Has court saved used car importers from URA fangs? 

The importation of used motor vehicles has previously caused confusion among taxpayers and the Uganda Revenue Authority in regards to their valuation.

On the one hand, taxpayers argue that used cars and other used items imported into Uganda should always be valued using the transaction value method, which is the price actually paid or payable on the goods as reflected in the import documents.

This valuation method assumes that import documents are always correct. On the other hand, URA argues that any used items, including second-hand motor vehicles, ought to be valued using the fallback method, which is determined by using all the valuation methods in a flexible manner while considering the prevalent market price at the time of importation, the prices incurred by other importers of the same goods during the same period, among others.

In a recent decision by the Court of Appeal in Commissioner of Customs and URA versus Testimony Motors, a halt has seemingly been put to this debate.

The background to the case is that URA issued a directive reappraising all second-hand motor vehicles imported into Uganda for customs purposes using the alternative valuation method instead of the transaction value method.

Testimony Motors, the respondent on appeal, had imported a second-hand motor vehicle from Japan and declared its value as $5,200, on which it was to pay taxes of $3,588.

However, URA rejected this value and reappraised the motor vehicle using the fallback method, according to which a customs duty of $11,200 was determined. This followed a directive by URA suspending the operation of the transaction value method on the importation of all used items.

The respondent subsequently sued URA, claiming that its actions were illegal. Customs laws in Uganda are governed by the East Africa Community Customs Management Act (EACCMA), which provides for two types of customs duties, i.e., a specific duty rate as determined using the Common External Tariff, where a specified import duty percentage is imposed on the price of the goods, and an ad valorem duty rate, which is based on the assessed value of the goods.

Motor vehicles, by their nature, fall under the ad valorem duty rate. This means that the taxes to be paid are dependent on the value of the car, which is determined after considering factors like the price actually paid, costs incurred in importation, freight, and/or insurance as reflected in various import documents like commercial invoices, bills of lading, etc.

Much as import documents are normally reflective of the price actually paid at importation, this is not normally the case. Several importers rely on false and misleading documents that reflect lower prices than the actual price paid at importation.

Without proper importation documents, it is difficult to determine the exact price on which a customs levy can be imposed. This has been a persistent challenge across the globe and has led to the collection of less tax on used items.

It is not uncommon for URA to encounter taxpayers importing a 2022 Range Rover Velar, which is ordinarily valued at a market price of over Shs 200 million, with import documents reflecting a value of a paltry Shs 50 million.

This always leaves the revenue body bereft and unable to calculate the proper taxes payable since import entries are done by the taxpayer themselves or their customs agent.

Having noted such challenges and complexities, the World Customs Organization and its sister body, the World Trade Organization, issued guidelines and opinions to the effect that revenue authorities should use the fallback method for purposes of customs valuation as it is ‘more realistic’ in determining the actual value of used items.

WCO noted that the continued use of the transaction method stifles the progress that has been made in easing and facilitation of trade along border points in line with the General Agreements on Trade and Tariffs (GATT).

In some jurisdictions like Kenya, the court has taken significant judicial notice of these challenges and given Kenya’s Revenue Authority the green light to suspend the use of the transaction value method in favor of the more definitive fallback method as per the EACCMA.

It is intruguing that the Court of Appeal of Uganda, with regard to all the above complexities, insisted on the use of the transactional value method.

The EACCMA permits divergence from the transaction value method whenever it is impossible to obtain the proper value of the goods. Importation of used vehicles is such a case in point.

According to available URA data, Uganda imports between 3,500 and 5,000 vehicles per month, with the majority of them being second-hand cars. So, the decision of the Court of Appeal could lead to an influx in the importation of motor vehicles of about 10,000 units, which may exacerbate the already existing challenge of the dumping of used items by exporting countries.

Much as URA intends to appeal to the Supreme court, it is hard to tell whether it will comply with the orders to have motor vehicles valued using the transaction value method or whether it will seek an order staying the execution of the orders of the Court of Appeal in order to continue using the fallback method to value second-hand motor vehicles.

nahumuzad55@gmail.com

The writer is an advocate of the High court and a tax specialist.