Insurance firm loses Shs700m tax appeal case against URA

Tax Appeals Tribunal chairman Dr Asa Mugenyi

What you need to know:

Observation. The respondent properly assessed the income tax.

Kampala. Insurance firm, Goldstar Insurance Company Limited (GICL) has lost a case challenging a Shs699, 319,467 tax assessment by Uganda Revenue Authority (URA) in 2013.
The Tax Appeals Tribunal (TAT) ruled that URA was entitled to impose income tax assessments totalling to Shs699, 319,467 on GICL.

“The application is hereby dismissed with costs to the respondent. The respondent properly assessed the income tax and the applicant was obliged to pay Shs699,319,467 as income tax for the years of income 2008 to 2012,” the TAT panel comprising Dr Asa Mugenyi, Dr Stepehn Akabway and Mr Siraj Ali, said on Friday at the Tax Appeals Tribunal.
However, GICL fully paid the tax on the disputed assessments and thereafter applied to TAT for a review of the decision by URA in order to be refunded.

The tribunal ruled that the insurance firm failed to present sufficient evidence that the assessment was an addition and hence time barred.
“On the second thoughts, if the applicant (GICL) had raised the issue of time limit during the trial and evidence had been adduced to that effect, the tribunal would have been in a better position to make a non-conclusive decision,” held the tribunal while dismissing the objection on time limit.
The decision resulted from a disputed audit carried out by URA on GICL in regard to corporation tax for the period 2008-2012.

The audit revealed that contingency reserves for that period amounting to Shs1,815,897,000 had been claimed as deductions by GICL.
Through its lawyers, Mr Cephas Birungyi and Ms Belinda Nakiganda, the insurance company argued that contingency reserves are allowable deductions under the 4th schedule of the Income Tax Act and that they are statutory requirements under S.47 of the Insurance Act.
The insurance firm had also argued that under section 95 of the Income Tax Act, the assessment made by URA was outside the five year period permitted under the law.

GICL had asked the tribunal to declare that it is a statutory requirement in the Insurance Act for reserves to be deducted as a business expense and that contingency reserves are business expenses and are thus allowable deductions under the Income Tax Act. But the three member panel found that contingency reserves are different from unexpired risks.
“Therefore, Goldstar Insurance Company’s expenses to the contingency reserve fund did not fall under the 4th Schedule of the Income Tax Act that makes unexpired risks deductible expenses,” the panel said in the ruling.

The claim

Goldstar Insurance Company Limited had also argued that under section 95 of the Income Tax Act, the assessment made by URA was outside the five year period permitted under the law.


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