UGANDA CHRISTIAN UNIVERSITY, MUKONO

FACULTY OF LAW
LL.B IV REVENUE LAW & TAXATION

Lecturer: Samuel Kiriaghe, LL.M (Erasmus University Rotterdam); Dip. L.P (LDC);
LL.B (UCU) Contacts: +256755977337; +256712977337 email: kiriaghe@gmail.com;
kiriaghe@yahoo.com

What is a Tax?
A tax is a financial charge or other levy imposed on an individual or a legal entity by a State
or a functional equivalent of a State. A tax may also be defined as a “pecuniary burden laid
upon individuals or property to support the government…. a payment exacted by legislative
authority”. A tax is not a voluntary payment or donation, but an enforced contribution,
exacted pursuant to legislative authority and is any contribution imposed by government…
whether under the name toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid,
supply or other name – See Black’s Law Dictionary, P.1307, 5th Edition, 1979.

Tax collection is performed by a government agency such as the URA. When taxes are not
fully paid, civil penalties (such as fines or forfeiture) or criminal penalties may be imposed in
the non-paying entity or individual.
Taxation is the imposition of duties for the raising of revenue. It is a device used by
governments to extract money or valuables from people and organizations by the use of law.
All forms of taxation are imposed by Parliament.

Revenue law or taxation is basically a creature of Statute. There is no common law of

taxation and there are no principles of law that are applicable other than those that are found
in Taxing Acts and Statutes and interpreted according to their true meaning and effect.

Taxation is a compulsory transfer of private resources from the private sector to the public
sector. It has 2 elements: i.e. The levying or imposition of taxes on persons and property
otherwise known as Assessment and The enforcement of the obligation to pay tax otherwise
known as Collection.

Attributes of Taxation
1. The requirement of public purpose to justify the exercise of the taxing powers
since tax is an imposition for the supply of the public treasury and not for the supply
of a private individual or enterprise.
2. Tax operates as a forced charge and does not in any way depend on the will or
contractual assent expressed or implied of the tax payer. It is a Statutory liability.

Taxes could be Direct or Indirect. Direct taxes refer to those taxes that are collected from the
people or organizations on whom they are ostensibly imposed, e.g. Income taxes are collected
from the person who earns the income. Indirect taxes are collected from someone other than
the person ostensibly responsible for paying the taxes.

In Uganda, the power to Assess and Collect taxes is currently vested in the Uganda Revenue
Authority whose mission is to maximize central government tax revenue while optimizing
resource utilization by ensuring a fair and equitable tax administration with highly motivated
and professional staff. The URA is established under Section 2 of the Uganda Revenue
Authority Act. Its functions are laid down in Section 3 thereof as being to administer and

1
give effect to the laws or the specified provisions of the laws set out in the 1 st Schedule to the
Act and for this purpose to assess, collect and account for all revenue to which those laws
apply and to advise the Minister on the revenue implications, tax administration and aspects
of policy changes relating to all taxes referred to in the 1st schedul
The URA has a Board of Directors established under Section 4 of the Act. The
Commissioner General heads the URA and there are departments, i.e. Commissioner
General’s Office; Board Secretary/Head Legal Department; Customs & Excise; Domestic
Taxes; Corporate Services and Internal Audit, Tax Investigation & Internal Affairs
departments. Each of the departments is headed by a Commissioner who is assisted by
Assistant Commissioners and some Senior Principle Revenue Officers. At various tax
districts, there are Revenue Officers who are engaged in the administration and enforcement
of tax laws.

Objectives of Taxation
Largely, the objectives of taxation are:
 To raise revenue
 To achieve economic stability and development
 To bring about income distribution/redistribution

Raising Revenue
The ability to raise revenue is the main factor determining the level of government
expenditure. Capitalist economies privatize ownership of wealth. Governments need to raise
revenue through securing grants, loans, treasury bills and taxes. Taxes are the most reliable
as the other means lead to government huge debts.

Economic stability
Taxation is significant in regulating private expenditures, stabilizing employment and price
levels. Even countries which have attained economic development or are free from financial
constraints still do levy taxes. Taxes could be lowered in periods of insufficiency of funds
within an economy so as to increase private expenditure. Taxes could be increased in order to
mop up excess funds with the objective of controlling inflation.

In less developed countries, revenue is collected in order to finance government expenditure

thereby effecting economic development. Taxation affects economic development by altering
the determinants of economic development and by permitting the financing of current
governmental activities. The determinants of economic development include: (i) Level of
saving (through discouraged consumption by levying high taxes); (ii) Levels of Investment
(by using the savings and granting tax incentives); (iii) Balance of Payments (heavy taxes on
imports and less taxes on exports); (iv) Quality and quantity of available manpower (capacitu
building by government financing the process of human capital at the expense of lavish
consumption; education and training programmes; health; sanitation; nutrition, etc.) among
others.

Resource Allocation
This is done through levying high taxes and granting subsidies in the private sector making
some commodities more expensive or less expensive than others. Also through fighting
dumping especially of low quality goods, technology and drugs on the market.

Income Redistribution
Income inequalities are checked through progressive, regressive and proportional taxes.

2
Progressive taxation when combined with social security benefits and other elements of
social expenditure e.g. on education and health are designed to improve the relative position
of poor members of society. Also taxation could influence the management of demand in an
economy.

However, not every government could attain the above objectives due to inflation and
difference in priorities of public expenditure.

In order for government to effectively benefit from the imposition of any form of taxes, it
must ensure that the tax system is equitable and effective. Adam Smith proposed the
following canons/principles of a good tax system:
 Certainty;
 Convenience;
 Economical;
 Equality
In addition, it is accepted that there should be Neutrality in a good tax system.

Certainty
The tax which every tax payer is bound to pay, ought to be certain and not arbitrary. The tax
payer should be clear and aware in advance of the time of payment, manner of payment and
the quantity to be paid. This is intended to protect both the tax payer and the government
interests against the tax collector. It also prevent aggravation of tax against abnoxious tax
payer or extortion by threat of aggravation, by the tax payer. This could explain the annual
gazetting of tariffs under the Finance legislations.

Convenience
Government should ensure that the tax payer shall at a given time be in position to pay the
assessed tax. Tax should be levied at a time and in a manner in which it is most convenient
for the tax payer to pay, e.g. PAYE deducted at source when salary is paid; consumables taxed
at consumption time; tax on profit, when the profit is received.
The principles of certainty and convenience would ensure simplicity of the tax system.

Economical
The tax should be economical to the tax payer, not to take too much over and above what it
brings in the treasury of the State. The tax should also be economical to collect, implement
and enforce if government is to effectively benefit from its fiscal policies. The number of
officers engaged in the enforcement of the taxes and their salaries ought not to be costly.
Taxes should not discourage business activity and the expenses of enforcing the taxes should
not take too much from the treasury.
This would ensure efficiency and effectiveness of the tax system.

Equality
The subjects of every State ought to contribute towards the support of the government, as
nearly as possible, in proportion to the revenue which hey respectively enjoy under the
protection of the State. This is to protect the tax payer from being over taxed and the
government is enabled to extract from all its subjects who are liable.

Neutrality

3
Neutrality requires that the tax system itself should influence as little as possible the way in
which economic activities are carried out. For instance the tax system should not deter the
extra work being undertaken on the grounds that a lot of tax would be paid on the additional
wages than on the slice of income immediately below them.

Equality and neutrality ensure equity. Equity entails matching tax liability with taxpayer
income and expenditure levels. However, equity is more of a political issue than an
economic one because it seeks justice in tax policy formulation and implementation, i.e. the
public desires to be treated fairly while government aims at no tax paying person to escape
the tax net.

Equity could be horizontal or vertical. Horizontal equity refers to taking of all persons at the
same level of income or consumption uniformly. Equal tax treatment implies that taxes
should not be arbitrary in nature or discriminatory in practical application. Tax payers in
identical circumstances should be taxed the same amount. E.g. taxpayers with the same
income should not pay different taxes.

Vertical equity refers to treatment of people with different incomes levels accordingly, i.e.
people at a higher income bracket should be taxed highly and vice-versa. This implies
proportionality and progressiveness of the tax system. The vertical equity concept gauges the
relationship between income and effective tax rates, i.e. ability to pay principle vs. the benefit
received principle.

Vertical equity rule is also in line with equal treatment but proceeds on the premise that this
calls for different amounts of tax to be paid by people with different abilities to pay.

Is taxation fair?
The current thinking on the fairness of tax concentrates on equity. Horizontal equity is the
idea that people in equal circumstances should pay an equal amount of tax. Vertical equity,
on the other hand, means that people in different circumstances should pay an appropriately
different amount of tax. Vertical equity is still a subject of much academic debate and is not
deemed to be fair in some sections of tax academicians. Fairness of a tax may also be lost in
the nature of the tax base, e.g. If I use 30M/= to build a house in which I live, I do not pay
rent and I do not pay tax on the house. If another person bought shares worth 30M/= he
would pay taxes on the dividends yet he is living in a rented house. The question therefore
remains whether it is fair for one to pay tax just because of the choice of investment he has
made.

Tax Avoidance and Tax Evasion

Tax avoidance is the practice of arranging one’s tax affairs within the rules, so that one pays
the least amount of tax. Tax avoidance is when one escapes tax liability by unlawful means,
through deliberately omitting certain incomes in the tax returns or falsifying records. Tax
avoidance is legal while tax evasion is illegal.

RULES OF INTERPRETATION OF TAX STATUTES

It is a cardinal principle of taxation that a tax system must be based on solid legal
foundations. Revenue law is a creature of Statute and therefore the approach to the
interpretation of tax Statutes is required to be fully consistent and based on certain guidelines.
This is more so because tax Statutes are a rather special type of Statutes demanding s
predictable and hence a strict form of interpretation. Under Article 152 (1) of the 1995

4
Constitution of Uganda (as amended) provides that no tax shall be imposed except under the
authority of an Act of Parliament.

Rule I
The tax must be expressly imposed upon the subject by the clear words of the Statute. In
taxing the subject, it is important to show that clear powers to tax were granted by legislation
and therefore once there are no clear words that require an individual to pay that tax then
he/she would not be required to pay the tax.

Rule II
The words in the tax Statute must be given their natural meaning. A tax payer is entitled to
base upon the literal meaning or construction of the Statute provision even if the result
produced is against the taxing authority. In Rennel vs. Internal Revenue Commissioner
(1963) 1 ALL ER 803, I was held that in interpreting tax Statutes one has to look at he words
of the Statute and construe them fairly and reasonably and the results in the particular case
must be accepted whether it is the tax authority or tax payer who is thereby
advantaged/disadvantaged.

Rule III
Where the meaning of the Tax Statute is ambiguous the tax payer must be given the benefit of
doubt. The question is what is “ambiguous”? It is recognized that a provision in a Statute is
ambiguous when it construes more than one meaning.

Rule IV
There is no equity in taxation. This proposition may operate either in favour of the tax payer
or against him. In Cape Brandy Syndicate vs. IRC (1921) 1 KB 64, it was observed that in
a taxing Act, one has to look at what is clearly said and that principles as to equity do not
apply to matters of taxation, i.e. there is no presumption as to tax and nothing should be
implied.

In Canadian Eagle Oil Co. Ltd. vs. King (1946) AC 119, the Appellants claimed that where
dividends on shares in a foreign company are paid to a shareholder resident in the UK and
thus attracting income tax, exemption from taxation should be given in so far as the income
of the foreign company has already borne tax or been taxed on its trading profits. This
claim/argument for relief was based on the alleged necessity to avoid double taxation. It was
held that the theory relating to double taxation gives rise to a claim to exemption from or
repayment of tax and that it must rest on an express enactment in the tax Statute. It was
observed that it was clearly beyond the powers of the Court to correct hardships or afford
justice unless there is a clear provision that allows the Court to do so.

Rule V
Where the meaning of the Statute is clearly expressed, the Court will not have regard to any
contrary intention or belief in the legislation. It sometimes happens that a Statute does not
carry out the known intention of the Legislature or that a piece of legislation was introduced
with an erroneous belief as to the State of existing situation. Although courts may be aware
of the true intention of the legislature, it is important that the courts adhere firmly to the
literal interpretation of the Statute.
See: SHELL (U) Ltd. vs. URA and TOTAL vs. URA.

Rule VI

5
Where the meaning of the Statute is not clear, it should, if possible be construed so as to carry
out the expressed or presumed intention of the legislature, i.e. where the meaning of the
Statute is not clear, then and only then can the courts adhere to the expressed or presumed
intention of the legislature, i.e. it is only where a provision in a Statute is not clear that regard
can be had to the intention of the legislature.

This proposition is, however, in contrast to the above principle because if the words of the
Statute are clear, they must be adhered to. But if there is doubt as to the meaning, then it is
legitimate to have regard to the intention of the legislature. If a particular provision can
reasonably be read as to reflect what Parliament intended, then it should be so read. It is only
where it cannot be so read, or where having regard to the intention of Parliament ambiguity
remains that the tax payer can be given the benefit of doubt. In Astar vs. Perry, Lord Mac
Millan (as he then was) observed;
“In so far as the intention of an enactment may not be gathered from its own terms, it
is permissible to have regard to the intention of the legislature in interpreting it. And
if more than one interpretation is possible, then that interpretation that is best
calculated to give effect to the intention of the legislature and is in the best interest of
the tax payer should be adopted”.

Rule VII
Ambiguity may also be resolved by subsequent legislation. In certain circumstances, it may
be legitimate to consider a particular provision within the context of a particular Statute
which imposes it as a whole and in the context of a prior or subsequent legislation so that the
provision is seen as part of a wider scheme. A subsequent Act or Statute can amend an earlier
one and in which case the Act as amended applies in the future. It can even act
retrospectively. It is only in taxation that a law can act retrospectively. Alternatively, a
subsequent Act may provide for a meaning of an earlier provision thus having effect similar
to that of the retrospective legislation.

Rule VIII
In applying the appropriate statutory provision to a given set of facts, the courts are reluctant
to go beyond the form of the transaction or the developments under consideration and have
regard t the substance unless the form is a mere sham. In the case of Potts Execution vs. IRC
(1951) AC 443, the issue was whether sums of money paid by a company (whose shares had
been settled) to discharge certain obligations of the settler and in particular payment of
income tax owed by him were paid either directly or indirectly by way of a loan to him. It
was held that they were not. Lord Simonds noted that “this is not the way in which a taxing
Statute should be read. I am not in the construction of such a Statute entitled to say that
because the legal or end result is the same where on the one hand I borrow money from the
company and with it make certain payments or on the other hand a company at my request
makes certain payments at my implied promise to pay. It is immaterial what words are in the
Statute if the intended result is attained”.

INCOME TAXES IN UGANDA

Administration of Income taxes
Income tax in Uganda is administered and collected by the Internal Revenue Department of
the Uganda Revenue Authority. The department has its head offices in Kampala with a
number of district offices. Each tax payer is expected to pay his income tax dues at the
District Revenue Office under which their businesses fall by location. The Revenue Districts

6
are not necessarily the political districts. It is therefore important to note that the revenue
office nearest the tax payer is likely to be the district to which he/she pays income tax.

What is Income Tax?

Income tax is a tax charged on the income of any person. The term income is defined to
include any gains, profits, interest, dividends and also any non-monetary benefit advantage or
facility obtained by a person through gainful means.

Charging Section
Section 4 of the Income Tax Act imposes Income tax. Subsection (1) thereof provides that
Subject to and in accordance with this Act, a tax to be known as income tax shall be charged
for each year of income and is imposed on every person who has chargeable income for the
year of income.

Section 5 imposes Rental Tax. Under Section 5 (1) Subject to and in accordance with this
Act, a tax shall be charged for each year of income and is imposed on every individual who
has rental income for the year of income.

Who is a person?
Section 2(yy) of the Income Tax Act defines “person” to include an Individual, a Partnership,
a trust, a company, a retirement fund, a government, a political subdivision of a government
and a listed institution as per 1st Schedule to the Act.

The tax is imposed on the chargeable income of a person. Section 15 of the Income Tax Act
provides that Subject to Section 16, the chargeable Income of a person for a year of income is
the gross income of the person for the year less total deductions allowed under this Act for
the year.

Section 17 defined Gross Income as hereunder:

(1) Subject to this Act, the gross income of a person for a year of income is the
total amount of:-
(a) business income;
(b) employment income;
(c) property income; derived during the year by the pwerson other than
income exempt from tax.

(2) For purposes of subsection (1)-

(a) the gross income of a resident person includes income derived from all
geographical sources and
(b) the gross income of a non resident person includes only income
derived from sources in Uganda.

It may occur that some persons may be resident in more than one country. It is thus
important to ascertain a resident person for taxation purposes. Also it is vital to ascertain
when income is deemed as derived from sources in Uganda.

Categories of income taxes

Income taxes are categorized for administrative purposes according to source and method of
collection.

7
1. Individual income tax: This tax is charged on income earned by an
individual e.g. a sole trader. The term is more applied to individuals who are self
employed. However, individual income tax is not limited to business income alone; it
includes all income earned by an individual from all sources except income which is
assessable separately e.g. individual rental income. Individual income is taxed at
individual tax rates.

2. Corporate income tax (Corporation tax): This tax is charged on income

earned by a legal person like a company, a trust etc. other than an individual. Like in
the case of individual income tax, corporate tax comprises income from various
sources of the company. Corporate income is taxed at a corporate rate of tax.

3. Rental income: Under the Income Tax Act Cap 340, rental income by a
corporate landlord is part of corporate income and is taxed under corporate income
tax laws. Rental income earned by an individual landlord is segregated from income
earned from other sources by the same individual and taxed separately under the
rental tax rate structure.

4. P.A.Y.E: This is a form of individual income tax charged on employment

income. This tax is deducted by employers from employment emoluments before
effecting the last payment for the period. This is normally a month. For this reason, it
is also called a source tax. The employer is responsible for deducting the tax from
every liable employee remitting the total tax deducted to the URA and accounting to
the employee that the tax has been paid over to the government.

5. Withholding tax: Part XIII Income Tax Act, SS 115-128. Like P.A.Y.E this
is another form of source tax. Withholding tax is a tax deducted at source by a
person called a Withholding Agent on the basis of the gross value of another person
(Payee) to whom the tax is applicable. Withholding tax is in fact income tax paid in
advance or as a final tax depending on the circumstances. While most withholding
tax is applicable to payments to certain persons, there is withholding tax applicable to
the value of imports as determined under the Customs Laws and payable at the point
of importation together with other taxes. Withholding tax also applies to employment
income; interest by resident persons; dividends by resident companies to resident
shareholders; government payment for goods and services exceeding Shs. 1million to
a person in Uganda; non resident service contracts. Under Section 123 Income Tax
Act, withheld tax is to be paid within 15days after the end of the month in which the
payment subject to withholding tax was made. According to Section 124, failure to
withhold culminates into personal liability but the withholding agent can be refunded
by the payee.

6. Income tax for small business tax payers: According to the Income Tax Act,
a small business tax payer is defined to be a person that is individual or corporate
whose total annual sales (Gross Turn Over) does not exceed Shs. 50 million. The
income tax payable by such persons is estimated (not assessed) and varies according
to the segments of the Gross Turn Over in which his/her sales fall for any given year.
This definition excludes persons engaged in the following businesses: medical/dental
practitioners; architects; engineering of any kind; audit and accountancy; legal
practice or other professional services; public entertainment services; public utility
services and construction services.

8
What is income?
A famous British Judge once said: “Income tax, if I may be pardoned for saying so, is a tax
on income. It is not meant to be anything else. It is one tax, not a collection of taxes,
essentially distinct…..” This aphorism of Lord Macnaghten is frequently quoted in British
tax texts, often out of its proper context. Clearly the judge wanted to emphasize that income
tax is tax on what the taxing Statutes state to be income for purposes of income tax.

Accordingly, in Uganda, the Income Tax Act takes pains to spell out the sources of income
and how they are to be determined for purposes of income tax. What is therefore important
to know is the sources of income. We must also be aware that income is not easy to define.
What is income in the hands of one person may be capital receipt in the hands of another; e.g.
A householder who sells his old chairs to an antique dealer. The householder’s receipt is not
taxable income but when the antique dealer sells the chairs, the profit (loss) is a trading profit
or loss which is included in the dealer’s tax computation.

The Act clearly gives what “Gross Income” and “Chargeable Income” is.

Year of Income
Tax is assessed on a tax payer on the basis of a year of income. Section 2 (zzz) defines year
of income to mean the period of 12months ending on the 30 th June and includes a Substituted
year of income and a Transitional year of Income. For tax payers carrying on business, their
accounting years may nit be coterminous with the tax year, usually referred to as the fiscal
year. The tax laws provide ways in which all types of tax payers with different accounting
periods may have their tax determined.

It has been observed that income tax is a tax upon what is properly regarded as income for the
purposes of the taxing legislation, i.e. taxable income. It is a tax on chargeable income.

Historically, there have been 2 concepts of defining income. The first view holds that income
as distinguished from capital is the fruit from the tree. The modern approach regards income
as an accretion to wealth or to economic power.

Adam Smith in “The Wealth of Nations” (1776) Book 1 Chapter 6 notes:

Revenue is drawn from either labour, stock or land. That derived from labour is
wages (salaries); that derived from stock by the person who employs it is called profit;
that derived from it by the person who does not employ it himself but lends it to
another (person) is interest on the use of money. Revenue from land is rent belonging
to the landlord. Stock is distinguished in 2: First, the part which a person expects to
afford him revenue is capital and secondly, that which is reserved for purposes of
revenue is reserve. In this vein, stock in trade is circulating capital, while investment
in improvement of land, purchase of useful machines and instruments of trade or
things which yield revenue or profit without changing masters is fixed capital.

In John Smith vs. Moore [1921] AC 13, a tax payer bought a coal business which included
certain forward contracts worth £30,000 to supply colliery owners. He claimed to be entitled
to deduct the costs of the contracts from the profit of the business. It was held that the
deduction was not permitted being of a capital nature. Viscount Haldane stated that assets of
a business including its goodwill and inherited contracts by which to employ circulating
capital constituted fixed capital.

9
In Eisner vs. Macomber 252 U.C. 189 (Supreme Court, USA) the collector U.S. Internal
Revenue claimed tax in respect of certain stock dividends (bonus issue of shares) received by
Macomber. The tax payer argued that the dividends were not income and that tax could not
be raised in respect of them. The court accepted the plea/argument. Pitney, J. thus stated:
Income may be defined as the gain derived from capital, from labour or from both
combined provided it be understood to include profit gained through a sale or
conversion of capital assets….

Simons H.C. in Personal Income Tax (1938) pages 50-51 notes that “The essential
connotation of income…is gain to someone during a specific period and measured according
to objective standards.

Meade J.F. in “The Structure and reform of direct Taxation”(1976) pages 30-33 notes that
“Taxable income is the value of what a tax payer could have consumed during the year
without diminishing his capital wealth in the process”.

The Final Report on the Royal Commission on the Taxation of Profits and Income (Cmnd
9474 (1955) UK) suggested:
No income would be recognized as arising unless an actual receipt had taken place,
although a receipt may take the form of a benefit having money’s worth received in
kind as well as money or of a payment made to a third party in discharge of another’s
legal debt. Nevertheless, no mere improvement of a person’s financial or material
position is recognized as constituting income. Thus an increase in value of property
that he owns, even a net increase in value of his total resources is excluded from the
computation of his income.
This view would in modern circumstances be limited to income tax simplicities and would
probably not be valid in the case of capital gains tax.

RESIDENCE
Residence or non residence is used to determine whether a tax payer is to be taxed on his/her
worldwide income or only on income from sources in Uganda.

Individual
Under Section 9(1) of the Income Tax Act, an individual is a resident individual for a year of
income if that individual-
(a) has a permanent home in Uganda;
(b) is present in Uganda-
(i) for a period of, or periods amounting in aggregate to, 183 days or more
in any 12months period that commences or ends during the year of income;
or
(ii) during the yea or income and in each of the 2preceding years of
income for periods averaging more than 122 days in each such year of
income;
(iii) is an employee or official of the Government of Uganda posted abroad
during the year of income.
See also section 9(2)&(3). Residence may be determined for the period when he is present in
Uganda during the year of income under consideration. The exceptions apply where a tax
payer has not been resident or ceases to be resident. Thus there is need to understand year of
income which includes substituted and transitional years.

10
From the above, the Act does not define what is a permanent home. Courts have ruled that to
find residence it is not necessary to find a building. If a person stays in a hotel or with
friends, it does not affect the question of residence. Whether or not a person is resident for
tax purposes is thus sometimes difficult to ascertain.
Read: Sir George Amailogu vs. CIT [1971] 312; CIT vs. Noorani [1969] EA 685; Lysaght
vs. CIR (1972) 2 KB 55.

The resident person’s income derived from all geographical sources is chargeable to income.
However, it is not sometimes easy to determine the sources of income. Much reliance is
placed on voluntary disclosure by the tax payers so it is difficult to ascertain.

The provision, however, is of benefit in that it curtails diversion by residents of locally earned
income to avoid tax. For countries with which Uganda has Double Taxation Agreements, it
may be easy to obtain information on specific persons/transactions on request.

Section 21 (1) (m) of the Income Tax Act gives exemption from income tax to a short-term
resident of Uganda (non Ugandan citizen staying not exceeding 2 years in Uganda).
For instance: Anguzu, a Sudanese enters Uganda November 2005 having lived in Sudan until
October 2005 and earned US$20,000 for 7months until October 2005. For 8months until 30 th
June 2006 he earned bank interest of US$ 53,000 in Sudan. His taxable income in Uganda is
Shs. 30,000,000 for income earned in Uganda for the year to 30 th June 2006. Assuming he
did not earn any other income in Sudan until 30th June 2006. Because he was resident in
Uganda for year of income 2006, he is liable to pay tax in Uganda (on the Shs. 30M/= and
income earned in Sudan, the US$ 53,000, see Section 9(2)). However, the US$ 53,000 is
exempt under section 21 (1) (m) of the Income Tax Act.
It is important to note that residents are taxed on world wide income; non residents only on
income derived from Uganda.

*It is, however, possible that someone may make their travel arrangements so as to cease to
be resident just a few days before the year of income is complete.*

Tax payers resident in more than one country

An interpretation of section 9 provides for residence in more than one country. The question
is which country has the priority rights over taxation of such persons? Double Taxation
Agreements try to sort out this problem by giving the taxing rights to the country of domicile
or where the tax payer’s centre of vital interest is or the states of which he is a nation.

In some cases, these considerations may fail to determine residence in which case provision
is made for settlement in mutual agreement. Where there is no Double Taxation Agreement,
the tax payer can only benefit from provisions in the Tax Act for unilateral relief from double
taxation. Where such provisions do not exist, such a tax payer may be subjected to double
taxation on the same income.
*See Part IX Income Tax Act on international taxation*.

Companies
Under section 10 Income Tax Act, A company is a resident company for a year of income if
it-
(a) is incorporated or formed under the laws of Uganda; or

11
 (b) has its management and control exercised in Uganda at any time during the
year of income; or
(c) undertakes the majority of its operations in Uganda during the year of income.

There is thus the Incorporation theory vs. the Management and Control theory. The
legislation differs per jurisdiction. While (a)&(b) are easy to determine, issues still arise. In
case of (b) usually it is where the directors held their meetings that is referred to as
management and control. (What if this takes place in different countries in the same year of
income). What amounts to “majority of its operations”? What does not fall under (a)&(b) is
taxed under (c).

A number of companies choose not to incorporate a subsidiary in Uganda but carry out
operations under a branch of their foreign corporation. Taxation of branch profits can be
tricky, since it may not be independent from head office so as to avail accounts (financial)
reports. However the Companies Act require foreign companies registering under the Act to
file accounts which can then be used for tax purposes.
*Some jurisdictions choose to refer to Permanent Establishment for tax purposes* e.g. see
OECD model. See also Section 78 Income Tax Act on definition of branch.

Trust
Under Section 11 of the Income Tax Act, a trust is a resident trust for a year of income if-
(a) the trust was established in Uganda;
(b) at any time during the year of income, a trust of the trust was a resident
person; or
(c) the trust has its management and control exercised in Uganda at any time
during the year of income.

However, (b) & (c) above could lead to double taxation.

Partnership
Section 12 of the Income tax Act provides that a partnership is a resident partnership for a
year of income if at any time during that year a partner in the partnership was a resident
person.

Retirement fund
Under Section 13 of the Income Tax Act, a retirement fund is a resident retirement fund for a
year of income if it-
(a) is organized under the laws of Uganda;
(b) is operated for the principal purpose of providing retirement benefits to
resident individuals; or
(c) has its management and control exercised in Uganda at any time during the
year of income.

Non resident
According to Section 14 (1) of the Income Tax Act, subject to subsection (2), a person is a
non resident person for a year of income if the person is not a resident person for that year.
Under subsection (2) thereof, where Section 9 (2)or(3) applies, an individual is a non resident
person for that part of the year of income in which the individual is not a resident individual.

Income Derivation

12
The Act charges to tax the income of non residents derived from Uganda. In the majority of
cases, it may be clear when income is derived from Uganda. In the vase of property income,
where the property is located in Uganda, income is said to be derived from Uganda.

There are, however, situations where it is not easy to determine where income is derived
from, e.g. Supposing a Congolese resident signs an agreement with a Ugandan resident to
transport timber for the Ugandan resident from Kisangani to Busia. Whether or not the
income thereby earned by the Congolese resident is derived from Congo or Uganda may be
difficult to determine depending on where the agreement is signed and other factors such as
payment and delivery etc.

The guiding principle is that a person who is trading within Uganda is deriving income from
Uganda and the person who is trading with Uganda does not necessarily derive income from
Uganda.

On the other hand, the activities of a non resident person may be such that the income earned
is derived from both countries. The difficulty that arises from such a situation is how to
apportion income derived from each country for tax purposes.

Esso Standard vs. CIT [1971] EA 127, it was held that the words “accrued in” and “derived
from” are synonymous and that this is normally a question of fact.

In Brown vs. National Provident Institution [1921] 2 AC 222 HL, held that in order to be
chargeable to income tax for a particular year in respect of income from any source, a person
must possess that source of income in that year.

The Act provides that the chargeable income of each tax payer who is an individual is
determinable separately.

Section 64 Income Tax Act prohibits income splitting, i.e. the transfer of income directly or
indirectly to an associate or the transfer of property including money directly or indirectly to
an associate with the result that the associate receives or enjoys income from that property
with the purpose of lowering the individual’s total tax payable upon the income.

In the determination of whether a tax payer engaged in income splitting, the Commissioner
considers the value, if any, given by the associates for the transfer (See Ss 3&20).

BUSINESS TAXATION
Ascertainment of income in relation to Professionals and Vocations
The taxation of business income is governed by the Income Tax Act. It deals with business
entities such as partnerships, companies, trusts etc. Section 2 of the Income Tax Act defines
business to include any trade profession , vocation or adventure in the nature of trade, but
does not include employment. This is in line with the case of Harris vs. Amery where it was
observed that business has a more extensive meaning than the word ‘trade”. In Ransom vs.
Hicks, Lord Wilberforce defined trade as follows:
Trade normally involves the exchange of goods and services since some qualify as a
profession, employment or vocation.
In Smith vs. Anderson (1880) 15 Ch.D 247, Jessel MR. said:
Anything which occupies the time, extension and labour of a man for purposes of
profits is business.

13
This is made clear from the definition of business in the Partnership Act, Cap 114 section 1
where business is defined to include every trade, occupation or profession.

The Income Tax Act expresses what constitutes business income under Section 18. From the
above, it may be argued that a profession is a business within the meaning of the Income Tax
Act and hence the provisions affecting taxation of business income relate to professionals as
well.

In the definition of employment income, however, Section 19 (1)(a) of the Income Tax Act
provides for “any wages, salary, leave pay, payment in lieu of leave, overtime pay, fees,
commissions, gratuity, bonus or the amount of any traveling, entertainment, utilities, cost of
living, housing, medical or other allowance”.

The definition of business to include profession has been the subject of litigation in various
jurisdictions. In Smith vs. Anderson (1880) 15 Ch.D 247, Brett J. as of the view that the
expression “carrying on business” in the context of the definition of business implies a
repetition of acts and excludes the case of an association formed for doing one particular act
which is never to be repeated. It is those series of acts that constitute a business. Although
this distinction is useful in distinguishing trading and capital activities, in the case of Re
Abbenheim (1913) 109 LJ 219, the expression “every trade, occupation or profession” was
understood to cover a single venture.

In the Nigerian case of Ojamoli vs. Okoafuda (1977) NCLR 192, it was held that a business
could be established for a single undertaking. In H Company Ltd. vs. CIT 1 EATC 65 held
that the word “business” includes an isolated business transaction and that the profits from
an isolated business transaction are liable to income tax.

The approach in Smith vs. Anderson explains the decision on CIT vs. Sydney [1963] EA
where it was held that events leading to the division of land and the sake ofn it amounted to
no more than the realization of capital and which profits thereof are not liable to income tax.

In IRC vs. Max [1919] 1KB 647, the word profession was defined. Scrutton LJ. Stated that
“there is no definition of ‘profession’ in the Income Tax Act but it has been judicially
indicated that it involves the idea of an occupation requiring either an intellectual skill or any
manual skill controlled by the intellectual skill of the operator as distinguished from
occupation which is substantially the production or sale or arrangement for production and
sale of commodities”.

Position of Uganda with regard to professionals

In the Ugandan context, income from practicing a profession is charged to tax under business
income. Under Section 18 Income Tax Act, this kind of income is specified. It can also be
argued that income from practicing a profession is employment in terms of section 19 (1) of
the Act. For the sole proprietorship, income is determined separately and hence taxed. In the
case of other partnerships, it is treated under provisions relating to partnerships.

In determining income of a sole professional, all incomes from other sources except rental
income are aggregated to determine the total tax payable. It should be noted, however, that
professionals do not qualify for provisional tax under the provisions covering small business
tax payers.

14
Ascertainment of income tax in relation to vocations
In Patridge vs. Mallandaine (1986) 18 Q.B. 276, Denman J. defined vocation to be
analogous to a calling, which is a word of wide signification meaning the way in which a
person passes his life.

Employment vs. Professions and vocation

In Britain, before on individual is assessed for income tax, the Commissioner and courts of
law must distinguish employment from vocation and profession so as to place a tax payer
under the proper taxing provision so that he/she can be taxed payable.

In some cases, however, the distinction between employment on one hand and profession and
vocation on the other, may not be clear especially in contractual enagements. In Davies vs.
Braithwaite [1921] 1 ALL ER 792, Mss Braithwaite, an actress who in the year of
assessment in question appeared on stage, films and radio in the UK and US, an issue arose
as to how her income was to be assessed. Rowlatt J. stated that the principle in such a case is
whether the respondent (actress) ought to be assessed as following her profession as an
actress, or whether she ought to be assessed as exercising certain employments under the
particular engagements which she makes. The question arose mainly due to lack of precision
in the definition of the term employment in the Act. In one of the schedules to the Act, the
term was used in connection with the profession or vocation where it implied the way a man
employs himself. In another schedule, employment was analogous to an office and amenable
to the scheme of taxation applied to officers as opposed to the earnings of a man following a
profession or vocation.

In Fall Hithchen [1973] Ch.D 66, Hithchen the tax payer was a professional dancer who was
employed under a standard form contract. He was assessed in respect of earnings under the
contract (business). He appealed to the Commissioner who decided that these sums were
assessable as business income. On further appeal, Pennywick VC. Observed that the issue to
be considered is whether the relation created by the contract was that of service or a contract
for services. The Judge adopted the reasoning of Cooke J. in the case of Market
Investigations Ltd. vs. Minister of Social Security [1969] 2 QB 173 where it was held that
“the fundamental test to be applied is this: Is the person who has engaged himself to perform
those services performing them as a person in business or on his own account? If the answer
is Yes, then the contract is that for services (business); if the answer is No, then the contract is
that of service (employment)”. That once it is accepted that this is a contract of service, it
represents employment unless some special limitation is placed on the word employment in
any given context. The expression contract of service is synonymous with the expression
employment.

As noted earlier, Section 2 of the Income Tax Act defines a person to include an individual, a
partnership, a trust, a company, a retirement fund, a government, a political subdivision of
government and a listed institution. A company is defined t mean a body of persons
corporate or un incorporate, whether created or recognized under the law in force in Uganda
or elsewhere, and a unit trust, but does not include any other trust or a partnership. A
partnership means an association of persons carrying on business for joint profit.

The charge to tax in respect of business

Section 4(1) Income Tax Act charges income tax in respect of any person in the relevant year
of income who has chargeable income for the year of income. “Year of income” means a

15
period of 12months ending on the 30th June which includes a substituted year of income and a
transitional year of income.

Under section 4(2) subject to subsections (4) &(5), the income tax payable by a tax payer for
a year of income is calculated by applying the relevant rates of tax determined under the Act
to the chargeable income of the tax payer for the year of income and from the resulting
amount are subtracted any tax credits allowed to the tax payer for the year of income.

Section 15 defines Chargeable Income of a person for a year of income as the gross income
of the person for the year less the total deductions allowed under the Act for the year.

Under Section 4(5) where the gross turn over of a resident tax payer for a year of income
derived from carrying on a business or businesses is less than Shs. 50M/=, the income tax
payable shall be determined in accordance with the 2nd Schedule to the Act unless the tax
payer elects by notice in writing to the Commissioner for subsection (2) to apply. However,
under Section 4(7), subsection (5) does not apply t a resident taxpayer who is in the business
of providing medical, dental, architectural, engineering, accounting, legal or other
professional services, public entertainment services, public utility services or construction
services.

It may be useful to say a few words about the trading aspect of business. Normally, there is
no difficulty in establishing whether or not any particular person is carrying on trade. A
normal activity of buying and selling in a shop or a warehouse, in the street or from door to
door are the obvious features to identify a trade. There may still be a trade carried on even if
there is no trading place as such, e.g. where a person buys and sells property , stock and
shares.

Although they are normally regarded as capital assets, repeated or regular turn over in them
will be regarded as trade and the profits will be liable to tax in the same way as if the subject
matter had been books, furniture for other items or merchandise.

Taxation of Companies Sections 74-77 Income Tax Act

Under Section 7 Income Tax Act, the chargeable income of a company for a year of income is
charged to income tax at the rate prescribed in Part II of the 3 rd Schedule, the income tax rate
applicable to companied other than mining companies for purposes of Section 7 is 30%.
Article 2 deals with mining companies.

Residence
Under Section 2 Income Tax Act, a resident company has the meaning in Section 10 which
provides that a company is a resident company for a year of income if:-
(a) it is incorporated or formed under the laws of Uganda;
(b) has its management and control exercised in Uganda at any time during the
year of income;
(c) undertakes the majority of its operations in Uganda during the year of income.

In De Beers Consolidated Mines vs. Howe (1906) AC 455, it was stated that a company
resides where its real business is carried on. The real business is carried on where the central
management and control resides.

16
In Calcutta Jeute Mills vs. Nicholson (1876) 1 ExD 428, it was decided that central
management and control is normally vested in directors and therefore it resides where the
directors hold meetings.

In Baron vs. Potter (1914) 1 Ch.D 895, it was said that the power of management may
revert to the shareholders where there is a deadlock in the Board of Directors. In Foster vs.
Foster (1916) 1 Ch.D 532, it was said that where there is no effective quorum for the board
to meet, the power reverts in shareholders. In Grant vs. UK Switch Back RYS (1888) 40
Ch.D 135, it was held that where directors are disqualified from voting, power lies in the
shareholders. In Alexander Werd Co. Ltd. vs. Samyang Navigation Co. Ltd. (1975) 2
ALL ER 424, HL. Held that where there are no directors, as the company is in the winding
up, power vests in the Liquidators.

Dual residence
In Swedish Central Ry Co. Ltd. vs. Thompson 91925) AC 495, a company may have more
than one place of residence. In Unit Construction Co. Ltd. vs. Bullock (1960) AC 351, a
company’s residence is the actual place of management rather than where it ought to be
managed.

Non residence
Under Section 14 Income Tax Act, a person is a non resident person for a year of income if
the person is not a resident person.

Under Section 17 Income Tax Act, the gross income of a non resident person includes only
income derived from sources in Uganda. According to Section 18 (1) Business income
means income derived by a person in carrying on a business and includes the following
amounts, whether of a revenue or capital nature:-
(a) the amount of any gain, as determined under Part VI which deals with gains
and losses on disposal of assets, derived by a person on the disposal of a business asset,
or on the satisfaction or cancellation of a business debt, whether or not the debt was on
revenue or capital account.
(b) any amount derived by a person as consideration for accepting a restriction on
the person’s capacity to carry on business.
(c) The gross proceeds derived by a person from the disposal of trading stock;
(d) Any amount included on the business income of the person under any other
section of this act
(e) The value of any gifts derived by a person in the course of, or by virtue of a
past, present or prospective business relationship;
(f) The interest derived by a person in respect of trade receivables or by a person
engaged in the business of banking or money lending;
(g) Rent derived by a person whose business is wholly or mainly the holding or
letting of property.

Under section 20 (1) Income Tax Act, property income means:-

(a) any dividends, interest, annuity, natural resource payments, royalties and any
other payments derived by a person from the provision, use or exploitation of property;
(b) the value of any gifts derived by a person in connection with the provision ,
use or exploitation of property;
(c) the total amount of any contributions made to a retirement fund during the
year of income by a tax-exempt employer and

17
 (d) any other income derived by a person; but does not include any amount which
is business, employment or exempt income.

In William Epstern Son & Swainston, it was stated that a company cannot carry on
professional activities, however, it can be assessed corporation tax for trade and business of
hiring the professional services of its employees. The company will be taxed on its profits,
Profits were defined in the case of Erichson vs. Last profits are the difference on the price
in a sale and the cost piece of what is sold. In Grisham Life Insurance vs. Styles, Halsbury
said that profits and gains must be ascertained by ordinary principles of commercial trading.
He did not think that the framers of such Acts would be guilty of such confusion of thoughts
to think the costs of the article sold to a trader who in turn makes a profit when he sells it was
not to be taken into account before you arrive at what was intended to be taxable profits.

A company is liable to tax separately from its shareholders. Basically the computation of the
taxable profits of a company is the same as for an individual except in respect of renatl
income. But there are certain aspects which concern companies and not individuals which
need to be noted.

Change on ownership
A company is made up of shareholders. Although a company may not change, the
shareholders can change. Strictly this does not affect the company but the Revenue Authority
does not look at all changes indifferently. See Section 75 Income Tax Act where there is a
change of 50% or more in the underlying ownership of a company as compared with its
ownership one year previously, some deductions from assessed loss could be denied.

Dividends
A dividend paid by a resident company in which the receiving resident company not being an
exempt organization, hold, directly or indirectly 25% or more of the voting power in the
paying company, is exempt from tax, See Section 74(2) Income Tax Act.

This exemption does not apply to:

(a) a dividend paid on redeemable shares held by a financial institution; or
(b) a dividend paid under circumstances amounting to ‘dividend stripping’ under
Section 76.

The intention of the above are not easy to discern. The contrary would have made more
sense. All dividends between resident companies should be subject to the same treatment
under the law, mainly because they are paid out of taxed income. A company should not
receive a tax advantage because it is able to influence the dividend policy of the paying
company.

Companies are charged to corporation tax on all its profits- gains and profits are computed.
The company may enjoy exemptions under the Act except where the exemption is restricted
to individuals.
Clubs/Associations are taxed at corporate rate of tax of 30%.

Partnerships
The presence or absence of a written partnership agreement is not decisive in determining
whether a partnership relationship exists between persons. Although a partnership is not a
recognizable legal personality for tax purposes, the taxabe income of a partnership is first

18
determined on the basis of the partnership profits and then apportioned to the partners on the
basis of their agreed profit sharing ratios. The tax payable is assessed on individual partners.
Usually, a responsible partner, in the partnership will handle the tax affairs of the partnership,
i.e. for all the partners. The individual partners, however, have to complete individual
income tax returns. Although one person in the partnership may pay the tax dues, as
computed for each individual partner, the onus of payment is on each individual partner.

Under Section 65(3) Income Tax Act, a partnership is liable to furnish a partnership return of
income but is not liable to pay tax on that income. In practice, however, a responsible partner
pays the tax for all the partners using partnership funds.

See Section 66 which provides for the calculation of partnership income/loss; Section 87
which applies to non resident partnerships.

Under Section 67 Income Tax Act, partners are taxable on their share of the partnership
income equal to percentage interest in the income of the partnership set out in the partnership
agreement or percentage interest in the capital of the partnership. When partnership income
is determined, it is allocated to each partner for tax purposes by reference to share of profits.
What is taxable is the profit which must be ascertained first. In A.H vs. Commissioner
Income Tax, it was held that salary paid to a partner is profit not expense hence not
deductible. Each partner is taxed at individual tax rates.

EXEMPTIONS/EXEMPT INCOME
Under Section 21 Income Tax Act, certain amounts are exempt from tax, including the
income of a listed institution; income of a local authority; foreign source income derived by
a short term resident of Uganda; a pension; the income of the government of Uganda and the
government of any other country, etc.

DEDUCTIONS
In the computation of chargeable income, some deductions are allowed. These are laid out
under sections 22-38 of the Income Tax Act.

Under Section 22, subject to this Act, for purposes of ascertaining the chargeable income of a
person for a year of income, there shall be allowed as a deduction;-
(a) all expenditures and losses incurred by the person during the year of income to
the extent to which the expenditures or losses were incurred in the production of income
included in gross income;
(b) the amount of any loss as determined under Part VI, which deals with gains
and losses on the disposal of assets, incurred by the person on the disposal of a business
asset during the year of income, whether or not the asset was on revenue or capital
nature; and
(c) in the case of rental income, 20 percent of the rental income as expenditures
and losses incurred by the individual in the production of such income.

The expenditure or loss must have been incurred in the production of income included in the
computation of gross income. However, no deduction is allowed for certain expenditure e.g.
those expenditures of a domestic or private nature; any expenditure or loss which is
recoverable under any insurance, contract or indemnity; income tax payable in Uganda or a
foreign country etc. Expenditure of a domestic or private nature incurred by a person is
defined under section 22(3) Income Tax Act and includes the cost incurred in the

19
maintenance of the person and the person’s family or residence; the cost of commuting
between the persons’ residence and work; the cost of clothing worn to work, except clothing
which is not suitable for wearing outside of work, etc.

Under Section 23, a deduction may be allowed for expenditure incurred by a person in
providing meals, refreshment or entertainment in the production of income included in gross
income if the conditions therein stated are fulfilled.

Under Section 24, a person is allowed a deduction for the amount of a bad debt written off in
the person’s accounts during the year of income. The deduction is only allowed if the amount
of the debt claim was included in the person’s income in any year of income or if the amount
of the debt claim in respect of money lent in the ordinary course of a business carried on by a
financial institution in the production of income included in gross income. Bad debt is
defined under Section 24(3) of the Act.

See Section 25 in relation to Interest; Section 26 Repairs and minor capital equipment;
Section 27 Depreciable assets; Section 28 Initial allowance; Section 29 Industrial buildings;
Section 30 Start up costs; Section 31 Costs of intangible assets; Section 32 Scientific research
expenditure; Section 33 Training expenditure; section 34 Charitable donations; Section 35
Farming; Section 36 Mineral exploration expenditures.

Under Section 37, a deduction relating to the production of more than one class of income
shall be reasonably apportioned among the classes of income to which it relates. Where a
person derives more than one class of income, the deduction allowed under Section 34 shall
be allocated rateably to each class of income.

Section 38 relates to carry forward losses.

RETURNS Section 92-94 Income Tax Act

According to section 92(i) Subject to Section 93, every tax payer shall furnish a return of
income for each year of income of the tax payer not later than 4 months after the end of that
year.

The return to be in prescribed form and to state the information required. It should be signed
by the tax payer or his/her legal representative including a declaration as to completeness and
accuracy of the return. A tax payer carrying on a business shall with the tax payer’s return of
income furnish a statement of income and expenditure and a statement of assets and
liabilities.

Where a person fails to furnish returns of income, the Commissioner may by notice in
writing, appoint a person to prepare and furnish the return and this would be deemed to be a
return of the person originally required to furnish the return.

Under Section 93 Income Tax Act, returns of income are not required (a) by a non resident
person where section 87 applies to all the income derived from sources in Uganda by the
person during the year of income; or (b) by a resident individual- to whom section 4(4) or (5)
applies or whose total chargeable income for the year of income is subject to the zero rate of
tax under Part 1 of the Third Schedule to this Act.

20
Under Section 94, the time to furnish a return may be extended in some cases on account of
absence from Uganda, sickness or other reasonable cause.

ASSESSMENTS
Section 95(1) Income Tax Act provides that an assessment could be based on tax payer’s
return. Subject to Section 96, the Commissioner shall, based on the tax payer’s return of
income and on any other information available, make an assessment of the chargeable income
of a tax payer and the tax payable thereon for the year of income within 7 years from the date
the return was furnished.

Assessment may not be based on the tax payer’s return where Section 95(2) applies, i.e. the
tax payer has defaulted in furnishing a return of income for the year of income; or the
Commissioner is not satisfied with the return of income for the year furnished by the tax
payer. In such cases, the Commissioner may, according to his/he best judgment, make an
assessment of the chargeable income of the tax payer and the tax payable thereon for that
year. Where this is done, the Commissioner shall include with the assessment a statement
why he/she was not satisfied with the return.

When assessment has been made, the Commissioner shall serve a notice on the tax payer
stating:
- the amount of chargeable income of the tax payer;
- the amount of tax payable;
- the amount of tax paid, if any;
- the time, place and manner of objecting to the assessment.

Section 96 provides for Self-Assessment. The Commissioner is deemed to have made an

assessment of the chargeable income of the tax payer and the tax payable on that chargeable
income for that year where a tax payer has furnished a return of income for the year of
income being those respective amounts shown in the return. In such a case, the return of
income is treated as a notice if an assessment served on the tax payer by the Commissioner
on the due date for furnishing of the return or on the actual date the return was furnished,
whichever is later.

Nevertheless, the Commissioner may still make an assessment even where a tax payer has
furnished a return. The Commissioner is authorized to issue a notice published in the Gazette
specifying tax payers whose income tax return are regarded as self-assessment returns
(Section 96(5)).

Self-assessment also applies for payment of provisional tax.

Section 97 of the Income tax Act provides for additional assessment. The Commissioner may
within 3 years after service of a notice of assessment, make an additional assessment
amending an assessment previously made, if the need arises by reason of fraud or any gross
or willful neglect by or on behalf of the tax payer or discovery of new information in relation
to the tax payable for any year of income.

The Commissioner is not permitted to make an assessment where the relevant previous
assessment for the year of income had been amended or reduced pursuant to an order of the
High Court or Court of Appeal unless such order had been obtained by fraud, or any gross or
willful neglect.

21
Under Section 98 of the Income Tax Act, the Commissioner shall cause an assessment list to
be prepared. This should contain each tax payer’s name and address; the amount of
chargeable income upon which the assessment has been made and the amount of tax payable.
This is also for evidential purposes. The Commissioner may before the expiry of 2 years
from the date of making or issuing an order or document amend or rectify any mistake that is
apparent from the records (Section 98(4)).

TAX RECOVERY MEASURES SECTIONS 10-110 Income Tax Act

All tax assessed is required to be paid with 45 days from the date of assessment. In the case
PAYE and withholding taxes, the taxes are payable by the 10 th day of the months following
the deduction. These are what are called due date in tax law. Where tax has remained un
paid after the due date, tax recovery measures may be instituted.

There are various recovery measures prescribed by the Income Tax Act:

1. Issuing Agency Notices: Under this recovery measure, the Commissioner may
serve an Agency Notice on any person who holds the tax payer’s money e.g. his
bankers. Where the agent so notified fails or refuses to pay over the money he holds,
then the tax may be recovered from him as if it were due from him.

2. Distraint: The tax payer’s moveable assets may be distrained upon for the
recovery of a tax due.

3. Civil Suits: A civil suit may be instituted against a tax payer for the recovery
of a tax due.

4. Where the Commissioner suspects that the tax payer will leave the country
permanently without paying all tax due under the Act, the Commissioner may issue a
certificate containing particulars of tax due to the Commissioner of Immigration and
request him/her to prevent that person from leaving Uganda until that person makes
payment in full or provides a financial bond guaranteeing the payment of the tax due.
Payment of the tax specified in the certificate to a Customs or Immigration Officer or
the production of a certificate signed by the Commissioner stating that the tax has
been paid or secured shall be sufficient authority for allowing the person to leave
Uganda.

OBJECTIONS AND APPEALS Sections 99-102 Income Tax Act

In the whole process of determining the tax payer’s taxable income, disagreements are bound
to occur/arise. Where a tax payer id dissatisfied with an assessment he is required in the first
instance to lodge an objection to the assessment to the Commissioner. The Commissioner on
receipt of an objection may:
1. Accept it and amend the assessment accordingly (objection decision);
2. Amend the assessment in light of the objection to the best of his judgment;
3. Reject the objection and confirm the assessment.

Under 2 &3 above, the tax payer may still be dissatisfied with the objection decision. In this
case, the tax payer may apply for review of the decision by the Tax Appeals Tribunal within
30 days from the date of the decision or within 6 months. See Section 14 Tax Appeals
Tribunal Act. Either party may appeal from the decision of the Tax Appeals Tribunal to the

22
High Court. If dissatisfied with the decision of the High Court, either party may with leave
of the Court of Appeal appeal to the Court of Appeal against the High Court decision.

Under Section 102 Income Tax Act, in any objection to an assessment, any appeal of an
objection decision, the onus is on the tax payer to prove on the balance of probabilities the
extent to which the assessment made by the Commissioner is excessive or erroneous.

Refund of Tax
The Income Tax Act in Section 113 provides for refund of any tax paid in excess of one’s tax
liability in a given year of income. This is effected when the tax payer applies in writing
through the Commissioner General within 5 years from the (a) date on which the
Commissioner served the notice of assessment for the year of income in question; or (b) the
date on which the tax was paid, whichever is the later.

The Commissioner has the discretion to either apply the identified excess in reduction of any
other tax due from the tax payer, and apply any balance of the excess in reduction of any
outstanding liability of the tax payer to pay other undisputed taxes or to use the excess as
provisional tax payment for that particular year of income.

Where a refund is a result of a court order or a result of an objection decision, the

Commissioner refunds the money with simple interest of 2% per month from the date the tax
payer paid the excess tax. Where the Commissioner decides to make a refund, the decision
must be communicated to the tax payer within 30 days. If the tax payer is not satisfied with
the decision he can appeal under Sections 99-103 of the Act.

TAX OFFENCES
These are provided under Section 137-150 Income Tax Act. They include failure to furnish a
return; failure to comply with recovery provision; failure to maintain proper records;
improper use of tax identification number; making false or misleading statements; obstructing
an officer of the authority.

In the case of companies, an Officer, Director, General Manager, Secretary or similar officer
of the company is deemed to have committed the office except where he did not consent or
have knowledge or exercised due diligence to prevent the offence.

Section 148 of the Income Tax Act provides for compounding of offences except those under
Section 145 which relates to offences by URA officers. Money may be paid in lieu of
prosecution.

TAX APPEALS TRIBUNAL

The Constitution of the Republic of Uganda in Article 152 (3) provides for the setting up of
tax tribunals for the purpose of settling tax disputes. For purposes of taxes collected by the
URA, the above provision is operationalised by the Tax Appeals Tribunal Act, Cap 345 and
the Tax Appeals Tribunals (Procedure) Rules SI 345-1.

Prior to establishing the Tribunal, the internal objection process was handled within the URA
ranks and on failure to resolve any disputes the tax payers would resort to Court. However,
this would lead to possible bias as the assessors would hand the objections.

Salient features of the Tax Appeals Tribunal

23
 1. The Tribunal consists of a Chairperson and 4 Members with expertise in the
field of taxation, finance, accountancy or law;
2. Any particular sitting of the tribunal is constituted by 3 Members.
3. The Tribunal is independent and not subject to the direction or control of any
person or authority in the discharge of its functions;
4. A tax payer is required to pay 30% of the tax assessed or that part of the
assessed tax not in dispute whichever is greater before the Tribunal resolves the tax
dispute (see Section 15 Tax Appeals Tribunal Act).
5. The Tribunal is mandated to exercise all powers and discretions conferred on
the decision maker under the relevant taxing laws. Thus in resolving disputes, the
Tribunal may:
(a) affirm the decision under review;
(b) vary the decision under review;
(c) set aside the decision under review and either (i) make a decision in
substitution for the decision set aside; or (ii) remit the matter to the decision
maker for reconsideration in accordance with the directions/recommendations
of the Tribunal.
6. A decision of the Tribunal has effect as and is enforceable as if it were a
decision or act of the decision maker.
7. The Tribunal like the High Court has powers to summon any person to appear
before it to give evidence or produce any records deemed relevant to the case under
review.
8. At Tribunal hearings the Applicant tax payer may appear in person or may be
represented.
9. A fee of only Shs. 20,000/= is paid on filing an application before the Tax
Appeals Tribunal.

It is important to note that the Tax Appeals Tribunal is a quasi-judicial institution established
to settle tax disputes between tax payers and the URA. The Tribunal handles only tax
disputes arising out the taxing Acts administered by the URA including the Income Tax Act,
Value Added Tax Act, Stamps Act, Customs & Excise Act and any other Act administered by
the URA.

Under Section 28 of the Tax Appeals Tribunal Act, review or appeal proceedings may lead to
a stay of implementation of the decision being reviewed or appealed from.

24