Rethink Uganda’s tax dispute resolution regime

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OPINION

By Denis Kakembo

There are mounting concerns about the vast sums trapped in prolonged tax disputes, with the AG’s recent report revealing that by June 2024, unresolved cases had locked up over sh330b. This staggering figure, irrespective of whether the contested assessments are ultimately upheld or overturned, highlights a deeper systemic issue.

If the assessments are accurate, public funds remain inaccessible, delaying essential government programs, whereas if they are erroneous, taxpayers have already parted with sh110 billion under the 30% prepayment requirement, depriving businesses of capital that could otherwise drive private sector expansion. Against this backdrop, this article calls for targeted reforms to enhance the efficiency, fairness, and predictability of Uganda’s tax dispute resolution framework.

The absence of an independent tax ombudsman to oversee URA’s expansive administrative mandate is increasingly questioned, as jurisdictions with such oversight mechanisms provide taxpayers with a layer of impartial review that ensures fairness, transparency, and accountability in tax administration while also mitigating the risk of administrative overreach by subjecting the tax authority’s actions to independent scrutiny.

While the government has in recent years sought to strengthen alternative dispute resolution (ADR) aiming for a less formal and ostensibly more amicable mechanism for resolving tax disputes, many taxpayers remain skeptical of its effectiveness, largely because ADR operates within the very institution that issues the assessments, thereby creating an inherent conflict of interest, particularly when assessments are driven by revenue targets, as ADR officials may be reluctant to adjust or overturn assessments for fear of undermining institutional revenue objectives, ultimately eroding taxpayer confidence.

Moreover, ADR in practice is more successful with deciding less contentious, lower-value disputes, while the more complex, high-stakes cases remain unresolved, a reality that curtails ADR’s potential to deliver substantive outcomes.

While the constitutionality of the requirement to pay 30% of the disputed tax before contesting URA’s assessments remains debated, it is both the prevailing practice and jurisprudence. The rationale appears pragmatic, allowing the government to secure some revenue while dispute resolution is ongoing.

However, a deeper issue arises when the assessment is erroneous. In such cases, the prepayment imposes an unfair financial burden, forcing taxpayers to part with funds they may never owe in the first place.

This is further compounded by the absence of a tax ombudsman to review the administrative environment within which assessments are raised before escalation to the Tax Appeals Tribunal (TAT). Without independent oversight, taxpayers have no assurance that the assessments they challenge are fair or accurate. The lack of such a safeguard may create room for tax demands driven by revenue targets rather than objective determinations.

The necessity of a 5-tier appellate process in Uganda’s tax dispute resolution framework is increasingly scrutinised, particularly in light of the extended timelines it is taking to have a final determination of tax disputes.

In some cases, disputes have dragged on for over 15 years, creating an untenable situation for commercial matters, where swift resolution is essential to the stability and growth of businesses and the broader economy.

To address this issue, establishing a tax ombudsman would provide an essential layer of independent oversight, fostering greater confidence in the administration environment under which tax assessments are raised. With a reliable mechanism for impartial review, taxpayers would have increased trust in the dispute resolution process, potentially reducing the volume of adjudicated cases.

Moreover, the appellate process should limit appeals beyond the TAT to the High Court. Given the specialised nature of tax disputes, there is little evidence to suggest that a prolonged appellate process yields fairer outcomes. On the contrary, it only prolongs uncertainty for both taxpayers and tax authorities, further diminishing the overall efficiency of the system.

Strengthening the TAT is another consideration. This can be achieved by appointing additional members, ensuring that the tribunal's composition reflects the complexity of modern tax disputes. Securing the tenure of office of TAT members is a further vital step to fostering impartiality and independence.

A well-equipped, experienced, and secure TAT would be better positioned to resolve disputes expeditiously and with greater precision. As a result, any subsequent appeals would focus on procedural legal issues rather than substantive legal, technical and merit issues, ultimately improving the efficiency and fairness of the tax dispute resolution process.

In practice, both the URA and taxpayers have, at times, used the appeals process not as a means to achieve fair resolution of tax disputes but as a strategic tool to delay final settlement. Many appeals within the system ordinarily should not be there. This creates a cycle that undermines the goal of swift and fair determinations. To address this, reducing the number of appeal stages and strengthening the TAT would create a more efficient and predictable system for resolving tax disputes.

While revenue generation is vital, the methods employed should not overlook economic stability. Ambiguities in tax administration and enforcement create uncertainty, weaken public trust, and stifle economic growth. A transparent and predictable dispute resolution framework fosters compliance, attracts investment, and strengthens the economy. Streamlining the appeals process and instituting safeguards against unfair assessments would ensure a more equitable system. Uganda must seize the moment to reform its tax dispute resolution regime, creating a system that upholds fairness while sustaining economic prosperity.

The writer is a Tax Lawyer, Cristal Advocates