UGANDA: REQUIREMENT TO PAY 30% OF TAX ASSESSED BEFORE CHALLENGING AN ASSESSMENT DECLARED UNCONSTITUTIONAL
In a ruling that was more than 10 years in the making, the Constitutional Court of Uganda - in Fuelex (U) Limited vs Uganda Revenue Authority CR No.03 of 2009 - has declared as unconstitutional section15 of the Tax Appeals Tribunal Act (TAT Act), that requires a taxpayer to pay a deposit of 30% of the tax assessed to the Uganda Revenue Authority (URA) pending final resolution of a dispute.
The Court declared that insofar as the section requires an objector whose challenge is not with regard to the amount of tax payable, to pay the 30% deposit, it is inconsistent with Article 44(c) of the Constitution and hence unconstitutional.
Although the decision appears a welcome victory for the general tax-paying public, it has left some confusion as to how to apply it in practice in matters before the Tax Appeals Tribunal pending the inevitable appeal by the Revenue Authority to the Supreme Court.
Key features of the decision and the major points of debate follow below.
The case reached the Constitutional Court by way of reference from the Tax Appeals Tribunal, for interpretation of the question whether section15 of the TAT Act contravenes Articles 126 (2)(a) and 21(1) of the Constitution of the Republic.
Article 21 (1) guarantees all persons from all spheres of life the equal protection of the law. The Petitioner also argued that the impugned section violated Article 44 (c) which provides that the right to a fair hearing shall not be derogated from.
The Court by majority of 3-2 (Kakuru, Egonda-Ntende, Muhanguzi JCC; with Obura JC, Owiny Dollo DCJ dissenting) held that the section is not unconstitutional in so far as it applies to disputes over the tax amounts assessed.
Its constitutionality, however, comes into question where its applicability is sought to extend to parties whose disputes are purely legal and or technical and where the issue for determination before the Tribunal does not relate only to the amount of tax payable.
The Court ruled that in those circumstances the section places an unfair burden on the taxpayer and gives the tax authority an unfair advantage since the objector is required to pay money to it before its dispute can be entertained. The Court ruled that this is inconsistent with Article 44 (c) of the Constitution as well as Article 21 (1) that guarantee a right to a fair hearing and equal protection of the law respectively.
The Court was alive to the earlier Supreme Court decision in Uganda Projects Implementation and Management Centre vs URA SCCA 02 of 2009 (2010) (UPIMAC case) that dealt with a similar provision in the VAT Act. In that case, the Petitioner had challenged the constitutionality of section 34(c)(3) of the VAT Act, a section that was in pari-materia with section 15 of the TAT Act, on the grounds that it violated the constitutional right of access to justice.
The Constitutional Court had ruled, and the Supreme Court had affirmed, that the requirement to pay 30% of the assessed tax was not unconstitutional when balanced with the citizen’s duty to pay taxes and was demonstrably justifiable in a democratic society.
In this case, however, the majority of the Court was of the view that the UPIMAC case was not binding insofar as it did not consider the present situation where the law would be construed to be inconsistent with the Constitution, and insofar as key pertinent issues before it were not conversed by the Supreme Court.
Justice Helen Obura, who dissented from the majority decision, expressed the view that the question of constitutionality of the 30% payment had already been settled by the Supreme Court in the UPIMAC case and as such there was no need for the Tribunal to make this current reference.
Justice Owiny Dollo, who joined Justice Obura in dissent, advanced even more compelling reasons why the impugned section is not good law. He wrote, ‘The impugned provision of the Act clearly offends the rule of law provision enshrined in the Constitution, which guarantees equal access to justice for everyone and; negates all forms of equity known to law. The maxim, ‘having one’s day in court’ underscores the importance of the right of access to Court for the protection of law, as one of the guaranteed fundamental rights. It recognizes and emphasizes the vital function of Court in the protection of rights.’
Despite this powerful dictum, the Deputy Chief Justice felt that his hands were tied by the UPIMAC decision and hoped that the Supreme Court would have occasion to revisit the matter.
In the result, the Court ordered that section 15, insofar as it compels an objector to a tax assessment whose challenge is not with regard to the amount of tax payable, to pay to the tax authority 30% of the tax assessed – is inconsistent with Article 44 of Constitution and hence it is unconstitutional.
Implications for taxpayers
This decision has certainly rocked what most practitioners, the courts and the revenue authority thought was a long-settled principle. Whereas the final order of the Constitutional Court has inevitably been appealed to the Supreme Court, it leaves some important questions on how to apply it before the Tax Appeals Tribunal.
The key questions to ask are: Is section 15 of the TAT Act now limited to objections that are concerned only with the amount of tax assessed and does it not extend to assessments based on purely technical disputes? Or has it been rendered void altogether?
We are of the view that applying it to objections that are concerned only with amounts is not practical and leads to certain confusion. It is a well-settled principle that tax liability is a creature of statute and challenges to tax assessments almost always involve the taxpayers contending that the rules do not apply to them or have been misapplied by the tax authority.
As such it becomes a source of dispute in itself as to whether an assessment is concerned with the amount of tax assessed only, or whether there is an underlying disagreement in principle that is driving the dispute.
More importantly, in our constitutional dispensation, once the Court declares a law or part of it as unconstitutional because it is capable of an interpretation that is inconsistent with a provision of the Constitution, that law is no longer good law.
The Constitutional Court affirmed this principal in Law and Advocacy for Women in Uganda Vs Attorney General, Petition N0 13/05 and 05/06 (2007). The Attorney General made an argument in that petition that section 154 of the Penal Code Act should not be struck out, but instead should be construed and modified in order to bring it in conformity with the Constitution.
The Court declined to do so and held that under Article 137 (3) of the Constitution, it is only required to declare whether an Act of Parliament or any other law is inconsistent with the Constitution. The provisions of the Article do not seem to give the Court mandate to modify a law which it has found to be inconsistent with the constitution.
It therefore follows that the Constitutional Court in this case does not have power to modify section15 of the Tax Appeals Tribunal Act which it has found to be unconstitutional, to make it only applicable to certain circumstances.
The Court does not legislate. That mandate lies with Parliament to re-enact the section in such a manner that does not violate the Constitution. It therefore follows that pursuant to this judgment, and absent a stay of execution of the orders, section 15 of the TAT Act cannot be applied to require any taxpayer to pay 30% of taxes assessed pending the determination of a matter before Tax Appeals Tribunal.
The Supreme Court is now left with the task of bringing this matter to finality and reconciling its earlier decision in the UPIMAC case with the views of the Constitutional Court in this case. The debate is by no means at an end.