By Mulengera Reporters
The High Court in Kampala has handed Uganda Revenue Authority (URA) a major legal victory, overturning a Tax Appeals Tribunal ruling that threatened to increase the authority’s interest liability to rice importers by approximately Shs13.09 billion.
In a judgment delivered electronically on October 21, 2026, Justice Susan Odongo allowed URA’s appeal in Civil Appeal No. 0117 of 2026, restoring seven settlement agreements that capped interest on verified value-added tax (VAT) refunds at six per cent simple interest per annum.
The decision preserves an arrangement under which URA paid Shs14.54 billion in principal refunds and Shs1.45 billion in agreed interest, bringing the total disbursement to approximately Shs15.997 billion.
By setting aside the tribunal’s May 29, 2026 ruling, the High Court rejected an attempt to replace the negotiated interest rate with statutory interest of two per cent per month, compounded, which would have increased URA’s liability by an estimated Shs13.09 billion.
The ruling reinforces the authority’s position that negotiated settlements reached through mediation must be respected when they are lawful, voluntary and fully performed.
It also provides important guidance on the interpretation of statutory interest provisions, the finality of consent judgments and the role of alternative dispute resolution in settling tax disputes.
How the dispute arose
The case originated from VAT charged by URA on rice imported from Tanzania between 2014 and 2023. The authority collected VAT at the rate of 18 per cent, while the importers maintained that the tax contravened regional commitments under the East African Customs Union Protocol.
Following protests by rice traders, guidance issued by the Minister of Finance, Planning and Economic Development and the Attorney General acknowledged that collecting VAT on rice originating from East African Community partner states violated the regional protocol.
URA subsequently entered into a memorandum of understanding with the importers on April 23, 2024, effective April 29, establishing a verification and audit framework for refund claims.
The verification process did not result in automatic approval of every claim. URA disputed the claims on several grounds, including non-registration for VAT at importation, previous recovery of tax through input tax returns and failure to account for output tax.
The importers subsequently filed applications before the Tax Appeals Tribunal seeking principal refunds totalling Shs14.542 billion, alongside interest.
During tribunal-guided mediation in December 2025, the parties reached a settlement under which URA agreed to pay verified principal refunds, together with interest at six per cent per annum calculated from specified application dates.
The consent settlement orders were recorded by the tribunal’s registrar on December 24, 2025, with payment due by December 30. URA fulfilled its obligations within the agreed period.
However, between February 18 and March 3, 2026, the beneficiaries returned to the tribunal seeking to overturn the interest clauses, arguing that the agreed rate was unlawful and had been accepted under economic duress.
They asked the tribunal to substitute the six per cent simple interest with statutory interest of two per cent per month, compounded.
High Court backs URA’s legal position
In its May ruling, the tribunal majority, comprising members Grace Safi and Willy Nyangosyah, held that Sections 36 of the VAT Act and 31 of the Tax Appeals Tribunal Act established a mandatory interest regime that parties could not contract out of.
The majority consequently set aside the agreed interest clauses and substituted the statutory rate, subject to the applicable statutory cap and credit for payments already made.
Tribunal chairperson Crystal Kabajwara dissented, maintaining that commercial parties could compromise interest claims during settlement negotiations and that economic duress had not been established.
On appeal, Justice Odongo agreed with URA that the tribunal had misinterpreted the statutory provisions by applying them automatically to negotiated settlements reached before a determination on the merits.
The judge observed that Section 36(1) of the VAT Act provides for interest at two per cent per month, compounded, where a refund is required as a result of a decision by the tribunal or a court.
Similarly, Section 31 of the Tax Appeals Tribunal Act addresses interest arising from refunds required following decisions of reviewing bodies.
The court held that these provisions establish the statutory interest applicable to adjudicated outcomes but do not expressly prohibit represented commercial parties from negotiating a different rate to resolve outstanding claims.
It distinguished between a refund ordered after contested litigation and one arising from a voluntary compromise.
The judgment noted that parties who choose mediation retain the freedom to settle their disputes on mutually acceptable terms, including interest, provided the agreement is lawful and voluntarily entered into.
The court also highlighted Clause 3(g) of the original memorandum of understanding, which expressly left the question of interest unresolved for consideration on a case-by-case basis after verification.
This, the judge found, supported URA’s argument that interest remained open for negotiation rather than being an unconditional entitlement fixed by the memorandum.
Court protects settlement finality
Another decisive issue was whether the importers could retain the principal refunds paid under the settlement agreements while challenging the interest rate they had accepted.
Justice Odongo held that consent judgments have a dual character: they are both contracts between the parties and formal judicial orders. They cannot ordinarily be set aside without recognised grounds such as fraud, mutual mistake, misrepresentation or actionable coercion.
The court found that the settlements were negotiated by commercially experienced parties represented by specialised legal counsel. It rejected the allegation that the six per cent interest rate had been imposed through actionable economic duress.
The judge observed that the importers could have rejected the offer and pursued their claims through a contested hearing but instead accepted the negotiated terms in exchange for prompt payment.
Invoking the doctrine of approbation and reprobation, the court emphasised that a party cannot accept the benefits of an agreement while rejecting its burdens.
Having received and retained the settlement payments, the respondents could not selectively challenge the interest provisions while insisting that URA remain bound by the rest of the bargain.
The court further found that the tribunal had misapplied the doctrine of severability by removing the agreed interest clauses and replacing them with a substantially more expensive statutory formula.
Severability allows an invalid contractual provision to be removed in appropriate circumstances, but it does not authorize courts or tribunals to rewrite agreements or impose new obligations that fundamentally alter their commercial effect.
In this case, the six per cent interest clause formed part of the consideration for URA’s decision to abandon its contested legal defences and pay the principal refunds promptly.
Removing that clause while retaining the rest of the settlement would fundamentally change the agreement, the judge ruled.
URA secures full restoration of agreements
In its final orders, the High Court allowed URA’s appeal in its entirety and set aside the tribunal majority’s ruling of May 29, 2026.
It restored all seven consent settlement orders dated December 22 and 23, 2025, declaring them valid, binding, fully executed and final judicial decrees.
The respondents were also ordered to pay the costs of the High Court appeal and the proceedings before the Tax Appeals Tribunal.
The judgment gives URA a significant financial reprieve by preserving the agreed interest terms and avoiding the additional liability arising from the tribunal’s decision.
It also strengthens the legal certainty surrounding tax settlements and mediation, affirming that parties should be able to rely on negotiated agreements once they have been lawfully concluded and performed.
For public institutions, the decision offers reassurance that good-faith settlements can provide a viable alternative to prolonged litigation, while protecting public resources and promoting the finality of judicially endorsed agreements. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
