Clearing and Forwarding firm, Multiple ICD Limited will pay more than UGX2.8 billion to Uganda Revenue Authority (URA) after losing an application challenging the Value Added Tax (VAT) assessment for leasing equipment and a plant.
The Tax Appeals Tribunal (TAT) has dismissed an application in which Multiple ICD Limited was challenging the VAT assessment of UGX2,860,326,866.
The assessments followed an audit by the tax body resulting from Multiple ICD Limited leasing an imported machinery to its sister company; Kampala Cement Company Limited.
Records show that on July 1 2014, the Clearing and forwarding firm entered into an agreement with Kampala Cement Company Limited for the lease of a cement making equipment and a plant at rent of US$ 65,000 per month for a period of 30 years.
A Coram of three TAT members; Dr Asa Mugyenyi, Dr Stephen Akabway and Mr Siraj Ali ruled that if the company leased the plant for the period at a consideration, then there was a taxable supply.
“There is no evidence to show that the applicant (Multiple ICD Limited) and Kampala Cement Company Limited applied to the Commissioner General to extend time of payment of VAT beyond the dues days or showed good cause,” reads the ruling.
Records show that Multiple ICD Ltd which shares directors and shareholders with Kampala Cement Company Limited signed a lease agreement with a grace period of 3 years from November 2016 to December 31 2019 but the equipment and plant were sold in February 2018.
More Than Paint: How Kansai Plascon Uganda is Colouring Futures and Building CommunityThe tribunal heard that URA conducted an audit on the firm for the period September 2014 to February 2018 for VAT and income tax which established that it had leased the equipment and plant to Kampala Cement Company Limited at $ 65,000 per month inclusive of VAT.
The audit also revealed that Multiple ICD did not declare the income it obtained nor was VAT charged and that in February 2018, it sold the plant to Kampala Cement Company Limited and that there was undeclared income of Shs8,276,312,830 for the three year period.
The tribunal observed that the grace did not waive the obligation to pay rent, it only extended the deadline for paying it.
“Therefore the agreement between the applicant and Kampala Cement Company Limited provision of a moratorium clause cannot fetter a statutory obligation. A contract obligation cannot fetter a statutory obligation. The moratorium clause in the agreement should not have stopped the applicant from issuing VAT invoices on Kampala Cement Company Limited because collection of VAT is a statutory duty,”
The tribunal added “There is no law that exempts a lessor from charging VAT in respect of leasing an imported machinery. A postponement of VAT like exemption cannot be created by acquiescence of parties but by a provision in the law.”
