By Damalie Tibugwisa
On the 12th day of November, 2019, the Court of Appeal Justices Kenneth Kakuru JA, Ezekiel Muhanguzi JA, and Christopher Madrama JA in the case of Airtel Uganda Ltd v Uganda Revenue Authority; Civil Appeal No. 40 of 2013 delivered a landmark decision against the imposition of Penalty/Interest for the period covering objection proceedings and/or appeals.
Brief facts of the case.
In 2004, Airtel objected to an assessment by URA to a tune of UGX 428,269,883/= with the Tax Appeals Tribunal. As part of the requirement under Section 15 of the Tax Appeals Tribunal Act, Airtel paid 30% of the disputed tax. The said objection was unsuccessful and so were the subsequent appeals to the High Court and the Court of Appeal respectively. As a result, Airtel paid the said tax. No sooner had it paid the tax in dispute than URA came demanding that it pays a whooping UGX 1,555,836,915/= as interest for failing to pay 70% of the tax assessed during the period of objection and/or appeals. URA argued that the said interest was founded in Section 65(3) of the Value Added Tax Act Cap 349 which is to the effect that;
‘Any person who fails to pay tax imposed under the Act on or before the due date is liable to pay a penal tax on the unpaid Tax at the rate specified in the 5th Schedule on the tax which is outstanding’
Airtel paid the said interest without prejudice and commenced High Court Civil Suit No. 457 of 2010 which was dismissed by Honourable Justice Kiryabwire [as he then was] hence the appeal.
The Grounds of Appeal
On Appeal to the Court of Appeal, Airtel faulted the learned judge for finding that;
a) URA has a right to claim interest because is it provided for under the law;
b) Payment of 30% of the tax in dispute does not absolve the taxpayer from paying penalties in the event that the objection is dismissed.
Ratio Decidendi of the Judges
In allowing the appeal, the learned justices noted that the case raises an important question of law on tax collection to wit;
‘‘Whether a tax payer who contests the tax assessment through the Tax Appeals Tribunal ought to be subjected to penal tax in the event the objection is dismissed.’’
They restated the provisions of the 1995 Constitution of the Republic of Uganda which give a basis for taxation and tax dispute resolution. Article 17(1) (g) imposes a duty on every citizen to pay taxes. Article 152(1) and (3) empower Parliament to impose taxes and create the Tax Appeal Tribunal through legislation.
As a result of the above provisions the Tax Appeals Tribunal Act Cap 343 permits any aggrieved party to seek redress from the Tax Appeals Tribunal and under Section 15 (1), the applicant is required to pay 30% of the tax in dispute or the sum in dispute whichever is greater pending final resolution of the objection.
The Court opined that the aforementioned tax legislations derive their legitimacy from the Constitution and must therefore be read together with the Constitution otherwise, it would lead to the “absurd conclusion that a person who objects to an assessment is deemed to have failed to pay that Tax’’.
The Court therefore found that;
‘The Requirement to pay 30% of the objected tax suspends the requirement to pay the whole sum which is objected to which may only be paid after the objection is dismissed.’
This finding by Court has a very interesting implication of equating the application for review by the Tribunal to an injunction or a stay of execution upon payment of the 30% of the tax in dispute.
The Judges also noted that they recognize the necessity of prompt payment of tax to support service delivery to Government. However, Tax Appeals Tribunal which has the power of the High Court is required to apply rules of natural justice which includes the non derogable right to a fair hearing provided for under Article 44 of the Constitution.
The Court further found that;
‘A person who has objected to a tax assessed, appealed against, paid 30% of the tax assessed on arrears, cannot in our view be penalized for having sought redress from the Tat Appeals Tribunal. The law protects him from penalties during this period of dispute resolution. To hold otherwise would create an absurdity in which a person appealing a tax assessment is treated as a criminal defaulter under Section 65(3) of the VAT Act.”
The Court therefore allowed the appeal and ordered that the interest in dispute be refunded to Airtel with interest of 15% per annum.
My Opinion of the Decision
As a representative of several tax payers, and a believer in the rule of law and the need to pay and enforce a lawful, fair and just tax, the decision of the Justices of the Court of appeal is welcomed for the following reasons:
1. The decision further promotes access to justice for many taxpayers who are threatened by the consequences of not paying a tax assessed even if it’s not due under the law and ought to be contested.
2. Many taxpayers were aggrieved by the decision of Rabbo Enterprises v URA SCCA No. 12 of 2004 which had the effect of requiring all tax payers to file their objection applications through TAT and not the High Court thereby by requiring them to pay 30% of the tax in dispute. This decision has the effect of showing the benefit of seeking redress through TAT for tax payers who pay the 30% of the disputed tax as it freezes the interest.
3. The decision also is in harmony with the decision of Ndimwibo Sande Pande v URA HCCS No. 24 of 2012 in which Justice Madrama [as he then was in the Commercial Division] found that penalties should be imposed upon establishment of criminal liability of the tax payer through a partial and independent tribunal and not by the independent decision of URA.
4. The right to seek redress in tax matters is constitutional and ought to be fostered rather than hindered. The tax payer should not be penalized further for delayed justice which is not of his own making. The first objection was filed in the Tax Appeals Tribunal in 2004 and the Appeal to the Court of Appeal was made in 2013 yet the decision was only made only this month. Would it be fair to demand that the tax payer pays penal interest that has accrued during the pendency of the hearing? Absolutely not. It must be remembered that this is not simple interest but penal interest which under the 5th Schedule of the Value Added Tax Act is 2% per month, compounded which would be so harsh and unconscionable in the circumstances.
In conclusion I applaud the Court of Appeal for the well-reasoned decision. It must however be noted that this decision to a greater extent only serves the interests of applicants who have paid 30% of the tax in dispute. To that extent therefore the decision reaffirms the requirement to pay 30% before the objection is determined.
About the Author;
The author is a commercial law practitioner and founder of M/s Tibugwisa and Co. Advocates. For comments and inquiries contact her at email@example.com or +256787461139.