Industrial Court rules taxation of terminal benefits not illegal
The hopes of 233 former employees of Stanbic Bank to have a fun-filled Christmas were dashed on Dec. 02 when the Industrial Court sitting in Kampala dismissed their claim for over Shs 600m being taxes on their terminal benefits. The court presided over by Chief Judge Asaph Ruhinda Ntegye, with Justice Linda Tumusiime Mugisha and three other panelists, ruled that contrary to the claimants’ argument that the terminal benefits were not taxable because they were just a “thank you” from their former employer, the payments were subject to tax under the Income Tax Act. Uganda Revenue Authority (URA) successfully contended that unlike pension, which is expressly exempted from taxation, terminal benefits are taxable, an argument that the court sustained. “Any amount derived from compensation of termination of employment whether derived from past, present or prospective employments is taxable,” the court ruled.
The employees were terminated between 2003 and 2004 and subsequently paid their terminal benefits minus taxes. They sued URA in a bid to recover their money. Their lawyer, Vincent Kiggundu, submitted that the benefits were neither an allowance nor a wage but a “gratuity received when the claimants were out of employment” hence not subject to the Income Tax Act. However, URA argued that the said monies were derived from an employment relationship, hence taxable in accordance with Section 19 of the Income Tax Act. URA contended that the payments were neither pension nor retirement benefits, which are not subject to tax. The court ruled that unlike Pension, which is an accumulation of monthly savings, the payments the claimants got from their employer did not fall in this category. The court consequently dismissed the suit with costs.
Source : The Independent