Cars in a bond in Kampala. A vehicle manufactured in 2008 is the oldest that can be imported into the country this year based on the new 15-year age limit. PHOTO/Michael Kakumirizi
A team of lawyers has challenged the Uganda Revenue Authority (URA) over failure to abide by a 2023 Court of Appeal ruling that directed the taxman to have imported motor vehicles valued using the transaction value method instead of the fallback method.
In a May 23 letter addressed to the URA Commissioner of Customs, lawyers have termed URA’s continued violation of the appeals court order as “illegal taxation” and have demanded that it “immediately cease and desist from applying the outlawed fall back method of taxation and issue a public announcement to that effect”.
In the letter, URA is also put on notice with the lawyers, saying they will sue the URA commissioner of customs for contempt of court. The lawyers also said they would commence “a class action against [URA] to refund all taxes on imported cars illegally collected using the outlawed method since August 7, 2012, the date of the first declaration of illegality”.
In their letter, lawyers William Muhumuza, Lillian A Drabo, Anthony Odur, Peter Arinaitwe, Julius K Warugaba, Terence Kavuma, and Phillip Karugaba explain that on March 23, 2023, the Court of Appeal ruled against the commissioner of customs in the case of Commissioner Customs v Testimony Motors (Civil Appeal No. 33 of 2014). URA’s appeal had sought to overturn a declaration made by the High Court, which deemed the fallback method used by the commissioner of customs to assess the taxable value of imported vehicles as unlawful. The Court of Appeal upheld the High Court’s decision.
The two cases, which URA lost, implied that the commissioner of customs is prohibited from continuing to tax imported cars using the fallback method. Instead, URA had to deploy the transaction value method to determine the customs value of imported vehicles. The lawyers explain that since the judgments are interpretations of the law, they cannot be temporarily halted and must be adhered to unless overturned on appeal.
Mr Ibrahim Bbosa, the URA assistant commissioner for public and corporate affairs, had not responded to our request for comment by press time.
Lawyers’ take
A source at the court registry told Monitor that although URA filed an appeal notice, the taxman has never filed an appeal or secured a stay order. Filing an appeal and securing a stay order would imply that URA would legally continue using the fallback method of taxation on the issue under contention, as the appellate court resolves the appeal.
A lawyer for URA, who requested not to be quoted because they are not authorised to speak for the taxman, told Sunday Monitor that they filed a notice of appeal. An appeal in tax matters, the lawyer explained, is initiated by a notice of appeal, which includes embedded grounds, eliminating the need for additional filings. According to the lawyer, the decision did not explicitly prohibit the use of the fall back method. It simply stated that the transaction value method should be the primary method for valuing goods, with other methods being utilised sequentially thereafter. The fallback method is intended to be employed when the initial five methods fail to yield accurate results.
Since these are used motor vehicles, the lawyer noted, it is challenging to use the first five methods due to the lack of accurate documentation to determine the transaction value. Consequently, URA is often compelled to resort to the fallback method, which takes into account all circumstances surrounding the importation.
URA, the lawyer added, follows directives by World Customs Organisation and World Trade Organisation. Both say the best method for valuation for used items is the fallback. The method only affects used items because no authentic documentation can be obtained as opposed to other brand new items where manufacturers give accurate documents that can be relied on to determine the price paid or payable.
For over a decade, taxpayers and the taxman have been embroiled in a dispute regarding the valuation of used cars and other imported items in Uganda. Taxpayers contend that these goods should consistently be assessed using the transaction value method, which bases valuation on the actual price paid or payable as indicated in the import documents.
This method operates under the assumption that import documents are invariably accurate. Conversely, URA asserts that all used items, including second-hand motor vehicles, should be valued utilising the fallback method.
This fallback approach involves taking into account factors such as the prevailing market price at the time of importation and the prices paid by other importers for similar goods during the same period.
ABOUT THE CLASS ACTION
A class action suit is a legal action brought by one or more individuals on behalf of a larger group of people who have suffered similar harm or have a common legal claim against a defendant. This means the lawyers will be suing URA on behalf of everyone affected by URA’s implementation of the decision in violation of the court order.
URA has also been requested to promptly discontinue the prohibited fallback method of taxation and release a public statement affirming this decision.
