BoU, NSSF win Tax Disputes worth Shs82b against URA

National Social Security Fund (NSSF) has won a tax dispute in which it had been challenging a Shs42b levy on savers’ interest payments. In a drawn out case battled since 2013, NSSF, which lost at the Tax Appeals Tribunal and subsequently ordered to pay Shs42b to Uganda Revenue Authority appealed the decision at the Commercial Division of the High Court. Justice Boniface Wamala set aside the tax tribunal, ruling: “The interest paid by the appellant [NSSF] to its members is declared a deductible expense for income tax purposes. The appellant is not liable to pay the principal tax assessed of Shs30.5b. The appellant is not liable to pay the penal tax or interest of Shs12.1b.”

The dispute arose out of a decision by URA in November 2013, to subject interest paid to NSSF members to tax. This was, however, a departure from URA’s own earlier position contained in a November 1, 2011 letter, which had advised NSSF that the interest paid to members is allowed as a deductible expense for income tax purposes. NSSF while at High Court argued that it has an obligation to pay back contributions plus interest to members, noting the tax would have a huge cost on member contributions.

On the other hand, URA argued that the interest referred to under the NSSF Act constitutes a return on investment and thus the expense incurred in this regard is not deductible. Mr Patrick Ayota, the NSSF deputy managing director, said if URA had succeeded, the Fund would have paid savers 30 per cent less of the interest declared 10.75 per cent this year. Meanwhile, URA, in a ruling delivered by Asa Mugenyi, the Tax Appeals Tribunal chairman, lost a tax dispute worth Shs106m against Bank of Uganda (BoU).

Represented by Ms Ruth Sebatindira and Ms Olivia Matovu from Ligomarc Advocates, trustees of BoU challenged a tax on member benefits, which in a further assement had risen to a liability of Shs40.9b. BoU runs a defined benefit scheme where employees contribute 4 per cent of their salaries while the Central Bank makes a 17.1 per cent top up.

In the case, BoU had argued that the defined scheme is a settlor trust and taxes should be charged on the settlor, (BoU) which by virtue of being an exempt institution, makes the scheme exempt in accordance with the Income Tax Act.
A settlor trust is one where the settlor (BoU) has a reversionary interest; meaning it would take any surplus derived from the scheme and would also pay any deficit pertaining to the scheme.

However, URA had argued that the scheme is a retirement fund and is regulated by Uganda Retirement Benefits Regulatory Authority, therefore any income derived by it is taxable. Income tax applicable to trustees and retirement funds is 30 per cent.

BoU ruling

The ruling of the Tax Appeals Tribune determined that Bank of Uganda meets the criteria of a settlor since it makes the 17.1 per cent contribution to the trust, noting that when the law was shifting tax liability, it may not have foreseen a situation where the settlor is an exempt institution.

Credit: Daily Monitor