URA, MTN Shs136 billion tax row moves to arbiter

Mergers, Acquisitions and Financial Results

A tax row between Uganda Revenue Authority (URA) and telecoms company MTN has been scheduled for arbitration starting February 15 after failed attempts to resolve the matter in the boardroom and court.

The two entities are locked in a contest over Shs136 billion that according to URA, was incurred as a tax liability by the telecom company between 2003 and 2007. However, MTN Uganda insists the tax liability is unfounded and had earlier sought court intervention to block the claim.

According to court documents, the dispute started when URA in 2009 suspected MTN of defaulting on its obligations related to management fees, a tax normally charged on income of expatriates, which the telecom employed between 2003 and 2007.

URA also contends that over the same period, the telecom, despite massively building its brand in Uganda, did not pay what is due in terms of taxes in that regard, yet it earned income off the brand.

Coupled with the failure to remit PAYE on bonuses advanced between the periods, URA wrote a letter in December 22, 2011, to MTN to assess the tax liability of the telecom estimated in excess of Shs136 billion.

“On December 22, 2011, URA issued a letter that found MTN to have tax liability in respect of management fees, brand, PAYE on bonus and penal tax of Shs136 billion,” a court document, seen by this newspaper reads in part.

The same document says the telecom is adamant to pay the Shs136 billion because URA’s demand is outside the law. MTN further claims that URA’s intention is driven by the desire to collect more revenue and not by rational decision of equity.

URA claims
On the other hand URA argues the Shs136 billion tax liability, it claims MTN incurred between 2003 and 2007, was accrued on incomes sourced and earned in Uganda, therefore subject to taxation. Tax analysts Daily Monitor spoke to on the matter, said incomes sourced and earned within the country are normally subjected to taxation, unless there is a prior arrangement, or provision within the law that bars it application.

When contacted early this week, Mr ThembaKhumalo, the MTN Uganda chief executive officer, said: “This is not something new. We are aware about it.” Also, a statement it issued later on did not elaborate much except stating: “This matter is currently in court and owing to the sub-judice rules we are not at liberty to comment at this time.”

URA spokesperson Sarah BirungiBanage could not also comment on the matter, saying it is not the agency’s practice to discuss tax matters in public.