Bank loses bid to challenge stamp duty
With the half year revenue collection calendar already elapsed, the Uganda Revenue Authority (URA) is still behind in its domestic revenue collection targets of slightly more than $6.17 billion. FILE PHOTO | NATION MEDIA GROUP
What you need to know:
The three-member panel comprising of Dr Asa Mugenyi (chairperson), Ms Christine Katwe and Mr George Mugerwa (members) unanimously ruled that Stanbic Bank Holdings was liable to pay Shs6.3m to Uganda Revenue Authority (URA)
Tax Appeals Tribunal has ruled that performance bonds, bank guarantees and advance payment bonds are security bonds because they apply where an institution undertakes to make good any loss, damage or liability incurred by a party caused by the issuer of the bond or by some other person’s conduct.
Performance bonds make a defaulting party accountable for its default enabling an aggrieved party to claim.
According to the tribunal, a bank guarantees to pay a third party who is a beneficiary on breach of contract or default on performance by a party to the contract while advance payment bonds are meant to guarantee the proper and faithful performance of contracts and undertake to make good the payment of the advance payment in case of breach of contract.
“An indemnity bond also allows for indemnity where there is a claim for loss but may not necessitate proof of loss. The parties do not go to court to prove the loss. The amount to be paid or limit is set at the time the bond is executed,” the tribunal ruled.
The three-member panel comprising of Dr Asa Mugenyi (chairperson), Ms Christine Katwe and Mr George Mugerwa (members) unanimously ruled that Stanbic Bank Holdings was liable to pay Shs6.3b to Uganda Revenue Authority (URA).
“Advance payment bonds which assessed [Shs2.9b], performance bonds assessed [Shs2.6b] and generic guarantees assessed [Shs800m] were considered as indemnity bonds. Therefore, the total stamp duty payable by the applicant in respect of the said indemnity bonds is Shs6.3b,” the panel ruled.
Advance payment guarantees proper and faithful performance of the contracts and undertakes to make good the payment of the advance payment in case of breach of contract.
Therefore, the tribunal ruled that advance payment bonds or security, or guarantees should be considered as indemnity bonds.
However, it ruled that bid bonds are not indemnity bonds because they do not attempt to indemnify a third party against any loss or claim arising from a breach of contract.
Therefore, the tribunal dismissed the bank’s arguments that imposing stamp duty on the mentioned instruments may have serious economic implications, saying no evidence had been adduced.
The ruling
The ruling resulted from an application in which Stanbic Bank Holdings was challenging a stamp duty assessment of Shs950m arising from the determination of whether performance bonds, advance payment bonds, guarantees and bid bonds are liable to pay stamp duty.
