Tax Appeal Tribunal ruling: Commissioner Generals discretion must be exercised judiciously

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Authors: Celia Becker and Phillip Karugaba. The recent ruling of the Tax Appeals Tribunal (TAT) in the case of Century Bottling Company v Uganda Revenue Authority (URA), has brought the discretion of the Commissioner General of the URA sharply in focus.

It is absolutely necessary and indeed important that in the exercise of their functions, public authorities exercise discretion. It is equally important that such discretion is properly exercised taking into account only the relevant considerations and for the proper reasons. The citizen has recourse to court to check the excesses of executive discretion. A public official is therefore not like the cultural leader kamala byona (he who finishes all matters). The formers discretion is very much controlled by law and by the courts.

The facts

In April 2020, Century Bottling, a Ugandan company responsible for the production and distribution of soft drinks under a franchise from Coca-Cola Company, filed an application with the TAT for the review of a tax assessment of approximately UGX60-billion. Under the TAT Act, one of the conditions for filing a matter before TAT is the payment of 30% of the tax assessed or the amount not in dispute, whichever is higher. The taxpayer applied to the Commissioner General to pay the 30% in instalments on the grounds that it did not have the means to pay the tax. As a result of the impact of the Coronavirus (COVID-19) restrictions, the company was operating at a fraction of its installed capacity and sales had dropped 55% without a corresponding reduction in its wage bill and other expenses.

Under the Tax Procedures Code Act 2014, the Commissioner General has the discretion to accept payment of taxes in instalments. The Commissioner General in the exercise of his discretion rejected the taxpayers application to pay in instalments, for reasons not stated in the ruling. The taxpayer then applied to the TAT for a review of the Commissioner Generals decision and to restrain the URA from enforced tax collection. It submitted that it will suffer irreparable loss, crippling its business and damaging its reputation and that, on a balance of convenience, the URA ought to be restrained.

The URA argued that the Commissioner Generals decision to reject the application did not amount to a tax decision as defined by the Tax Procedures Code Act and, accordingly, the TAT was not the proper forum to question the exercise of the Commissioner Generals discretion. As the TAT does not have the required jurisdiction, the taxpayer, instead, should have sought judicial review before the High Court. The URA also sought to resist the injunction on the ground that the taxpayer would not suffer any irreparable injury as the URA, as a statutory body, would be well able to pay any damages assessed against it.

The taxpayer countered that TAT had unlimited original jurisdiction over all tax disputes, including a review of the exercise of discretion by the Commissioner General. The taxpayer argued that the Commissioner General had acted unreasonably in not considering all the information provided to it and, further, were acting irrationally in insisting on full payment of the UGX60-billion assessed.

The decision

The TAT confirmed that the Commissioner Generals decision was in fact a tax decision as defined and, therefore, within the TATs jurisdiction to review such decision.

On the exercise of discretion, the TAT guided itself that discretionary power is not absolute, but is subject to general legal limitations expressed in a variety of different ways. Discretion must be exercised reasonably and in good faith, only relevant considerations must be taken into account, there must be no malversation of any kind and the decision must not be arbitrary or capricious.

The TAT then posed the question whether a reasonable authority addressing itself to the widespread economic losses occasioned to the manufacturing sector and the economy at large as a result of the COVID-19 pandemic, would reject a request by a taxpayer to pay the required 30% tax in instalments? The TAT added that the question should be understood in light of the fact that, not only does the authority in question have powers accorded to it by statute to grant such a request, but it has in the past granted such requests in times much less precarious than these and for amounts much smaller than what the taxpayer is required to pay.

Framed in that way, invoking the impact of COVID-19 and holding the URA to its own antecedents, one hardly need hold their breath to learn what followed. The TAT found that the decision of the Commissioner General in rejecting the application to pay 30% of the tax assessed in instalments was so outrageous in its defiance of logic that no sensible person who had applied his mind to the question to be decided could have arrived at it.

The TAT found a prima face case with a probability of success had been made by the taxpayer. On irreparable injury, the TAT cited a High Court decision involving another statutory body where an injunction was declined on the ground that the defendant, as a statutory body like the respondent, would be in position to pay damages that might be awarded against it.

The TAT, however, made a brilliant departure from the High Court precedent stating that while it is conceded that the respondent being a statutory body, may have access to funds from the national coffers, which could be used to pay damages, it goes without saying that a great deal of circumspection must be employed in ensuring that increases to the national debt are kept to a bare minimum and that the State is not burdened with debts that can be avoided through the use of prudence and good sense.

The TAT held that the taxpayer is permitted to pay 30% of the tax assessed in four equal instalments, and a temporary injunction restraining the URA from collecting the tax assessed was granted.

Conclusion

This is an excellent decision from the TAT clipping the eagle spread wings of the Commissioner General. Though under pressure to achieve tax collection targets in a declining economy, the Commissioner Generals discretion must still be exercised judiciously. The decision also demonstrates excellent commercial awareness and the judicial independence of TAT.

 

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