Sunday, September 27, 2020
Home > News > URA Wins Legal Battle To Tax Terminal Benefits
News

URA Wins Legal Battle To Tax Terminal Benefits

Patience Rubugumya, Commissioner Legal Services & Board Affairs. URA’s legal department is doing a great job

In 2009, Siraje Hassan Kajura filed a suit that turned out to be a game changer in tax administration, as the Ugandan public had for long held divided views on whether or not retrenchment packages or terminal benefits are taxable. The subject drew URA and Mr. Kajura and 160 other former employees of the defunct Dairy Corporation Ltd in a legal duel, after their retrenchment in August 2006.

 The Privatization Unit of Ministry of Finance Planning and Economic Development had subjected the retrenchment packages of these senior citizens to Pay As You Earn, and remitted to URA tax of Ugx. 1,130,778314.

Mr. Kajura challenged the taxation of their benefits in the High Court, lodging civil suit no. 117 of 2009, arguing that, the packages paid to them were not employment income but rather a ‘thank you’, following the privatization of the Diary Corporation.

In his judgment, Justice V.F Musoke Kibuuka ruled in favour of Mr. Kajura declaring that, URA unlawfully charged PAYE on the terminal benefits, thereby ordering refund of the taxed amount, with interests, general damages and costs.

Being dissatisfied with the High Court decision, URA appealed to the Court of Appeal, under civil appeal no. 26 of 2013, arguing that, retrenchment packages and terminal benefits generally, are taxable under the Income Tax Act. The Court of Appeal, in a Judgment of 7th July 2013, agreed with the High Court, that terminal benefits were not meant to be taxed.

Not satisfied, URA further appealed in the Supreme Court in 2015,contending that the items in the package paid to Mr. Kajura and his colleagues were indeed taxable and qualified as compensation under the Income Tax Act. The Supreme Court agreed with URA, in its decision handed down on20th December 2017,  that terminal benefits or retrenchment packages are indeed taxable and URA was right in taxing them.

Feeling aggrieved by the Supreme Court ruling, Mr. Kajura filed an application for review in 2018,under civil application no. 26 0f 2018, asking the very Court to revisit and ‘correct’ its judgment, alleging the Supreme Court was in error in deciding as it did in 2017. On 10thSeptember 2020, the Supreme Court dismissed Mr. Kajura’s case, with costs, terming it a disguised appeal to the very Court that had ruled on the same matter already, in 2017.

This land mark decision has cleared all doubts in the minds of the taxpayers that indeed terminal benefits are taxable.

“The value of this decision is unquantifiable, in monetary terms. This decision means the Government of Uganda would have been exposed to the risk of revenue loss, had the case gone against URA. The Government would have to refund all terminal benefits that have ever been taxed by URA from retirees/ retrenchees,” said URA’s Assistant Commissioner Litigation, Mr. George Okello.

Between April to June, 2020, URA registered 17 Court wins, out of 26 cases concluded. Out of these, 5 were settled, while 4 were lost, some of which have been appealed to higher courts.

  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
Taddewo William Senyonyi
https://www.facebook.com/senyonyi.taddewo
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

8 thoughts on “URA Wins Legal Battle To Tax Terminal Benefits

  1. Komugisha sharon

    Eeeh its double taxation! They tax salary again benefits. This government is merciless sincerely. Think about it. Lawyer defend thieves, murderers etc its not a surprise!

    • Malomo Michael

      Terminal benefits are almost like pension. The recipient has ceased to work. This income should not be taxable income. The recipient should instead pay tax on the income that will be generated from his investments.

  2. Andrew Tamale

    This position looks clear to tax and legal department but to a lay person , it is day time robbery. When salary is paid, 30% is retained as PAYE. What is left behind is a paltry 70% . A certain % is taken off as benefits of which the owner has no access till retirement. Upon the devaluation and losses made by the benefactor, the tax person feels that the crumbs need an additional taxation of 30%. What is the essence of additional PAYE on a capital payment?

  3. Caca Fred Olak

    We decry on this matter very much, there is something not right on this law, please revisit the law for a future benefit; because you can not tax someone the money you’re giving him for transport back home/ settlement.

  4. Malomo Michael

    Terminal benefits are almost like pension. The recipient has ceased to work. This income should not be taxable income.
    The recipient should instead pay tax on the income that will be generated from his investments.

  5. I believe this idea of taxing terminal benefits is contestable. But I suggest this idea.

    If it is done I propose that pensions and other retirement packages should not be costant.

    As salaries and wages are increased every fiscal year so should pensions, retrenchment packages and so on. Besides, let these benefits be paid according to the value of the dollar. If these are done then URA can tax the income.

  6. Ouma Fred Masinde

    There should be no confusion, the law still exempts pension and any payments derived from a registered retirement fund. What this means is that if an individual has been contributing to a retirement fund such as the NSSF or any other retirement fund like the public service retirement scheme, at the time of receiving such savings there is no tax imposed because those savings at the time of contribution was subjected to PAYE at source. To tax it would be double taxation which is against taxation principles
    However terminal benefits which may gratuity or compensation for loss of income and that is taxable under section 21 of the ITA . It is not double taxation.

    • Mukama

      Well put Mr Ouma. A little more knowledge is needed before such arguments as seen in the comments and the suit are dispensed. Thank you

Leave a Reply

Your email address will not be published. Required fields are marked *