Wakilii

Uganda Electricity Transmission Company Limited (UETCL) v Uganda Revenue Authority (Taxation Application No 46 of 2018)

Tribunal · [2022] UGTAT 8 · 2022 Application Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application to Tax Appeals Tribunal challenging VAT and withholding tax assessments
Decision
VAT assessment set aside; withholding tax assessment upheld; input VAT claim dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Tribunal held that design services provided under engineering, procurement and construction contracts for transmission line installation were incidental to the supply of goods and therefore exempt from VAT under the East African Community Customs Management Act. The applicant was not liable for VAT on design services. However, the applicant was not entitled to input VAT credit because the supply was exempt. The Tribunal found the applicant liable for withholding tax on payments to the non-resident contractor because the installation services gave rise to Uganda-source income.

Outcome

VAT assessment set aside; withholding tax assessment upheld; input VAT claim dismissed

Facts

Uganda Electricity Transmission Company Limited (UETCL) entered two engineering, procurement and construction (EPC) contracts with KEC International Limited, an Indian company, for the design, supply and installation of transmission lines at Kawanda-Masaka and Nkenda-Hoima. The contracts were donor funded. KEC International performed design services from India and installation work in Uganda. UETCL claimed VAT input refund which was rejected. Uganda Revenue Authority conducted an audit and issued a VAT assessment of Shs. 1,997,205,815 on the ground that UETCL had imported design services, and a withholding tax assessment of Shs. 1,666,291,708. URA contended that KEC International established a branch, KEC Uganda Limited, which performed construction while KEC International provided design services from abroad. KEC Uganda initially declared design income but later reversed it, stating it was an error.

Issues

  1. Whether the applicant was liable to pay VAT on the design services provided by a non-resident contractor.
  2. Whether the applicant is entitled to a VAT input refund as claimed.
  3. Whether the applicant is liable to pay withholding tax on payments to the non-resident contractor.
  4. What remedies are available to the parties.

Orders

  • The applicant is not liable to pay VAT of Shs. 1,778,447,976 for the provision of design services.
  • The applicant is not entitled to input credit of Shs. 944,584,816.
  • The applicant is liable to pay withholding tax of Shs. 1,666,291,708.
  • Each party bears its own costs.

Rules and key headnotes

Value Added Tax — Incidental Supply — Design Services Ancillary to Supply of Goods
A supply of design services is incidental to the supply and installation of transmission lines where the design is necessary to draw plans and specifications for the installation to be effected, and does not constitute an aim in itself but a means of better enjoying the principal supply.
Value Added Tax — Exempt Imports — Aid-Funded Projects
Where goods and equipment are imported for use in aid-funded projects financed by a foreign government or development agency, the import is exempt from VAT under the Fifth Schedule of the East African Community Customs Management Act, and services incidental to that exempt import are also exempt.
Value Added Tax — Input Tax Credit — Exempt Supplies
Where a supply is exempt from VAT, input VAT cannot be claimed as credit because input tax credit is only available for standard-rated or zero-rated supplies.
Withholding Tax — Uganda-Source Services Contract — Non-Resident Income
A non-resident person deriving income under a Uganda-source services contract is liable to income tax, and the payer is required to withhold tax on payments made. Where the principal purpose of a contract is the performance of services giving rise to income sourced in Uganda, and goods supplied are only incidental to that purpose, the contract is a Uganda-source services contract.
Withholding Tax — Personal Liability of Withholding Agent
A withholding agent who fails to withhold tax in accordance with the Income Tax Act is personally liable to pay to the Commissioner the amount of tax which has not been withheld, but the withholding agent is entitled to recover the amount from the payee.

Legislation cited (21)

Cases cited (8)

  • Uganda Revenue Authority v Total (U) Ltd (Civil Appeal No. 11 of 2012)
  • Card Protection Plan Ltd v Commissioners of Customs and Excise [2001] UKHL 4
  • Uganda Revenue Authority v Uganda Taxi Operators and Drivers Association (Civil Appeal No. 13 of 2015)
  • Apollo Hotel v Uganda Revenue Authority (Application No. 68 of 2018)
  • Uganda Railways Corporation v Uganda Revenue Authority (HCT-00-CC-CA-38-2014)
  • Canadian National Railway Corporation v Harris [1946] SCR 352
  • Uganda Revenue Authority v COWI A/S (Civil Appeal No. 34 of 2020)
  • Customs and Excise Commissioners V Madgett and Baldwin (trading as Howden Court Hotel)

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Uganda Electricity Transmission Company Limited (UETCL) v Uganda Revenue Authority (Taxation Application No 46 of 2018) 2022 UGTAT 8 (1 February 2022)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.