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URA’s domestic VAT battle

Kampala, Uganda | THE INDEPENDENT | Margaret Rwaheru Akiiki and her fellow complainants will have to wait a little longer to know whether they are entitled to the billions of shillings in refund by Uganda Revenue Authority-URA arising from a court ruling last week.

According to the URA, it’s not yet over. The Court of Appeal ruled that domestic Value Added Tax (VAT), charged on imported goods at a rate of 15% by the tax body is illegal.

The actions of URA had been challenged by 13,946 led by Akiiki, who were awarded a refund amounting to Shillings 20,954,812,967 plus interest of almost Shillings 11.3Bn, as well as High Court and Court of Appeal costs which could amount Shillings 5 billion.

VAT is value added at each stage of the value chain from production to the point of sale. It is easy for the government to collect and compliance is almost guaranteed.

However, the tax has been described as regressive because it places an increased economic strain on low-income taxpayers and also adds bureaucratic burdens for businesses. If a country charges say, 10 percent VAT on bread, the wheat a farmer sells to a miller at Shillings 10,000 and would cost the miller 11,000 including the VAT.

The VAT paid at each sale point along the way represents 10% of the value added by the seller at that point. VAT essentially compensates for the shared service and infrastructure provided in a certain locality by a state and funded by its taxpayers that were used in the provision of that product or service.

In Uganda, imported goods are charged 18% VAT and 15% withholding tax which is not reclaimable. Some imports like raw materials and intermediate inputs are exempt according to both the VAT Act and the East African Community Common External Tariff agreements.

Combined, these taxes effectively impose a 33% tax on all foreign goods and services, on top of other possible taxes like Customs and Excise duty. Imports are also charged a 1.5% infrastructure tax to finance railway infrastructure development. These are all passed on to the consumer.

The Court of Appeal Justices ruled that while the law sets a VAT rate of 18% on imports, there is nowhere a rate of 15% is provided for either in the national or EAC tax laws. “I have not been able to find any law which authorized URA to collect domestic VAT at a rate of 15%.

It was done by URA without any authority of law and therefore contrary to Article 152 (1) of the Constitution. This was not irregular but illegal,” ruled Justice Cheborion Batishaki.

Documents show the 15% “Domestic VAT, which is now ruled illegal is charged on importers who are not VAT registered, on top of the legal 18%.

VAT-registered taxpayers are those who supply taxable goods worth more than Shillings 150 million per year and are allowed to reclaim the tax they have paid in the course of business. Court documents indicate that VAT registered importers are charged at a statutory rate of 18% but importers that are not VAT registered are charged both 18% and an additional 15%, which is designated as “Domestic VAT.”

City lawyer Isha Baguma wonders if VAT is a transactional tax, how an importer is asked to pay it in goods they are yet to sell or are not even sure they will sell. Asked whether URA was ready to release the more than Shillings 30 billion to the victorious appellants, the Head of Public and Corporate Affairs, Vincent Seruma said management will respond through a court process.



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