [ ] Conditions

1.0 PURPOSE, BACKGROUND AND ACTIVITY DESCRIPTION

1.1 Purpose and Scope of the RCE

The purpose of Amendment 3 of the Request for Categorical Exclusion (RCE) for the Afghanistan Public Financial Management (APFM) activity, under the CARAVAN Project Appraisal Document, are to, in accordance with 22 CFR 216:

1. Document on the RCE a decrease in the LOP funding by $ 4 million from $22.1 million to $18. l million. This is due to OEG's reduced budget.

2. Revise the scope of work to replace certain activities mentioned in IEE amendment 1 with new activities in order to meet new PFM needs of Ministry of Finance•.

3. Bring forward the end date of the RCE from July 26, 2018 to December 26, 2017, in line with reduced budget of the activity

All conditions, limitations and the stipulation for revisions established in the original RCE and Amendments I and 2 that are not amended in this Amendment remain in force throughout the life of project.

' Tables 1 and 2 respectively show activities removed and activities added.

1.2 Background

The Afghanistan Public Financial Management (APFM) project will help Afghanistan improve its fiscal sustainability and enable delivery of essential services to its citizens by strengthening the New Unity Government's (NUG) ability at the national and sub-national levels to mobilize domestic revenue and more effectively manage its budget. Specifically, APFM's objectives are to:

1. Strengthen NUG's capacity to forecast, increase, and manage domestic revenue by increasing essential capacities across NUG institutions, by increasing payment compliance across revenue collecting units, and by ensuring that those receipts are promptly transferred to the treasury account; and

2. Strengthen budget planning, execution, monitoring and evaluation, and reporting capacities of national and sub-national NUG entities, and improve communication and coordination between national and sub-national levels.

In support of APFM objectives, the Contractor must provide capacity building, technical services and related resources to help NUG develop and strengthen its Public Financial Management (PFM) systems, policies, and procedures. These activities will be grouped under the following three components: 1) Domestic Revenue Mobilization and Management; 2) Budget Planning and Execution; and 3) Demand-driven component to support other PFM priorities or initiatives identified in coordination with NUG and USAID.

1.3 Activity Description

Component 1: Domestic Revenue Mobilization and Management

A dramatic improvement in domestic revenue generation is urgent and essential to ensuring NUG is able to cover its increasing expenditure commitments. USAID expects to build on the work in the area of tax administration and non-tax revenue done under the previous EGGI project while coordinating closely with other donors working in this area. The Contractor must:

Illustrative Activities: Activities to achieve the required results can include, but are not limited to:

• Capacity-building and technical assistance to the MoF Revenue Department, in coordination with other donors, in support of improving revenue forecasting, management, and collection.

• Assessment of processes, policies & procedures ofrevenue collection and transfer, including non-tax revenue, Afghanistan Revenue Department (ARD); and other revenue-generating ministries, departments and agencies.

• Implementation of measures in each area identified by the aforementioned assessment.

• Formation and facilitation of a working group with the Non-Tax Revenue Directorate and revenue generating line ministries (encompassing future mining tenders, fuel and highway toll taxes, telecommunication, state-owned enterprises, etc.).

• Improve non-tax revenue collection system to reduce non-compliance by ministries, state owned enterprises, and the private sector.

• Training of the tashkeel of ARD and its tax offices, to build their capacity in areas such as tax law, audit, enforcement, and management.

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Component 2: Budget Planning and Execution

Along with increased revenue, disciplined realistic budgeting is required in order for the Afghan Government to achieve improved fiscal sustainability.

Illustrative Activities: Activities to achieve the required results can include, but are not limited to:

• Planning with the Budget Department's leadership to develop strategies for transitioning core budget department functions that are currently being performed by temporary advisors or contractors to permanent tashkeel staff.

• Technical assistance to improve the Budget Department's capacity to formulate comprehensive, transparent, realistic (based on a sound fiscal strategy), fair, and policy/service delivery results-based budgets.

• Advisory support to strengthen the Medium Term Budgeting Framework (MTBF) processes and work with the Budget Department to develop a Medium Term Expenditure Framework (MTEF).

• Joint workshops with line ministry staff and provincial directorate counterparts to establish stronger communication and interaction.

• Trainip.gs for MoF and line ministries on budget planning and formulation, project planning and design, budget execution, and monitoring and evaluation implementation tools.

• Facilitation of PFM training facility to provide standardized PFM common function certification course of study.

• Periodic performance monitoring to measure the effectiveness of APFM's capacity building support.

Component 3: Cross-cutting PFM activities Illustrative Activities:

• Design a single window solution for the improvement of revenue collection for the transport sector at Kabul City entry/exit points and border crossings by the Ministries of Transp011, Public Works and Interior Affairs, as well as Kabul Municipality.

• Provide technical assistance and training on the legal and institutional set-up needed to implement the Open Access Policy. Specifically, assist the GIRoA in developing and executing appropriate regulations, certificates/licenses, revenue dete1mination mechanisms, quality control mechanisms, and security mechanisms to facilitate investment in the telecoms by the private sector.

Table 1. List of Activities that were removed

Work Plan Activity Description Justification

Activity

2.2.4 Carry-out, with the cooperation of Treasmy/ AFMIS has issued a REOI, the pilot ministries, a Systems NP A/MoF /95/CS-1289/QBS, for a systems study Study to identify appropriate covering all aspects related to the implementation of software and specifications of an additional modules of Freebalance version 7 in Asset Management Information Afghanistan and other related possible enhancements System Public Finance Advisors. in system functionality and to suggest the phases for

implementing them.

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2.2.5

3.1.2

3.3.1

Conduct a comprehensive review of the legal framework of Public Financial Management to determine the adjustments needed to encompass recent budgeting ref01ms, with emphasis on public asset management regulation 1366, which should be based on international standards and new requirements.

Extend the APFM internship program to provide on-the-job training for another four individuals who wish to pursue civil service careers in PFM.

Conduct a feasibility study to identify opportunities for epayment of non-tax revenue streams at selected line ministries.

The study would also identify and elaborate on possible areas that would require to be developed through system improvements for meeting future needs of the PFM systems in Afghanistan.

Hence, the stand-alone Systems Study for the Asset Management Information System would be redundant and the MoF Budget Department has proposed to eliminate this APFM activity.

A review of the legal framework, with emphasis on public asset management regulation 1366, is being addressed by an internal review by the MoF Budget Department.

This activity aimed to mobilize new interns by September 26, 2017 for work over Year 3. With the accelerated project closing date this activity is no longer possible.

APFM accepted ARD's request that activities 3.3.1 and 3.3.2 be used to support the development of a detailed solution for a computerized transport revenue system for Kabul city gates and the borders. ARD

1--3-.3-.2-~.._S_u_p_p_o_it-th_e_N_T_R_D_a_n_d_o_n_e_lin-e--1 agreed that this activity satisfies 3.3.l and 3.3.2 of the work plan. See Activities Added (3.3.1) below.

ministry in activities required to establish an e-payment system for a non-tax revenue stream.

Table 2. List of Activities that were added (also reflected in Table 3)

Related Work New Activity Description Link to Task Order Stream No.

1.1 Support 1.1. Translate the Tax Administration Law from Provide tax policy support. Improvements 6.5 Dari to Pashto. Increasing taxpayer compliance. to Tax Policy and Tax Legislation

1.3. Provide training for the staff of the ORD on Assist the ARD in building capacity 5 J!;eneral principles of tax dispute resolution. in tax administration. 1.3. Update the Objections Manual to b1ing its Assist the ARD in building capacity

1.3 Tax Dispute 6 provisions into line with the current tax in tax administration

Resolution legislation, improve the accuracy of this

Mechanism Manual, and translate a reliable Dari version.

1.3. Organize and support a seminar for the staff Assist the ARD in building capacity 7 from the ORD and provincial objections in tax administration

offices on objections issues and coordination between the ORD and provinces.

3.3 Development 3.3. Desi1:,'ll a single window solution for the

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of Electronic I- improvement of revenue collection for the Services rev transport sector at Kabul City entry/exit points

and border crossings by the Ministries of Transport, Public Works and Interior Affairs, as well as Kabul Municipality. Specifically, outline the processes, physical infrastructure and systems needed to eliminate cash payments to tbe ministries and other authorities and in particular to reduce revenue leakage due to c01ruption, and rationalize and simplify the assessment and settlement of all vehicle-related charges and fines.

3.4 Support 3.4. Provide technical assistance and training on Seek innovative approaches such as Adoption and 1 the legal and institutional set-up needed to public private partnerships, new Implementation implement the Open Access Policy. technology, including mobile of the Open Specifically, assist the GIRoA in developing solutions, to improve institutional Access Policy and executing appropriate regulations, capacity (new) certificates/licenses, revenue determination and performance over time, while

mechanisms, quality control mechanisms, and reducing reliance on donor funded security mechanisms to facilitate investment advisors, in part by increasing in the telecoms by the private sector. utilization of local Afghan human

and institutional expertise.

2.0 RECOMMENDED THRESHOLD DECISIONS

The table below lists APFM activities covered in this RCE amendment 3, the environmental impacts and Reg. 216 dete1minations and conditions, if any

Table 3. Recommended threshold decisions

Component Activity Effect on Determination and Reg. 216 Nat ural or actions required Physical Environment

Component 1: I. Capacity-building and technical No Impact Categorical Exclusion, no Domestic assistance to the MoF Revenue actions required per 22 CFR Revenue Depa1tment 216.2( c )(2)(i) Mobilization

2. Assessment of processes, policies & No Impact Categorical Exclusion, no and Management

procedures ofr~venue collection and actions required per 22 CFR transfer 216.2( c )(2)(iii)

3. Implementation of measures in each No Impact Categorical Exclusion, no area identified by the aforementioned actions required per 22 CFR assessment 216.2(c)(2)(v)

4. Formation and facilitation of a working No Impact Categorical Exclusion, no group with the Non-Tax Revenue actions required per 22 CFR Directorate and revenue generating line 216.2(c)(2)(v) ministries

5. Improve non-tax revenue collection No Impact Categorical Exclusion, no system actions required per 22 CFR

2 16.2(c)(2)(v)

6. Training of the Tashkeel of ARD and No Impact Categorical Exclusion, no its tax offices actions required per 22 CFR

2 16.2( c )(2)(i)

. 7. Translate the Tax Administration Law No impact Categorical Exclusion, no from Dari to Pashto. actions required per 22 CFR

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216.2( c )(2)(i)

8. Provide training for the staff of the No impact Categorical Exclusion, no ORD on general principles of tax actions required per 22 CFR dispute resolution. 216.2(c)(2)(i)

9. Update the Objections Manual to bring No impact Categorical Exclusion, no its provisions into line with the current actions required per 22 CFR tax legislation, improve the accuracy of 216.2( c )(2)(i) this Manual, and translate a reliable Dari version.

10. Organize and support a seminar for the No impact Categorical Exclusion, no staff from the ORD and provincial actions required per 22 CFR objections offices on objections issues 216.2( c )(2)(i) and coordination between the ORD and provinces.

Component 2: 1. develop strategies for transitioning core No Impact Categorical Exclusion, no Budget budget department functions actions required per 22 CFR Planning and 2 l 6.2(c)(2)(iii) Execution 2. Improve Budget Department's capacity No Impact Categorical Exclusion, no

actions required per 22 CFR 216.2( c )(2)(i)

3. Advisory support to strengthen the No Impact Categorical Exclusion, no Medium Tem1 Budgeting Framework actions required per 22 CFR (MTBF) processes and work with the 2 I 6.2(c)(2)(iii) and(v) Budget Department

4. establish stronger communication and No Impact Categorical Exclusion, no interaction actions required per 22 CFR

216.2(c)(2)(v)

5. Trainings for MoF and line ministries No Impact Categorical Exclusion, no on budget planning and formulation, actions required per 22 CFR project planning and design, budget 216.2( c )(2)(i) execution, and monitoring and evaluation implementation tools

6. Facilitation of PFM training facility to No Impact Categorical Exclusion, no provide standardized PFM common actions required per 22 CFR function certification course of study. 2 16.2( c )(2)(i)

7. Periodic performance monitoring to No Impact Categorical Exclusion, no measure the effectiveness actions required per 22 CFR

216.2(c)(2)(iii) and (v)

Component 3: l. Design a single window solution for No impact Categorical Exclusion, no Cross-cutting the improvement of revenue collection actions required per 22 CFR PFM activities for the transport sector at Kabul City 216.2(c)(2)(iii) and (v)

entry/exit points and border crossings by the Ministries of Transport, Public Works and Interior Affairs, as well as Kabul Municioalitv

2. Provide technical assistance and No impact Categorical Exclusion, no training on the legal and institutional actions required per 22 CFR set-up needed to implement the Open 216.2(c)(2)(iii) and (v) Access Policy. Specifically, assist the GIRoA in developing and executing appropriate regulations,

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ce1iificates/ licenses, revenue detetmination mechanisms, quality control mechanisms, and security mechanisms to facilitate investment in the telecoms by the private sector.

3.0 ENVIRONMENTAL RECOMMENDATIONS

a) Recommended Action: Categorical Exclusion (100 % of LOP funds) All other APFM activities, outlined in this RCE Amendment, will not pose a significant effect on the natural and physical environment, fit within the categories listed in 22 CFR 216.2 (c)(2) (i), (iii), (v) and are categorically excluded from any further environmental review requirements. The originator of the proposed action has determined that the proposed activities are within the following classes of actions:

• Education, technical assistance, or training programs, except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.). [22 CFR 216.2(c)(2)(i)];

• Analyses, studies, academic or research workshops and meetings. [22 CFR 216.2( c)(2)(iii)];

• Document and information transfers. [22 CFR 216.2(c)(2)(v)];

4.0 REVISIONS

Pursuant to 22 CFR 216.3(a)(9), if new information becomes available which indicates that activities to be funded by the program might be "major" and the program's effect "significant," or if additional activities are propose.d that might be considered "major" and their effects significant, this RCE will be reviewed and revised by the originator of the project and submitted to the Bmeau Environmental Officer (BEO) for approval and, if appropriate, an environmental assessment will be prepared. It is the responsibility of the USAID CORI AOR to keep the Mission Environmental Officer, USAID/ Afghanistan and the BEO/OAP A informed of any new information or changes in scope and nature of the activity that might require revision of the approved Threshold Decisions.

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Clearance Page

RCE Amendment #3 for the Afghanistan Public Financial Management {APFM) project

COR

Office Director/OEG

Mission Environmental Officer

Regional Environmental Advisor, SCA &OAPA

Resident Legal Officer

Deputy Mission Director

Mission Director

Bureau Environmental Officer forOAPA

Clearances:

Muhamad Nassim Attahi

Loren Stoddard

Harry Bottenberg

Cleared by email Andrei Barannik

Marrun Talaat

Kathryn Stevens

Approval:

Herbert Smith

Concurrence:

Gordon Weynand

DISTRIBUTION: MEO, COR/AOR, OAA, RLO

Date:

6/11/2017

Date

Date

8

Clearance Page

RCE Amendment #3 for the Afghanistan Public Financial Management (APFM) project

COR

Office Dircctor/OEG

Mission Environmental Officer

Regional Environmental Advisor, SCA&OAPA

Resident Legal Officer

Deputy Mission Director

Mission Director

Bureau Environmental Officer for OAPA

Clearances:

Loren Sto ar~ ilo, l~b~ Cleared by email Andrei Barannik

Concurrence:

\~ l,.J~ Gordon Weynand

ocf> r oPtf?A- -/7- ;rc,..J....>- r+-r<r-- oo:;.;

DISTRIBUTION: MEO, COR/AOR, OAA, RLO

Date:

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Date

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