In a country where payroll practices often evolve faster than compliance frameworks, a recent decision of the Tax Appeals Tribunal has delivered a timely and sobering reminder: in tax matters, substance will always trump convenience.
The dispute between JBM Investments Limited and the Uganda Revenue Authority (URA) may appear, at first glance, to be a routine PAYE assessment case. Yet its implications stretch far beyond the parties involved. The ruling speaks directly to employers, finance managers, HR practitioners and business owners who rely on minimum wage guidance, informal salary adjustments or weak documentation when managing payroll obligations.
At its core, the case confronts a fundamental question, what exactly constitutes taxable employment income, and who bears responsibility when records fall short?
The matter arose from a URA audit that identified inconsistencies between JBM Investments’ declared sales, payroll schedules and bank transactions. URA concluded that employee earnings had been understated, leading to an under-declaration of PAYE. Consequently, additional tax, penalties and interest were assessed.
JBM Investments objected to the assessment, arguing that its payroll was structured around minimum wage benchmarks issued by sector regulators, including the National Drug Authority (NDA). The company further contended that certain amounts flagged by URA were merely internal salary adjustments rather than fresh taxable income.
URA rejected this position, maintaining that PAYE is levied on actual income earned, not on regulatory guidance or internal characterizations. The disagreement eventually found its way to the Tribunal.
One of the most consequential findings of the Tribunal was its firm stance on the role of minimum wage and sectoral guidance. The Tribunal made it clear that such guidance serves labor and regulatory objectives, it does not determine tax liability.
For PAYE purposes, the law is concerned with what an employee actually earns, not what an employer believes ought to be earned. Where an employee receives remuneration above a prescribed minimum, the excess constitutes taxable income.
This clarification closes a dangerous misconception: that aligning payroll figures with minimum wage benchmarks automatically satisfies tax obligations.
The Tribunal also addressed the common practice of treating salary adjustments, increments or revised pay structures as non-taxable or tax-neutral.
The ruling was unequivocal. Any amount earned by an employee in the course of employment is taxable when it accrues, regardless of whether it is labelled as an adjustment, allowance or correction. The timing and substance of the payment, not its description determine its tax treatment. This reinforces a long-standing principle in tax law: re-labelling income does not change its character.
JBM Investments challenged URA’s reliance on deemed income methods in computing PAYE. The Tribunal acknowledged that tax authorities are permitted to estimate income where records are unreliable or incomplete, provided such estimates are reasonable and evidence-based.
More importantly, the Tribunal noted that poor record-keeping invites estimation. Where a taxpayer fails to maintain clear payroll and accounting records, URA is entitled to rely on available evidence, including bank transactions, to arrive at a reasonable assessment.
Perhaps the most instructive aspect of the ruling is its reaffirmation of the burden of proof in tax disputes. Once URA issues an assessment grounded in evidence, the obligation shifts to the taxpayer to demonstrate that the assessment is excessive or incorrect.
Narratives, explanations and assertions unsupported by documentation carry little evidential weight. Payroll schedules, employment contracts, reconciliations and bank records are not administrative luxuries, they are legal necessities.
This ruling sends a clear and practical message to Uganda’s business community: PAYE compliance is a governance issue, not a clerical one.
Employers must ensure that payroll records reflect actual payments, that salary adjustments are properly taxed, and that declarations align with cash flows. Disconnects between HR records, finance systems and bank transactions expose businesses to reassessments, penalties and prolonged disputes.
For directors and senior management, the case is a reminder that payroll risk sits squarely at the intersection of compliance, internal controls and accountability.
The JBM Investments decision does not create new law, it clarifies and applies existing law with precision. The Tribunal has reaffirmed a simple but powerful truth: PAYE follows income, not intention.
For employers willing to listen, the message is unmistakable. In matters of payroll and taxation, what you pay, and what you can prove, will always matter more than how you explain it after the fact.
The writer is a chartered Accountant and a chartered Tax Advisor