What you need to know:
On importation of goods, other taxes apply such as VAT on importation at 18 percent, 6 percent withholding tax and 1.5 percent infrastructure levy, which naturally led to the huge tax bill. But again, URA was merely implementing the law.
A spat involving a Ugandan, the Uganda Revenue Authority (URA) and a personalised Man U jersey recently played out on various social media platforms. A friend gifted the Ugandan national with a Man U jersey from abroad which was said to be worth GBP 70. Upon importation, the national was assessed import duties worth Shs400,000 (the equivalent of GBP 85).
The individual found this unfair and exploitative and made his feelings known. Naturally, the URA team defended itself against the allegations, complete with a supporting calculation of how the duties had been derived.
A debate ensued and several issues were raised key being a) the valuation of the jersey and how the customs duty was determined and b) why the URA would “charge” exorbitant taxes. This brought to the fore two often misunderstood areas of taxation – the first being how imported goods are valued for customs purposes and the difference between tax policy makers and tax administrations. For now, I will deal with the valuation issue.
The importation of goods into Uganda is governed by the East African Community Customs Management Act (EACCMA), which applies to all goods that are imported into the East African Community (EAC). This is because the EAC is one common market for customs purposes and uniform import duty rates, ranging from 0-35 percent, apply to various classes of goods entering the Community.
The EACCMA explains how goods imported into the EAC should be valued and lists five valuation methods which must be applied in the order in which they are listed in the Act that is, there is a hierarchy. The first method is the transaction value method. This method requires goods to be valued based on the price actually paid for them as reflected on the commercial invoice.
URA stated that in arriving at the tax payable, they had relied on the value as reflected on the original commercial invoice that supported the jersey.
This was the correct approach as the transaction value method should be the primary method of valuation.
In a recent 2023 Court of Appeal decision involving URA v Testimony Motors, the court ruled that the transaction value method should be the method that is used to value imported goods. In this case, the URA had sought to use alternative valuation methods to value second hand motor vehicles, which it had been unlawfully enforcing since 2010. Therefore, URA strongly defended the use of the transaction value method in relation to the Man U jersey.
The other four methods are used where the transaction value of the imported goods cannot be ascertained for example, where the commercial invoice has not been provided.
The second method is the transaction value of identical goods. This method allows the transaction value of identical goods sold for export into Uganda and exported at or about the same time as the goods to be valued, to be used in the place of the transaction value of the imported good. For example, had an identical 2023/24 season Man U Jersey been imported by another individual into Uganda on or about the same date as the jersey in contention, the commercial invoice value of that jersey would have been used as a substitute for the value of the contentious jersey.
The third method is the transaction value of similar goods method. It works like the second method, the only difference is the degree of similarity. In this case, URA would have relied on the value of similar rather than identical goods. For example, had another individual imported a 2023/24 jersey, only this time, an Arsenal one, the commercial invoice value of the Arsenal jersey would be taken to be the value of the Man U jersey.
The fourth and fifth methods are the deductive value and the fall-back value respectively. These should only be used where the customs value of the goods cannot be determined using the first three methods. The deductive value method works backwards, starting with the value at which similar or identical goods are sold in the local market. Adjustments are then made for any commissions, transport and insurance cost and customs duties and other national taxes paid to arrive at an approximate transaction value.
The fall-back value method allows the customs value to be determined using any reasonable means. This method was successfully challenged by Testimony Motors in the court case mentioned above. Learnings from the decision in the Testimony Motors case were taken hence the passionate defence of the use of the transaction value method in the Man U jersey matter.
On importation of goods, other taxes apply such as VAT on importation at 18 percent, 6 percent withholding tax and 1.5 percent infrastructure levy, which led to the huge tax bill. But again, that is not URA’s problem. URA was merely implementing the law as it stands.
Crystal Kabajwara is a business advisor with PwC.