URA headquarters in Nakawa, Kampala. Over Shs330B is stuck in unresolved tax disputes, according to the Auditor General’s latest report. And that raises deeper concerns about how Uganda’s tax dispute resolution system works. Photo / File
Uganda has big ambitions: industrialisation, deeper capital markets, and long-term investors who grow with the country, not just profit from it.
On paper, it rolls out the red carpet: tax breaks for strategic sectors, exemptions on listed equities, and promises of policy certainty.
But in reality, the carpet often turns into a tripwire.
Take the case of Chandaria Foundation. In 2021, it sold shares in Uganda Baati after holding them for over 20 years - a textbook case of passive investment.
Uganda Revenue Authority (URA) argued that Chandaria was "in the business of investing" for dividends and capital appreciation, and that the shares sold in Uganda Baati were, therefore, business assets, making the Shs2.4b profit taxable. It also claimed the cost base was correctly indexed.
The law (Income Tax Act) says such gains aren’t taxable. Yet in 2024, URA demanded Shs809m as tax from that transaction.
By that logic, long-term investing becomes a taxable hustle — a risky proposition for charities and trusts.
A win for patient capital
But the Tax Appeals Tribunal disagreed - firmly.
It ruled that Chandaria was not in the business of buying and selling shares because the 22-year holding period (1999–2021) clearly pointed to investment, not trade.
Plus, the shares were acquired for passive income - to fund charitable causes, not for resale or speculation, and the gains from public company shares are not taxable, unless they are business assets, and these were not.
The Income Tax Act under Section 21(1)(j) creates a narrow exception for shares in private companies, not public ones like Uganda Baati.
URA’s logic was rejected: “The longer the period of ownership, the greater the chance of it being seen as an investment rather than a trade.”
The Tribunal also faulted URA for failing to properly index the cost base under Section 48(3), which inflated the tax bill.
URA’s Shs809m assessment was struck down, and the Tribunal ordered a refund with 2 percent monthly interest on the 30 percent deposit Chandaria had paid.
The outcome sent a clear message: long-term investing - especially by charities, trusts, and foundations - is not a taxable trade.
And that Uganda’s tax law, when applied correctly, still respects that difference.
The ferry that faced a toll gate
Another case here is for a ferry that faced the toll. East Africa Marine Transport (EAMT) imported a $15m ferry to jumpstart Lake Victoria’s cargo trade — a strategic move aligning squarely with Uganda’s industrial roadmap.
Under Paragraph 1(a)(e) of the Third Schedule to the VAT Act, such equipment is VAT-exempt. But URA taxed it anyway, claiming the ferry wasn’t "machinery," that EAMT wasn’t in logistics, and that the vessel lacked local raw materials.
The Tribunal wasn’t convinced. It ruled that the ferry - a complex of fixed and moving parts used to transport cargo - clearly qualifies as machinery.
It found URA’s attempt to split the contract into taxable and exempt parts “inconsistent with VAT principles.”
The Tribunal also noted that EAMT met all exemption conditions - from investment thresholds to operating outside an industrial park - and dismissed URA’s logic as overly narrow and out of step with Uganda’s development policy.
By ordering a full VAT refund and awarding costs, the Tribunal sent a clear message: policy incentives only work when tax administration aligns with the law.
Uganda’s Investment Paradox
The paradox here is that the country wants capital, but treats it like a threat.
On paper, Uganda touts itself as an investor-friendly frontier, boasting macro stability, strategic-sector incentives, and a private-sector-led growth agenda.
But in reality, that promise gets lost in the weeds of inconsistent tax enforcement, discretionary interpretations, and a legal environment where clarity gives way to conflict.
Chandaria Foundation’s 22-year passive stake in Uganda Baati was taxed as if it were a speculative hustle, and EAMT’s $15m ferry, meant to reignite Lake Victoria’s logistics, was denied VAT exemption despite ticking every legal box.
These aren’t one-offs. They reveal a systemic gap between Uganda’s pro-investment rhetoric and its tax behaviour.
The damage isn’t just monetary - it’s psychological because investors expect risk from markets, not from governments shifting goalposts after capital has been deployed.
And that cost isn’t limited to litigation. It shows up in delayed fund decisions, reduced domestic participation, and a slow-drip erosion of confidence in Uganda as a predictable investment destination.
“This erosion of trust is structural,” says Denis Kakembo, the Cristal Advocates managing partner, adding: “It’s not just these cases. Take the recent Enviroserve decision - where a Ugandan company was hit with tax for an offshore share transfer it wasn’t even party to. That is the depth of uncertainty we’re dealing with.”
Kakembo argues that while tax practitioners understand what the law is trying to achieve, its lack of clarity creates competing interpretations among URA, investors, and even tribunals.
That uncertainty, he warns, harms both government and investor: “Without supporting literature to explain the law’s practical application, even planning for investors becomes guesswork.”
Nowhere is this more evident than in capital gains, mergers and acquisitions, and share transfer rules.
“Yes, the provisions exist,” Kakembo says, “but they lack the practical detail investors need.”
Uganda’s VAT zero-rate regime is a prime example. If a good or service is zero-rated, it’s listed in the VAT Act’s schedule. But definitions around “use” or “consumption” are often vague.
The result? “URA interprets in its favour. If the law were clearer,” Kakembo adds, “you would reduce litigation and restore trust.”
Uganda’s capital markets industry has lots of mergers and acquisitions, and this is dominated by private equity firms, but if the law is unclear about what tax position, it complicates transactions of capital that the country so badly wants.
Incoherence in tax law and implementation
Uganda’s tax rules don’t just confuse investors - they also make doing business more expensive than it should be.
One example is VAT on imported services and goods. In many countries, VAT is charged when the product or service reaches the final buyer. But in Uganda, the tax is applied as soon as something crosses the border, even before it’s used or sold.
There’s a global system called reverse charge VAT, where the buyer, not the seller, accounts for the tax.
But Uganda still makes companies pay 18 percent VAT upfront when they buy services from abroad. That makes it costlier to run a business here, especially when local companies try to get specialised services from other countries.
“This makes everything more expensive for Ugandan businesses that import services or inputs,” says Kakembo. “But it’s because URA is under pressure to collect more revenue.”
Still, Kakembo warns that copy-pasting tax rules from richer countries like those in the OECD isn’t the solution. Uganda is a developing country, and using the same rules without adjusting for local realities can hurt the economy and scare off investors.
That’s exactly what some big companies have taken advantage of. Zain International moved to the Netherlands, and Heritage Oil to Mauritius, so they could pay less tax when selling their stakes in Uganda.
These tricks only come to light when there’s a major transaction, like a company changing owners.
Now, Uganda is fighting back by making the Ugandan companies involved in such deals pay the tax. “Even if the seller is abroad, if they’re selling shares in a Ugandan company, the taxman wants the local company to cover it,” Kakembo explains.
But while this might seem fair, it creates even more uncertainty, especially when the tax laws are vague and hard to interpret. That uncertainty is what scares off long-term investors, not just the tax rates themselves.
Money stuck in tax disputes
Over Shs330b is stuck in unresolved tax disputes, according to the Auditor General’s latest report. And that’s raising deeper concerns about how Uganda’s tax dispute resolution system works.
If URA’s assessments are correct, then vital government money is simply waiting in limbo.
But if the assessments are wrong, businesses have already lost Shs101 billion to the mandatory 30 percent prepayment, cash that could have fueled growth, jobs, and expansion.
Tax experts say the problem goes beyond numbers - it’s about oversight and trust.
Right now, there’s no independent tax ombudsman to check URA’s wide powers. That means when you challenge a tax assessment, you’re doing so through ADR (Alternative Dispute Resolution), which operates within URA itself.
This raises eyebrows, especially when URA staff are under pressure to meet revenue targets.
“ADR works best for small, simple disputes,” says Kakembo. “But when it comes to big, complex cases - the ones that matter - they often stay stuck for years.”
Another issue is the 30 percent rule: before you can dispute a tax bill, you must first pay 30 percent of it. Some lawyers say this is unconstitutional. Others say it’s practical - it guarantees the state gets something while the case drags on.
But either way, it puts a heavy strain on taxpayers, especially small businesses.
