The Uganda Revenue Authority (URA) has lost a landmark Shs1 billion legal battle against Medisell Uganda Limited.
The Tax Appeals Tribunal (TAT) ruled against the tax body on August 4, 2026, blocking its attempt to collect Shs1,006,376,995.
The defeat marks a rare setback for the URA, which historically maintains an overall legal success rate of about 93 percent in tribunal disputes.
According to an analysis by professional services firm PricewaterhouseCoopers (PwC), the Tribunal reaffirmed that tax assessments cannot be based solely on reconciliation differences.
The ruling clarified that where variances exist due to accounting classifications, inventory adjustments, or foreign exchange movements, the URA must establish a clear link to undeclared income or taxable supplies before assessing additional tax.
The case
A comprehensive Uganda Revenue Authority (URA) audit escalated into a legal battle before the Tax Appeals Tribunal (TAT) after the medical distributor Medisell Uganda Limited contested a revised Shs1.05 billion tax demand.
The dispute spans the 2017-2020 period and originally involved nearly Shs2.5 billion in Corporate Income Tax, Value Added Tax (VAT), Pay As You Earn (PAYE), and Withholding Tax.
Although the URA agreed to drop over half of the initial assessments, Medisell rejected the compromised figure, sending the case to the tribunal.
Submissions
The Uganda Revenue Authority (URA) contended that Medisell owed additional taxes due to discrepancies and a lack of documentation in its financial records.
Consequently, the tax authority accused the company of concealing sales, mishandling PAYE tax, and failing to substantiate specific motor vehicle and export claims.
In response, Medisell argued that the URA’s assessment was flawed, asserting it was based on bookkeeping errors rather than actual unpaid revenue.
While acknowledging that certain items, including staff bonuses were miscategorised, the company maintained that no income was hidden and all relevant taxes had been paid.
Medisell testified that the disputed figures reflected accounting anomalies rather than genuine transactions.
Regarding the company vehicles, Medisell stated that strict policies restrict their use to official business, meaning they do not qualify as a taxable fringe benefit for employees.
The Tax Appeals Tribunal ruled in favour of Medisell, agreeing that the assessment was based more on clerical errors rather than undeclared taxable income.
The ruling
The Tribunal largely ruled in favour of Medisell, finding that URA had not sufficiently demonstrated that the cost-of-sales variances represented actual undeclared income or taxable supplies.
The Tribunal accepted Medisell’s explanations that the variances arose from accounting reclassifications, imported capital assets, stock adjustments, and foreign exchange differences.
According to a PwC assessment of the ruling, accounting differences do not automatically constitute income.
The firm, basing its assessment on the ruling, noted that accounting reclassifications, corrected errors, and currency translation differences are not automatically taxable.
Furthermore, the ruling establishes that the Uganda Revenue Authority (URA) must prove an actual undeclared transaction occurred before taxing a computed variance.
Similarly, any Value Added Tax (VAT) variance must be linked to a real supply.
The URA cannot simply mark up accounting discrepancies and treat them as sales. It must demonstrate that an actual taxable supply of goods or services took place.
Vehicle and export compliance
The case also highlighted critical compliance standards for taxpayers regarding pool vehicle controls and exports. Taxpayers must maintain clear policies, logbooks, and records proving that company vehicles are restricted to business use and do not offer private benefits.
Any personal benefit must be apportioned to the employee’s actual days of use.
Additionally, export transactions must be backed by full documentation.
To claim a zero-rated VAT status, taxpayers must provide customs export entries, border confirmations, export bond releases, and delivery notes-relying solely on an Electronic Fiscal Receipting and Invoicing System (EFRIS) invoice is insufficient.
Expert commentary
Mr Godfrey Akena, the executive director of the East African School of Taxation (EAST), agreed with these insights. He emphasized that the URA should only tax actual income rather than accounting errors and adjustments.
The URA has reportedly lodged an appeal against the decision before the High Court.