Umeme Managing Director Selestino Babungi inspecting the over sh7b new Tororo rural access line built recently.jpg

Umeme limited wins landmark case in the Tax Appeals tribunal

Uganda’s main electricity distribution company Umeme Limited has won a landmark case in the Tax Appeals Tribunal, which ruled that Umeme was entitled to claim depreciation allowance in respect of assets acquired by Umeme and initial allowance for assets placed in use by Umeme 50km outside Kampala.

Commenting on the ruling, Umeme Limited Senior Legal Manager Allan Rwakakooko said this ruling represents a victory for the electricity customers since the initial and depreciation allowances are used to reduce the tariffs payable.

“This is a step towards helping to reduce the end-user tariffs for our customers and therefore reducing the cost of doing business.

“We are committed to supporting the government of Uganda’s agenda of modernising her people, creating jobs, and increasing household incomes through provision of efficient electricity distribution services,” Rwakakooko said.

He said they have continued to invest in the grid to ensure power efficiency, reliability, safety, and ability to evacuate and distribute increased generation capacity while improving the lives of Ugandans.

Sh14b Nyakesi transformers (left), supplying reliable electricity to Hima and Simba cement plants (right) in Tororo.jpg
Sh14b Nyakesi transformers (left), supplying reliable electricity to Hima and Simba cement plants (right) in Tororo.jpg

According to the ruling delivered on 9th September 2020, the Tax Appeals Tribunal agreed with Umeme’s submissions that Sections 2, 27 and 52 of the Income Tax Act grants the depreciation allowance to a person that incurred expenditure in acquiring the depreciable asset, used the asset to produce income included in its gross income, and included the cost base of the asset in the company’s pool of assets

In 2005, Umeme was granted a 20-year concession and assigned the right to use, maintain and upgrade the electricity distribution network, which is owned by Uganda Electricity Distribution Company Limited (UEDCL).

In the exercise of its obligations under the concession agreements, Umeme purchased several assets which were used to upgrade, expand and maintain the electricity distribution network.

Umeme then applied to Uganda Revenue Authority (URA) for an initial allowance for the assets which were deployed for the first time 50km outside Kampala, and depreciation allowance for assets acquired and deployed by Umeme under the concession. However, URA rejected the claim, resulting in the application by Umeme.

Rwakakooko explained that the main issue before the Tribunal was to decide whether to grant the right to claim the depreciation and initial allowances to UEDCL, which is the legal owner of the distribution assets or Umeme, which acquired and put the assets in question into use. UEDCL was later added as a party to the application.

“The tribunal stated that Umeme was the person who incurred the expense in acquiring and using the depreciable assets to generate income, and it is not necessary for Umeme to be the legal owner of the asset as argued by UEDCL.

Therefore, the assignment to Umeme of the duty to maintain and deliver up the assets at the end of the concession was sufficient to justify the allowance,” he said.

According to the ruling, the members of the tribunal also considered the concession agreements, which give the duty to pay taxes for the concession assets to Umeme.

They ruled that section 27 and 27A of the Income Tax Act grants deductions to the party that pays the taxes and since it was Umeme that paid the taxes for the assets, UEDCL is not allowed to claim any deductions or allowances due to Umeme.