A section of city lawyers has warned the Uganda Revenue Authority (URA) of severe legal consequences for continuing to apply an illegal method of tax collection on imported cars.

Led by city lawyer Phillip Karugaba, the legal team argues that despite a Court of Appeal ruling on March 23, 2023, in the case of Commissioner Customs v Testimony Motors (Civil Appeal No.33 of 2014), which dismissed URA’s appeal and upheld a High Court decision declaring the “fall back method” unlawful, the URA has allegedly persisted in applying this method.

“We have learnt that in utter contempt of the decision of the Court of Appeal, you have continued to apply the outlawed method for taxation,” said the lawyers in a letter dated May 23, 2024, to URA Commissioner General, John Musinguzi Rujoki. 

“The persistence of the URA in using the fallback method has led to further litigation, including another case in which the appeal against the method’s illegality was dismissed on December 29, 2023,” the letter further reads.

“Because of these judgments against you, it is illegal for you to continue to tax imported cars using the fallback method (rather than the transaction value method) to determine the customs value of imported vehicles.”

Court ruling

In March 2023, the Court of Appeal ruled that the Uganda Revenue Authority’s (URA) policy of levying taxes on imported vehicles based on the ‘Alternative Valuation Method’, instead of the ‘Transaction Value Method’, was unlawful.

Justice Catherine Bamugemereire’s ruling implies URA would have to set import duty rates based on the total amount paid (transaction value) for imported cars instead of using estimates of the car’s fair market value.

For example, if an individual’s cost of importing a Subaru car is $1,000, URA is mandated by law to use the invoice of $1,000 to determine the tax instead of using its estimates in its system as is the case today.

There have been instances where one, for example, imports a Subaru of 2001 at $2,000 and another person imports a similar car at $1,500 but both pay the same amount of tax. 

ChimpReports understands URA abandoned the old practice of transaction value method in 2013.

At the time, URA said it could hardly ascertain the transaction value of the imported vehicles due to large scale forgery of invoices and receipts.

Value guide 

Currently, URA has its own ‘value guide’ which its officials use to levy uniform taxes regardless of the cost of the car and the year in which it was manufactured.

The court ruling effectively stopped URA from using its controversial tax assessment system on imported vehicles.

However, URA has continued to use the outlawed method despite appellate courts rejecting the tax body’s appeals. 

Karugaba and his team of lawyers demanded that the URA immediately ceases using the fallback method and issue a public announcement to that effect. 

Furthermore, the letter warns of impending legal actions, including an action for contempt of court against the Commissioner of Customs.

The lawyers also threatened a class action lawsuit against the URA that would cause a refund for all taxes collected using the fallback method since August 7, 2012, following the initial declaration of its illegality in Testimony Motors v URA (Misc. Application 397 of 2011).

Story Credit: Chimp Reports