In a landmark judgment set to shake up the financing of multi-billion-dollar infrastructure developments across East Africa, the Tax Appeals Tribunal (TAT) has ordered Bujagali Energy Limited (BEL) to pay nearly Shs157 billion ($41.5 million) in additional taxes to the Uganda Revenue Authority (URA).
The ruling not only hands a massive financial victory to the government treasury but effectively plugs a lucrative tax loophole previously exploited by large-scale infrastructure developers to aggressively minimize their tax obligations through currency manipulation.
In Application No. 4 of 2024 (Bujagali Energy Limited vs Uganda Revenue Authority), a three-member tribunal comprising Mr. Siraj Ali, Mr. Willy Nangosyah, and Ms. Christine Katwe upheld a revised assessment by the URA. Consequently, BEL-the special purpose vehicle that operates the 250MW Bujagali Hydroelectric Power Station-must now pay Shs155.3 billion in Income Tax and Shs298.3 million in Withholding Tax (WHT).
The core of the dispute
At the heart of the high-stakes legal battle was a disagreement over how to calculate the capital cost base of the Bujagali dam in Uganda Shillings to claim tax deductions, specifically “depreciable asset allowances.”
Because the dam was constructed over several years using foreign currency (primarily US dollars), the project was heavily exposed to macroeconomic shifts and exchange rate fluctuations.
BEL argued that it should be permitted to aggregate its total US dollar expenditures over the entire construction period and convert the lump sum into Uganda Shillings using the exchange rate prevalent on the exact day the project was officially commissioned in 2012.
However, because the Uganda Shilling had depreciated significantly against the dollar between the start of construction and 2012, using the later exchange rate artificially inflated the recorded asset cost in local currency. In the world of corporate taxation, a higher asset cost translates directly to larger depreciation deductions, which aggressively slashes a company’s taxable profits-and by extension, the tax revenue paid to the state.
The URA objected to this accounting methodology during a subsequent audit. The tax body argued that because capital was injected incrementally over many years, BEL was legally required to use the historical, date-specific exchange rate for the exact day each individual expenditure was incurred.
The tribunal’s verdict
The tribunal firmly sided with the tax authority, rejecting BEL’s attempts to retroactively “reverse-engineer” past costs using a later, more favorable exchange rate.
The panel ruled that for tax purposes, the ‘original cost’ of an asset must be established in local currency progressively as the project is built, rather than being recalculated at the end of the project or during commissioning.
“Entities executing infrastructure projects in Uganda can no longer group past expenses together to convert them using a later exchange rate,” the tribunal noted, cementing a principle that prevents artificial tax deductions caused by currency fluctuations over long construction periods.
Furthermore, the tribunal reaffirmed the URA’s legal mandate to issue fresh tax assessments whenever new, vital information is uncovered during routine or forensic audits. BEL must now meticulously audit its historical books, identify the exact dates funds were spent, and apply the corresponding Bank of Uganda exchange rates for those specific days.
A major precedent
Legal and financial experts have described the ruling as a structural game-changer for project financing in developing economies.
According to a detailed technical analysis by MRT Tax, a specialist tax advisory firm, the decision establishes an uncompromising precedent for foreign-funded infrastructure assets.
“The ruling speaks directly to the tax assumptions that sit beneath project finance models,” noted Mr. Mark Ruhindi, a prominent corporate and tax lawyer and the Founding Managing Partner of MRT Tax.
“Moving forward, the TAT ruling ensures URA taxes projects based on real, historical costs at the time they were incurred, rather than later revaluations. Developers can no longer group years of construction costs together and apply a single, later exchange rate-such as the project’s commissioning date-to artificially lower their tax bill,” Ruhindi explained.
Regional reverberations
While the judgment is grounded specifically in Uganda’s Income Tax Act, its financial waves are expected to reverberate well beyond Uganda’s borders, impacting the wider East African Community (EAC).
Across East Africa, mega-infrastructure ventures-ranging from Kenya’s standard gauge railways and Tanzania’s standard gauge rail networks to regional oil pipelines, deep-water ports, industrial parks, and hydro-power plants-share identical commercial DNA. They are almost exclusively offshore-funded, heavily reliant on Development Finance Institutions (DFIs) or private equity, structured via Public-Private Partnerships (PPPs), and managed by Special Purpose Vehicles (SPVs) that maintain accounts in US dollars.
Tax analysts argue that the Bujagali decision will quickly become a central reference point for international engineering, procurement, and construction (EPC) contractors, financial lenders, and regional governments.
By drawing a hard line on foreign currency conversion rules, Uganda’s Tax Appeals Tribunal has signaled to international investors that financial modeling for African infrastructure must adapt to stricter transparency standards. Project models will now have to factor in real-time local currency conversion from day one, shifting how financial risk and tax obligations are calculated in the region for decades to come.
BEL has yet to formally indicate whether it intends to appeal the tribunal’s decision to the High Court.