A team of lawyers has challenged the Uganda Revenue Authority (URA) for not complying with a 2023 Court of Appeal ruling that mandated the use of the transaction value method for valuing imported motor vehicles instead of the fallback method. In a May 23 letter to the URA Commissioner of Customs, the lawyers including 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), therefore described URA’s continued use of the fallback method as “illegal taxation” and demanded an immediate halt and a public announcement to that effect.
The letter warned that the lawyers would sue the URA commissioner of customs for contempt of court and initiate a class action to refund all taxes collected using the outlawed method since August 7, 2012, when the first declaration of illegality was made. The lawyers highlighted that the Court of Appeal had upheld a High Court ruling against URA’s use of the fallback method, deeming it unlawful.
The Court of Appeal has dismissed the URA’s application to maintain the suspension of the transaction value method for customs valuation of imported used motor vehicles. This significant ruling stems from a protracted dispute initiated by Testimony Motors Ltd, a used vehicle importer, and supported by other car importers who argued that URA’s alternative fallback valuation method resulted in exorbitant taxes.
In 2010, URA suspended the primary method of valuation for imported used motor vehicles and mandated the use of the fallback method, leading to higher taxes determined by URA. Testimony Motors, representing used vehicle importers, challenged this suspension in court. The conflict began when Testimony Motors imported a used vehicle valued at $5,200, expecting to pay $3,588 in taxes under the transaction value method. Instead, URA imposed taxes based on an $11,200 valuation using the fallback method, more than doubling the tax amount.
In 2013, the High Court ruled in favor of Testimony Motors, declaring URA’s suspension of the transaction value method unlawful and awarding Shs20m in damages. URA’s subsequent appeal was dismissed by the Court of Appeal in March 2023. The court, led by Justice Catherine Bamugemereire, confirmed that the fallback method could only be applied after exhausting all other valuation methods under the East African Community Customs Management Act (EACCMA).
Despite filing a notice of appeal, URA has not secured a stay order, which would allow the continued use of the fallback method during the appeal process. A URA lawyer indicated that the appeal challenges the interpretation that the transaction value method must be primary, arguing the fallback method is often necessary due to inaccurate documentation for used vehicles.
This legal battle underscores the ongoing tension between taxpayers and the tax authority over the valuation of used imports. While taxpayers advocate for the consistent use of the transaction value method, URA defends the fallback method, citing guidance from international organizations and the practical challenges of assessing used goods.
The impending class action suit, a legal mechanism where a group collectively sues on behalf of all affected parties, could compel URA to refund taxes collected unlawfully. The legal team emphasizes that URA must comply with the court’s ruling, discontinue the fallback method, and issue a public statement confirming this compliance.
The resolution of this dispute will significantly impact how used vehicles and other second-hand items are taxed in Uganda, potentially leading to more predictable and fair tax assessments for importers.
