The heart of the legal debate was whether consultants hired by the IDI could be called employees.

“I agree with the arguments of counsel for the appellant (IDI) that the respondent (URA) has essentially classified these contracts, even in light of clear evidence to the contrary, perhaps with the aim of to improve its tax collection efforts, which this court should not allow. because no tax is due and the court will not authorize an improper collection of tax on a taxpayer,” Judge Ocaya ruled on October 25.

He added: “Accordingly, and with the greatest respect to the learned members of the Tax Appeal Tribunal, I find no legal or jurisprudential basis for asserting that any person who receives fixed or verifiable remuneration for a period exceeding two month must be considered as an employee. A professional service provider such as a chef, lawyer, doctor, etc. may have their fees paid in regular monthly installments, which in itself does not make them employees.

The judge highlighted key distinctions between consultancy contracts and employment contracts, noting that, unlike employees, contractors are not entitled to benefits such as annual leave, fixed working hours and sick leave. Contractors are paid based on the work they complete, unlike employees who earn their salary during their time off or on vacation.

The IDI, in its appeal, claimed that it co-opted specialists to provide specialized support on research projects and that these specialists were hired on more than one project at a time. He further stated that the said consultants are retained as independent consultants on projects to support specific projects, as outlined in their consulting agreements, and that they continue to work on these projects unless the donors suspend their financing or the subject of the project is completed.

The URA had classified the said consultants as employees of the IDI before assessing their pay as they earned (PAYE) from their payments, a scenario which the Tax Appeal Tribunal had previously confirmed in the initial legal battle.

“The contrary decision of the Tax Appeal Tribunal is set aside and superseded by this decision of this tribunal. The appellant is awarded costs in the Tax Appeal Tribunal and in this court,” Justice Ocaya said.

DI argued that the tax authorities were wrong to consider only the fixed and verifiable income element and to have ignored other usual criteria such as control and contract terms. In his analysis, the judge agreed with arguments made by IDI lawyers that not all control equates to employment. “It seems to me that the only control exercised by the appellant, based on the documents in the appeal file, is contractual; it is about ensuring that consultants deliver what has been contractually agreed rather than exercising overall control in the employment sense,” he observed.

“It is therefore clear to me that the applicant (IDI) does not exercise any control over the consultants in the sense of employment,” he added. The IDI had in its court case that in 2012, the URA conducted a tax compliance audit resulting in an assessment of over Sh1.9 billion, which included a withholding tax of over of 150 million shillings and a PAYE of 1.7 billion shillings. She further argued that the evaluations were based on URA’s consideration of consultants, trainers, volunteers and directors as employees.

But going forward, the judge ruled that IDI is not obligated to pay more than Sh185 million plus any penalties and interest assessed by the tax authority because there is no basis for that.

Mr Bruce Musinguzi, a commercial lawyer at Kampala Associated Advocates (KAA), described the court decision as a relief to businesses and taxpayers.

“This is a welcome move, particularly for businesses and taxpayers, as the URA has always insisted that they pay PAYE, a move which made it very expensive to recruit contractors,” M said last night. . Musinguzi during a telephone interview.

He continued: “The URA considers them employees, and remember a lot of these people are not under their control, but the court now says that this person (the consultant) is an independent person, so he does not There is no need to report on Pay As You. Earn. On the entrepreneur’s side, they will pay taxes as a self-employed person, such as corporation tax, and will not pay the PAYE that affected their bottom line.

Pay As You Earn (PAYE) is a tax deducted from employees’ monthly salaries by employers, who then remit it to the Uganda Revenue Authority (URA).

This tax is levied on income earned by individuals from employment, including wages, salaries, bonuses and allowances. The PAYE system ensures that income tax is collected gradually, depending on income level. Higher incomes pay a higher percentage of tax.