Court of Appeal orders URA to refund NSSF UGX25.3 billion 

The Court of Appeal in Uganda has ordered Uganda Revenue Authority (URA) to refund UGX 25 billion it initially obtained from the National Social Security Fund (NSSF) following a decision of the Tax Appeals Tribunal that upheld a tax assessment of UGX45 billion against the Fund.

URA had initially issued a tax assessment of UGX 84 billion and the Fund was required to pay 30 per cent of the tax assessed before the dispute was heard by the Tax Appeals Tribunal. The High Court overturned the assessment which meant that URA was required to refund the 30 per cent with accrued interest. URA has never refunded the money. 

Hon. Justice Oscar Kihika in his ruling delivered on March 24,2023 dismissed an application by URA opposing the refund, on grounds that URA failed to prove that its substantive appeal against an earlier decision of the High Court has a likelihood of success.

“The Applicant (URA) is in the process of obtaining leave to appeal, having filed a Notice of Appeal. However, having failed to establish whether or not the intended appeal has a likelihood of success, this Court is of the view that the balance of convenience does favour the Respondent (NSSF) which has a judgment in its hands. I find, therefore, that the Applicant has failed to establish that the Appeal will be rendered nugatory if an order for stay of execution is not issued,” Justice Kihika ruled.

He also found that there was no evidence of irreparable damage that URA could suffer in the event that a stay of execution was not granted, in response to the tax body’s submissions. On the contrary, NSSF stood to suffer substantial loss since they have been in court since 2014 and since obtaining judgment in its favour, URA had without sufficient cause, held onto the 30% that was paid in 2014. 

NSSF Ag. Managing Director Patrick Ayota welcomed the court’s decision saying that the funds will be invested to earn a return for the members.

“This ruling gives us more confidence as we pursue the substantive case through the courts that our decision will be vindicated,” he said.

In 2013 URA conducted a tax audit on the Fund and assessed taxes on NSSF interest paid to members. However, this was a departure from URA’s earlier position contained in November 1, 2011, letter, which had advised NSSF that the interest paid to members is allowed as a deductible expense for income tax purposes.

The Fund objected and filed a case in the high court against URA. Through an arbitration process, the assessment was reduced from UGX 84 billion to 42 billion but the parties failed to agree on the tax treatment of interest the Fund declares and pays to members annually.

The dispute on the tax treatment of Interest case was transferred to the tax appeals tribunal which ruled against the Fund upholding the assessment of 42 Billion in March 2020. 

Dissatisfied with the decision of the tribunal, the Fund appealed to the commercial division of the High Court, arguing that whereas the Tribunal decided that members’ savings are not a debt obligation as they are excluded from the definition, which is provided in the Income tax act definition, this was erroneous because the income tax act does not state so. 

The Fund also argued that the tribunal treated interest paid to members as a dividend which is contrary to the definition of dividends in the Income Tax Act and that the financial impact of the tribunal ruling would effectively impair its ability to preserve the value of members’ savings. 

In November 2020, the High Court agreed with the Fund. In his ruling, Justice Boniface Wamala set aside the tax tribunal ruling that interest paid by the Fund is a deductible expense for income tax purposes.