The case of Tinasah Investments Ltd v URA (Application No. 170 of 2023), decided by the Tax Appeals Tribunal on January 17, 2025, provides a crucial examination of the principles governing Value Added Tax (VAT) compliance in Uganda. This case highlights the rigorous standards required for claiming input VAT and the importance of proper documentation in substantiating transactions.
Case Overview
Tinasah Investments Ltd, a company dealing in stationery, found itself embroiled in a dispute with the Uganda Revenue Authority (URA) over a VAT liability amounting to UGX 86,607,469. The core issue was the rejection of Tinasah’s claim for input VAT due to insufficient proof of purchase from three suppliers suspected of invoice trading.
Facts of the Case
Tinasah Investments Ltd argued that:
- Their transactions were legitimate, with no fraud committed, as evidenced by the EFRIS invoices which prove the existence of taxable supplies.
- URA’s role is to collect taxes and ensure the tax register’s accuracy, not to question legitimate transactions backed by proper invoices.
- The Ugandan economy’s cash-based nature means not all payments are bank-transacted, especially in areas like Nasser Road, where cash transactions are common.
- Delivery notes, while not mandatory, are part of good business practice and were used to support their claims.
Conversely, URA contended that:
- Tinasah failed to provide concrete evidence like receipts, delivery notes, or bank statements to substantiate the claimed purchases, highlighting a lack of consistency in the information provided.
- Taxpayers suspected of invoice trading must prove their transactions before claiming VAT credits to prevent tax evasion schemes.
Tribunal’s Ruling
The Tax Appeals Tribunal made several key rulings that provide insight into VAT compliance:
- Requirement for Claiming Input VAT: The tribunal reiterated that for a business to claim input VAT, there must be evidence of taxable supplies made to the claimant, supported by a purchase of goods or services, and corroborated by an e-invoice. Specifically, the tribunal stated, “For one to claim a credit for input VAT; taxable supplies should have been made to that person, there should have been a purchase of goods/services to support the claim & the person should be issued with an e-invoice where the goods have been purchased.”
- Burden of Proof: It’s incumbent upon the taxpayer to provide proof of purchase, ideally through an e-invoice that can be verified by URA. The tribunal emphasized, “Therefore, a purchase must precede a claim for input VAT. It is incumbent on the Applicant to prove that a purchase did in fact happen in respect of the e-invoice presented to URA.”
- Substance Over Form: The tribunal adopted a substance-over-form approach, indicating that the reality of the transaction matters more than the form of documentation. This was crucial in the tribunal’s decision, “A substance over form approach must be adopted for transactions & it would be very dangerous for this Tribunal to choose form over substance.”
- Lack of Corroborative Evidence: Tinasah failed to provide any corroborative evidence beyond e-invoices, which were not sufficient to prove the transactions with the three suppliers. The tribunal noted, “There was no single piece of corroborative evidence adduced by the Applicant to demonstrate that the purchases shown on the e-invoices were in fact made by the 3 suppliers.”
- URA’s Role: While URA’s mandate is to administer and collect taxes, taxpayers are also participants in this process, responsible for ensuring their actions facilitate URA’s work rather than obstruct it, “URA’s mandate is to administer & collect the nation’s taxes however taxpayers are not just bystanders, they are active participants in this effort.”
- Failure to Satisfy the Tribunal: Tinasah could not satisfy the tribunal that the transactions recorded on the e-invoices were genuine, leading to the rejection of their VAT claim, “The Applicant therefore failed to satisfy TAT that the purchases underlying the e-invoices were made from the 3 suppliers.”
Implications
This case underscores several critical points for businesses in Uganda:
- Documentation: Beyond e-invoices, businesses must keep comprehensive records including receipts, delivery notes, and bank statements to support VAT claims. The tribunal’s advice was clear, “Taxpayers should maintain their purchase & payment records & not just the e-invoices/e-receipts.”
- Proof of Transaction: Businesses must be vigilant in proving the substance of their transactions, especially in a predominantly cash-based economy where traditional banking records might not always be available.
- Taxpayer Responsibility: The ruling places a significant onus on taxpayers to ensure their records are impeccable, aiding URA in its tax collection duties, “Taxpayers should do everything possible to ease & not frustrate the work of URA.”
- Combatting Fraud: The decision reinforces measures against invoice trading and fraudulent tax claims, promoting a fair tax environment.
The Tinasah Investments Ltd v URA case serves as a landmark in understanding the stringent requirements for VAT compliance in Uganda. It emphasizes the importance of detailed documentation, the substance of transactions over mere form, and the shared responsibility between taxpayers and tax authorities in maintaining the integrity of the tax system. Businesses must adapt their practices to align with these standards to avoid similar disputes and ensure compliance with tax regulations.
