KAMPALA — The Tax Appeals Tribunal (TAT) has ordered the National Social Security Fund (NSSF) to pay Shs42b to Uganda Revenue Authority (URA) over failure to pay tax in time.
In the decision delivered on Monday, a coram of three members ordered NSSF to pay the principal tax of Shs30,521,703,065 which was due and a penal interest of Shs12,196,879,941.
A coram of three members of TAT comprising Dr Asa Mugenyi, Mr Siraji Ali, and Mr George Mugerwa, dismissed the tax case in which NSSF was challenging the Shs42b corporation tax assessment issued by the tax authority for seven years.
The three-member panel also condemned NSSF to legal costs incurred by URA in the case.
TAT ruled that the interest payable to NSSF is not a deductible allowance under the Income Tax Act and that NSSF is liable to pay penal interest.
“The interest is not a payment of an expense of income or capital nature but a return of investment. The members of NSSF are like shareholders who invest in a company’s ventures with an intention of obtaining dividends.
Returns on investments like dividends are issued after all expenses have been deducted and profits taxed,”
The assessment arose out of a dispute between the workers’ fund and URA relating to whether interest paid by NSSF in respect of contributions made by its members are allowable deductions within the meaning of Section 25(1) of the Income Tax Act.
The Fund had challenged the income tax assessment of Shs42,196,249,077 for the period 2005 to 2012 in respect of interest paid to members’ accounts under the NSSF Act.
TAT ruled that contributions made to NSSF are not current liabilities in the Fund’s balance sheet because they may not be payable within a short period.
NSSF argued that the contributions paid by the members created a debtor and or creditor relationship making the interest a deductible allowance.
Through its lawyers, URA objected to this position stating that the interest paid to NSSF members was not used in the production of income.
But the tribunal held that NSSF was holding money belonging to its members as a trust fund which it invested and gave a return to its members.
“There existed a fiduciary relationship between NSSF and its members.
The contributions made to NSSF by its members did not create a debt obligation and the return paid to the members did not amount to interest as in the case of banks,” the tribunal ruled.
The tribunal said NSSF members’ interest is not a payment of an expense of income or capital nature but a return on investment.
“The members of NSSF are like shareholders who invest in a company’s ventures with an intention of obtaining dividends. Returns on investments like dividends are issued after all expenses have been deducted and profits taxed,” the tribunal ruled.