URA faces auto tax lawsuit based on estimates rather than transaction value

A group of lawyers has warned the Uganda Revenue Authority (URA) of serious legal consequences for continuing to apply an illegal method of collecting tax on imported cars.

The legal team led by City Attorney Phillip Karugaba maintains that despite a ruling by the Court of Appeal on March 23, 2023, in the case of Commissioner Customs v Testimony Motors (Civil Appeal No.33 of 2014), it dismissed the appealed by the URA and upheld a High Court decision that declared the “alternative method” illegal, the URA has allegedly persisted in applying this method.

“We have learned that in complete disregard of the decision of the Court of Appeal, you have continued to apply the illegal method of taxation,” the lawyers said in a letter dated May 23, 2024 to URA Commissioner-General John Musinguzi Rujoki .

“URA’s persistence in using the alternative method has led to new litigation, including another case in which the appeal against the illegality of the method was dismissed on December 29, 2023,” the letter further reads.

“Because of these rulings against you, it is illegal for you to continue taxing imported automobiles using the alternative method (rather than the transaction value method) to determine the customs value of imported vehicles.”

Sentence of the court

In March 2023, the Court of Appeal ruled that the Uganda Revenue Authority’s (URA) policy of imposing taxes on imported vehicles based on the “alternative valuation method”, rather than the “transaction value method”, It was illegal.

Justice Catherine Bamugemereire’s ruling means the URA would have to set import duty rates based on the total amount paid (transaction value) for imported cars rather than using estimates of the fair market value of the cars.

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For example, if the cost to an individual of importing a Subaru car is $1,000, the law requires URA to use the $1,000 invoice to determine the tax rather than using its own estimates in its system as is the case today.

There have been cases in which one, for example, imports a 2001 Subaru for $2,000 and another person imports a similar car for $1,500, but both pay the same amount of taxes.

ChimpReports understands that URA abandoned the long-standing practice of the transaction value method in 2013.

At the time, URA said it could hardly determine the transaction value of imported vehicles due to large-scale falsification of invoices and receipts.

value guide

Currently, the URA has its own ‘value guide’ which its officials use to charge uniform taxes regardless of the cost of the car and the year of manufacture.

The court ruling effectively prevented URA from using its controversial tax assessment system on imported vehicles.

However, URA has continued to use the illegal method despite appeal courts rejecting the tax body’s appeals.

Karugaba and his team of lawyers demanded that the URA immediately stop using the alternative method and issue a public announcement to this effect.

Additionally, the letter warns of imminent legal action, including a contempt of court action against the Commissioner of Customs.

The lawyers also threatened a class action lawsuit against the URA that would result in a refund of all taxes collected using the alternative method since August 7, 2012, following the initial declaration of its illegality in Testimony Motors v URA (Miscellaneous Application 397 of 2011 ). .

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