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Vivo Energy ordered to pay tax on rent for fuel stations
Customers at a Shell fuel station along Jinja road, Kampala. Authorities in Gulu city say having many fuel stations within the same vicinity is risky. PHOTO BY KELVIN ATUHAIRE
What you need to know:
- Penalty. The Tax Appeals Tribunal set aside the assessment of Shs91m penal tax against the company.
Vivo Energy Uganda Ltd, the retailer of Shell-branded petroleum products, will have to pay taxes on premium and rent for its fuel stations across the country after losing a case that could have nationwide implications for the way rental tax is assessed.
Vivo Energy Uganda Ltd will, however, not pay a penalty that had been imposed by Uganda Revenue Authority (URA) for purportedly filing an amended provisional return out of time.
The Tax Appeals Tribunal (TAT) set aside the assessment of Shs91m penal tax against the company.
Vivo Energy filed an application before TAT challenging the decisions of URA to treat premium or rent paid by the company to various landlords under the Income Tax Act.
According to the Income Tax Act, premium and rents are non-deductible expenses, which cannot be subtracted from the taxable income.
Vivo Energy leases land in Uganda to operate their petrol stations, and these leases accrue tax, which the company was unwilling to pay.
Vivo’s argument
Vivo Energy argued that the rent and premium it pays to various landlords where the company’s fuel stations are located is a deductible expense.
The company said the lease is an acquisition of land and therefore not like a capital expenditure which requires to be non-deductible. The law concerning leasehold in Uganda, however, requires rents and premiums to be taxed and not treated as deductible expenses.
Between 2003 and 2008, Vivo Energy paid Shs5.4b in rent and premium to landlords of the various petrol stations.
In accounting for the income for the said period, the company amortised the rent and premium for that period and treated the expenses as deductible for tax purposes.
The amount was subtracted from the company’s taxable gross income and therefore reduced its tax liability which URA rejected.
Lease interests
“The applicant [URA] claims that the said payments should be amortised and deducted in every financial year when ascertaining its chargeable income. The respondent [Vivo] contends that the premium and rent amount to capital expenditure and are, therefore, not deductible,” the ruling reads in part.
In rejecting the application by the petroleum company, the TAT tribunal chaired by Dr Asa Mugenyi ruled that when one acquires a lease interest in land it obtains exclusive possession of the same for the period specified in the land affirming that the leases Vivo Energy has on its various fuel stations conferred ownership on it for the period specified in the leases. Other members on the tribunal were Mr George W. Mugerwa and Ms Christine Katwe.
“The said leases were an acquisition of a capital asset by the applicant. Hence the costs incurred by the applicant were capital in nature. Therefore, the tribunal finds that the payments of rent and premium by the applicant to the landlords were for the acquisition of a capital asset and are, therefore, not deductible allowance under S.22 of the Income Tax Act. The said payments are amounts to be considered in the cost base of an asset under S. 52(2) of the Income Tax Act,” the members ruled.
Court heard that Vivo Energy Uganda holds land under leasehold ranging from 5 to 99 years from various land boards and pays rent periodically while the premium is paid off once.
“The court doesn’t specify payment terms, that is not the role of the court. The role of the court is to specify a position. Then URA will agree with the taxpayer. Our preferred position is to get the money paid in one lump sum but we always provide a window for discussion on the payment structure. That is not the first case we have had,” URA spokesperson Vincent Seruma said.
Our efforts to speak to Vivo Energy on their next move were futile. Ms Hilda Tushabe, the Vivo Energy acting spokesperson, told this newspaper on several occasions spanning days that she was in a meeting and did not respond to our messages.
Tax disputes
Vivo Energy Uganda managing director Gilbert Assi did not respond to our calls.
Recently, TAT directed the Freemasons in Uganda to pay rent and property-related tax after losing an application in which they challenged a decision by URA not to grant a tax exemption to them on the ground that it is not a religious institution of public character.
URA is also locked in tax disputes with several entities and individuals as the entity moves to increase the revenue collected.
The crackdown
Both rulings come amid reports that government has intensified a crackdown on tax evasion which President Museveni in a November 25 letter to Finance minister Matia Kasaija said is preventing the country from being “budget self-sufficient”.
In the letter, the President while citing intelligence information, lists a number of revenue sources where he says the evasion is rampant.
