Tugende, a firm that provides motorcycle loans to riders, and the Uganda Revenue Authority are locked in a legal dispute over a tax assessment.
The dispute started from Tugende’s decision to offer discounts to customers who clear their loan balances ahead of time.
For tax purposes, Tugende treated those discounts as allowable expenses.
However, in 2021, URA disallowed that treatment and issued an additional tax assessment of Shs 504 million. URA’s view was that the discounts did not qualify as deductible expenses under the Income Tax Act and therefore should not reduce Tugende’s taxable income.
Tugende objected to the assessment. When the objection was disallowed, it was appealed to the Tax Appeals Tribunal.
On January 24, 2023, the tribunal ruled in Tugende’s favour and said it did not have to pay the Shs504 million as assessed by the tax body.
The tribunal said Tugende “was justified to include discounts as deductible losses or adjustments in arriving at its chargeable income” and that the motorcycles were business assets disposed of in the production of business income.”
Disatisfied with the decision, URA appealed to the High Court. But before the appeal could be heard, Tugende compiled its costs and demanded payment from URA for “unfair tax assessment.”
URA changed tactics and instead asked for a stay of execution from the court. This means it asked the court to halt any payments, from its side, to Tugende until the main case is heard.
At the hearing of the stay application, URA was represented by its legal department and did not hire an external lawyer.
Sheba Tayahwe, from URA’s legal department, told the court that Tugende had already taken steps towards execution by taxing its costs and serving a demand letter.
She said that unless execution was stayed, the status quo should be maintained as the execution of the order would render the appeal nugatory.”
Tugende, through their lawyer Richard Agaba from Birungyi, Barata & Associates, argued that the fact that URA appealed does not bar Tugende’s right to enforce the decree.”
He maintained that URA had not shown that failure to grant a stay would render the appeal nugatory.
Agaba also challenged the timing of the application, pointing out that it was filed on February 28, 2024, nearly a year after the tribunal ruled in their client’s favour.
He said that the demand letter for taxed costs did not amount to execution or a real threat of execution and that URA had not demonstrated strong prospects of success on appeal.
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Justice Patricia Mutesi of the Commercial Division of the High Court rejected Tugende’s argument regarding the delay by URA to file an appeal.
She said that while URA’s stay of execution application was filed over a year after the tribunal ruling, the real threat of execution only arose upon service of the demand letter and certificate of taxation by Tugende on February 21, 2024.
Justice Mutesi ruled that the issues raised by URA were serious and needed careful consideration.
“These findings raise serious and substantial questions of tax law on the proper interpretation and application of provisions of the Income Tax Act to allowable deductions and the characterisation of business assets and losses in tabulating chargeable income,” she said.
Justice Mutesi said executing the tribunal’s orders before the appeal is finally disposed of would definitely affect URA’s resource pool that partly funds the national budget.
Balancing the parties’ interests, Justice Mutesi said public interest weighed in favour of a stay of execution.
“The impending execution and recovery of costs by Tugende will definitely affect the public treasury,” she ruled.
In the end, Justice Mutesi issued an order staying the execution of the orders of the Tax Appeals Tribunal until URA’s appeal is heard and concluded.
