URA Wins Appeal Over Shs14bn Rice VAT Refund Interest Dispute

The High Court has overturned a Tax Appeals Tribunal ruling that allowed seven rice importers to claim additional interest on VAT refunds amounting to billions of shillings, holding that the businesses could not accept a negotiated settlement and later challenge one of its terms.

Justice Susan Odongo ruled that the respondents had made a voluntary commercial decision to accept 6% annual interest in exchange for the immediate payment of verified VAT refunds. The court found that the allegation of economic duress was “completely devoid of factual and legal substance.”

The case arose from VAT collected by the Uganda Revenue Authority between 2014 and 2023 on rice imported from Tanzania and other East African Community partner states. The importers argued that the tax had been collected in breach of the East African Customs Union Protocol, which prohibits such treatment of goods originating from partner states.

Following legal guidance from the Ministry of Finance and the Attorney General, the URA acknowledged in principle that the VAT could be refundable. The authority subsequently signed a Memorandum of Understanding with the importers on April 23, 2024, establishing a verification and audit process for individual refund claims.

The verification process was completed in October 2024, but the URA rejected or disputed the claims on several grounds, including non-registration for VAT at importation, previous recovery of tax through input returns and failure to account for output tax.

The disputes were later referred to the Tax Appeals Tribunal, where the importers sought refunds totaling UGX 14,542,426,595, together with statutory interest. During mediation in December 2025, the parties reached individual consent settlements under which the URA agreed to pay the verified principal amounts and 6% annual interest from specified dates up to the filing of the refund applications.

The settlements were endorsed by the Tribunal Registrar on December 24, 2025, and the URA paid the entire agreed principal amount by December 30. It also paid UGX 1,454,707,940 in agreed interest.

The importers later filed applications seeking to set aside the interest clauses, arguing that the 6% rate was illegal, contrary to public policy and accepted under institutional economic duress. They asked the Tribunal to replace it with compound interest of 2% per month under Section 36(1) of the Value Added Tax Act.

In May 2026, the Tribunal majority agreed with the importers and ruled that the statutory interest regime was mandatory. It severed the 6% interest clause and substituted it with 2% monthly compound interest, subject to statutory limits and credit for sums already paid. Tribunal Chairperson Crystal Kabajwara dissented, holding that the parties were free to compromise the interest claim and that no economic duress had been established.

The URA appealed the decision, arguing that the Tribunal had unlawfully rewritten a full and final settlement. It also relied on the doctrine of approbation and reprobation, maintaining that the importers could not retain the benefits of the consent orders while challenging the interest provision.

Justice Odongo upheld the URA’s position, finding that the respondents had no physical or legal compulsion to accept the settlement. “The Respondents were under no physical or legal compulsion; they retained the full option to reject the 6% interest offer and proceed to a contested trial before the Tribunal,” she said.

The judge added that the importers had made “a calculated, arm’s-length commercial decision to accept 6% simple interest in order to secure an immediate, guaranteed multi-billion-shilling principal payout within seven days.”

The court further held that a party cannot retain the benefits of a consent order and later seek to remove an unfavourable term. Justice Odongo said the respondents had received approximately UGX 15.99 billion in principal and agreed interest by December 30, 2025, and could not subsequently “unpick the price of that deal.”

According to the court, if the interest clause had been illegal, the proper consequence would have been the collapse of the entire settlement and restoration of the parties to their original position. This would have required the respondents to return the refunded money to the Treasury and proceed to a full trial on the underlying VAT claims.

The appeal was allowed, and the respondents were ordered to pay the URA’s costs of the appeal and the proceedings before the Tax Appeals Tribunal. The ruling was delivered on October 21, 2026.