In a stunning decision, the High Court held that a temporary injunction will not be issued to restrain the Uganda Revenue Authority ("URA") from its statutory function of collecting taxes, save in limited circumstances. The decision Capital Shoppers v URA Miscellaneous has been received with what can truly be called mixed feelings. On one hand, the tax collector feels strengthened in its efforts at tax collection and on the other, taxpayers may feel they have little recourse when the tax collector knocks at the door.

A close examination of the ruling, however, suggests that the facts of this case are unique and the ruling will be of limited relevance.

The facts

The owners of five Ugandan supermarkets: Capital, Quality, Kenjoy, Jazz and Mega Standard, were listed by the URA to take part in a pilot exercise for the implementation of the Electronic Fiscal Receipting and Invoicing Solutions (EFRIS), a new tax system under the Tax Procedures Code (E-Invoicing & E-Receipting) Regulations, 2020. The supermarkets resisted the selection process and sought a temporary injunction to restrain URA.

The supermarkets objected to the selective implementation and appointment as pilot candidates. They contended that URA's pilot study had no legal basis, was discriminatory and had no clear implementation strategy. They challenged the selection process for lack of consultation and informed public/stakeholder engagement.

After the case had been filed and scheduled for hearing, the URA, by statutory instrument, gazetted all VAT-registered entities in Uganda as mandatory users of the e-invoice or e-receipts system. The supermarkets contended that such gazetting was ultra vires and a statutory instrument cannot arrogate more power than the parent act.

For the URA, it was argued that they were lawfully performing a statutory duty and should not be restrained. The supermarkets are all VAT-registered and bound by the law, therefore an injunction would effectively eliminate a group of people from the application of the law, which is also discriminatory in nature against the rest of the VAT-registered taxpayers.

The law

The purpose of a temporary injunction is to maintain the status quo until the question to be investigated in the suit can be finally disposed of. An applicant for a temporary injunction must:

  • Firstly, show a prima facie case with a probability of success. There ought to be a triable issue, which ought to go to a tribunal for adjudication, not necessarily one that must succeed.
  • Secondly, the applicant must show likelihood of irreparable damage or injury, ie, injury which is substantial and cannot be adequately remedied or atoned for by damages.
  • Thirdly, if the court is in doubt, it will decide the application on a balance of convenience.

After an excellent summary of the law relating to temporary injunctions from several jurisdictions, the court zeroed in on the public interest question as an aspect of the balance of convenience. The ruling does not show the full consideration of the first two aspects of the injunction test.

The court cautioned itself to be slow in granting an injunction against government projects that are meant for the interest of the public at large as opposed to the private proprietary interest or otherwise of a few individuals. The court was persuaded by an Indian decision that where matters of public revenue are concerned, interim orders ought not to be granted merely because a prima facie case has been shown. The balance of convenience must be evidently in favour of the making of an interim order without prejudice to the public interest.

The court concluded that the URA should not be restrained in collecting revenue or managing revenue collections save under very exceptional circumstances. The grant of an injunction should be an exception and not a rule.

The judge followed his own decision in Alcohol Association of Uganda v Attorney General, where a similar industry group also sought to restrain the application of new measures for tax administration, in that case, digital tax stamps.

Conclusion

While the URA may want to make a flag out of the position this ruling reinforces, it is most doubtful that this ruling will apply where a taxpayer seeks to stop the URA from collecting taxes which are the subject of dispute. In that typical case, where a prima facie case can be made out, it would follow that irreparable injury would also result and, therefore, the court would have no need to weigh the public interest argument as part of the third test in granting a temporary injunction dealing a balance of convenience. This third test is only applicable where the court is in doubt after considering the first two tests for the grant of an injunction.

Originally published 14 July 2020.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.