Tax informer wins against URA as Tax Appeals Tribunal Affirms Right to reward starts when tax Liability information is provided

A tax informer’s right to claim for a reward accrues at the time the information is provided but not at the time of the recovery of tax, Tax Appeals Tribunal (TAT) has ruled.

While citing Section 8 of the Finance Act, the Tax Tribunal affirmed that an informer’s right to a reward is created immediately upon the provision of tax liability information by the whistle blower.

“…The right of an informer reward is a proprietary right, it is intangible property. The right accrues as soon information is given to the respondent (Uganda Revenue Authority- URA) and forms when the tax is recovered,” reads a unanimous decision of TAT.

The Coram of three members of TAT, Dr Asa Mugenyi, Ms Christine Katwe and Mr Siraj Ali held that the right of an informer arises at the point of tax incidence.

“That is when the tax liability of the taxpayer arises or when the tax body becomes aware that tax is due from the taxpayer. There can be no recovery unless there is liability. The information the informer provides assists if not establishes liability. The point where tax is recovered is important in only determining what amount is due to the informer,” the tribunal ruled.

The tribunal added: “If no taxes are recovered the informer receives nothing. Recovery may be delayed by investigations carried out by the respondent. Therefore the informer’s right is contingent right, that is, it depends on the occurrence of an event, in this case, recovery.”

The decision resulted from a case in which a whistleblower only identified as REF.TID 1708319150 sued URA’s challenging its decision to apply the provisions of S. 74A of the Tax Procedures Code Act 2019 to a reward due to the applicant, a tax informer, in respect of information provided to the latter in 2017.

Documents before the tribunal indicate that in September 2017, the tax informer provided information to URA which led to the recovery of taxes from Royal Van Zanten Uganda Limited, the taxpayer).

The tribunal heard that the taxes owed by the taxpayer was Shs4.4bn and that in July 2020, the informer was informed that the tax body had recovered UGX2.2 billion from the taxpayer.

On August 4 2020, the informer received UGX118 million from the respondent being 5% of the sum recovered and on August 23, 2020, he wrote to the Commissioner Legal Services & Board Affairs of URA expressing his gratitude for the payment but contended that it had been wrongfully calculated at 5% instead of 10% as provided by the law which was in force when he provided the information.

Orders of tribunal

The tribunal held that the tax informer is entitled to the payment of reward commission at the rate of 10% and ordered URA to pay the informer an additional UGX118,624,679 which is the balance on the 10% of the principal tax recovered.

TAT also ordered URA to pay legal costs incurred by the tax informer while prosecuting the case and also awarded a 24% per annum interest rate from the date of the ruling until payment in full.

Reasoning

According to TAT, the informer’s right being a proprietary right, he cannot be deprived of it by legislature as it would infringe on his constitutional right to property. It ruled that the informer having provided information, an attempt to reduce the reward from 10% to 5% would be deprivation of property as the informer would be entitled to less property.

“…the relationship between the applicant (informer) and URA started in September 2017, when the applicant relying on the promise of the reward under S. 8 of the Finance Act 2014, provided the respondent with information about the non-payment of tax by Royal Van Zanten Ltd.”