TAX JUSTICE AND EQUITY; GOVERNMENT’S OBLIGATIONS TO TAXPAYERS.

MARK RUHINDI

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Tax administration plays a pivotal role in any country’s economic development by ensuring the fair and efficient collection of revenue to fund public services and infrastructure. However, achieving fairness in tax administration can be challenging, particularly in contexts where there are disparities between large and small taxpayers in terms of resources and access to tax advice. In Uganda, as in many other countries, addressing these disparities is essential to uphold principles of equity and justice in taxation.

Tax lawyers know the maxim “no equity about tax”. This maxim is embodied in the famous English Bill of Rights of 1689 well known to constitutional lawyers; which among other cardinal constitutional principles, laid down the principle “no taxation without legislation”.

This principle was of major political importance in 1689 because prior to the English Civil War 1642-49, English Kings in exercise of their unrestrained power, could levy taxes to fund the perpetual wars of that era without the consent of parliament. The authors of the Bill of Rights were therefore keen to ensure that English King and future Kings could not exercise such absolute power on matters of taxation in the future. This was achieved by the recognition of the supremacy of Parliament on matters of taxation, among other matters. Our own tax system is modeled at the back of this principle.

This means our revenue law is entirely a creature of statute. To this end, a citizen’s obligation to pay tax is derived only from the words of the statute of parliament and this is why taxing statutes are viewed as a special class of statutes to which rules of statutory interpretation apply quite differently. And so in a taxing statute one only looks at what is stated. Nothing is to be read in, nothing to be implied.

One of the earliest judicial expositions of the principle can be found in the judgment of Lord Cairns in Partington v. Attorney General (1869), where he said:

“As I understand the principle of our fiscal legislation, it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free.”

In the early years of the application of traditional statutory aids to taxing statutes, especially when dealing with tax avoidance litigation, the courts emphasized this very important principle; which is that a citizen can only be taxed to the extent permitted by the law. Effectively making it harder for tax authorities to tax the wealthy who could afford to outsmart the tax man through tax avoidance schemes premised upon loopholes in the law, easily be identifiable by their armies of lawyers and accountants.

One of the more unequivocal judicial passages on the point came from the US Court of Appeals(2^nd Circuit) in Commissioner v. Newman(1947) in which L.Hand J (dissenting) stated;

“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant”

Taxing statutes apply to the large taxpayers such as MTN Uganda and the smaller taxpayer with equal force. This hardline stand from the courts in favour of the taxpayer has therefore often been a double edged sword, especially for the less sophisticated or rather the small taxpayer without the resources to retain technical advice, taxation being one of the most complex areas of law. This is because, tax authorities became increasingly emboldened to equally take the same hardline stand when it came to recovering tax due by enforcing the law as it is without compromise, even against smaller unsophiscated taxpayers.

Disparities between large and small taxpayers;

In the Ugandan context, a departure from this hardline approach in tax administration and taxpayer treatment is crucial, particularly considering the disparities between large taxpayers and small taxpayers in terms of resources and access to tax advice.

Large taxpayers typically have the financial resources to retain professional tax advice allowing them to navigate complex tax law more effectively. They may also have dedicated tax departments or personnel to manage their tax affairs, ensuring compliance with legal requirements and optimizing tax planning strategies.

In contrast, small taxpayers, including micro, small, and medium-sized enterprises (MSMEs), often lack the resources and expertise to deal with the intricacies of tax compliance. Many small businesses operate on tight budgets and may not have the capacity to hire specialized tax professionals. As a result, they may struggle to understand their tax obligations and may be at a disadvantage when dealing with tax authorities.

However, there are principles that guide tax administration and enforcement when dealing with taxpayers who lack sufficient understanding of tax complexities: The principles of fairness, equity, and reasonable accommodation are central to tax administration efforts, particularly when dealing with taxpayers who may lack sufficient knowledge or appreciation of tax complexities.

Reasonable accommodation;

URA ought to make reasonable accommodations for all taxpayers, recognizing that small taxpayers, in particular, may face challenges in understanding and complying with tax obligations due to limited resources and expertise. This includes providing simplified guidance, offering assistance programs, and ensuring that tax information is accessible and understandable.

Both large and small taxpayers who make genuine efforts to comply with tax laws should be treated fairly by URA. However, URA may need to exercise greater leniency and understanding towards small taxpayers who may lack the resources to fully comprehend complex tax requirements.

Tax education efforts;

URA conducts various taxpayer education and outreach initiatives aimed at increasing awareness and understanding of tax obligations. However, URA may need to tailor these initiatives to address the specific needs and challenges faced by small taxpayers.

Overall, there is a need for URA to be mindful of the disparities between large and small taxpayers in terms of resources and access to tax advice. Special attention should be given to ensuring that small taxpayers are not unduly burdened by complex tax requirements and are provided with the necessary support to fulfill their tax obligations effectively.

Conclusion;
Achieving fairness in tax administration requires a concerted effort to address the disparities between large and small taxpayers in Uganda. Upholding principles of fairness, equity, and reasonable accommodation ensures that all taxpayers are treated fairly and have access to the support and resources they need to fulfill their tax obligations effectively. This not only promotes compliance but also fosters trust and confidence in the tax system, ultimately contributing to Uganda’s economic growth and development.

The writer is a tax lawyer/consultant

Email; mark@mrt.tax

Twitter; @MarkRuhindi

www.mrt.tax/consulting

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