East Africa Trade: Uganda’s Tax Appeals Tribunal clarifies on EAC Intra-Trade VAT

Uganda’s Tax Appeals Tribunal has delivered a landmark East Africa Customs Union Intra-Trade VAT decision that strikes at the heart of URA’s aggressive enforcement and over-reach tendencies and restores the much-needed balance in the taxpayer-taxman relationship.

(TRADE WORTH ESTABLISHMENTS LTD V URA TAT APPLICATION 338 OF 2024)

In perhaps the strongest language yet from the Tribunal against the revenue body, TAT observed:

“On the whole, we find that the Respondent acted not only unlawfully but also with impunity and in total abuse of their powers and authority… Rather than doing this [refund VAT unlawfully collected], the Respondent orchestrated a phoney scheme to deny the Applicant their refund – a taxpayer, who is the very reason for the Respondent’s existence.”

The Facts:

The Applicant, an importer of agricultural produce, challenged URA’s imposition of 18% VAT on rice imported from Tanzania for the period 2018–2022. The Applicant argued that such imports have equal tax treatment as locally sourced produce and fell within the zero-rate provisions of the VAT Act, read together with the Treaty for the Establishment of the East African Community and the Protocol on the Establishment of the East African Customs Union.

The Applicant’s position aligns with guidance from the Attorney General who had earlier rendered an opinion on the same issue emphasising: 

“All rice imported into the country from partner states of East African Community should be accorded the same treatment as locally grown and milled rice, in compliance with the Treaty for the Establishment of the East African Community and the Protocol on the Establishment of the East African Customs Union.”

Despite this clear position, URA forced the Applicant to amend returns to report local sales as standard rated supplies(18%), even though they had not collected VAT on those sales, then refused to respect its own earlier internal communication confirming zero rating of such goods, and declined to refund over UGX 8.4 billion in taxes unlawfully collected on the import.

The Decision:

1. Refund: URA to refund UGX 8,426,803,106 unlawfully collected.
2. Interest: 2% per month compounded from 19 September 2023 until payment (subject to capping under Section 36(5) VAT Act).
3. Assessment: Additional VAT assessment of UGX 79,231,353 set aside.
4. Damages: General damages of UGX 100 million awarded for near-collapse of the Applicant’s business, reputational harm, and loss of goodwill.
5. Costs: Awarded to the Applicant.

East Africa Trade Implications:

Beyond its domestic implications, this ruling reaffirms Uganda’s commitment to the East African Customs Union Protocol. The decision is a reminder to government commercial compliance technocrats that the Protocol exists not merely as a matter of politics but as binding law meant to eliminate internal competition amongst the trading partners and promote free trade amongst citizens.

For businesses engaged in regional trade, the ruling provides much-needed certainty beyond the tax questions addressed in the ruling.

Practical Guidance for Businesses in Similar Trade Activities.

1. Document Import Transactions Rigorously
   Ensure that invoices, customs entries, and shipping documents clearly reflect the EAC origin of goods. This strengthens claims for zero-rating under the Protocol.
   
2. Leverage the Ruling for Refund Claims
   Taxpayers who paid VAT on EAC-origin goods may now rely on this decision to demand refunds. Refund claims should specifically cite this case and include copies of AG’s guidance already acknowledged by URA.
   
3. Challenge Arbitrary Assessments
   Where URA imposes VAT contrary to statute or treaty provisions, businesses should not acquiesce and sit on their legal rights.
4. Align Compliance with Regional Rules
   Companies should integrate EAC treaty provisions into their tax planning. This ensures their internal compliance is aligned with regional commitments and provides legal cover in disputes.

Conclusion:

The Tribunal’s strong language against the tax body is more than a judicial slap on the wrist, and marks a watershed moment in tax administration. It is a powerful reminder that compliance is a two-way street.

Taxpayers cannot be expected to trust a system where the Authority collects taxes unlawfully and then refuses to give them back. As the Tribunal warned, “Such behaviour destroys trust and discourages the very compliance that the Respondent is working hard to promote.”