{"id":16128,"date":"2025-12-13T13:53:50","date_gmt":"2025-12-13T13:53:50","guid":{"rendered":"https:\/\/ugandaupdatenews.com\/?p=16128"},"modified":"2025-12-13T13:54:04","modified_gmt":"2025-12-13T13:54:04","slug":"stop-taxing-social-clubs-like-pope-paul-court-orders-ura-in-kla-club-vat-case","status":"publish","type":"post","link":"https:\/\/prowebinhost.com\/anzu\/stop-taxing-social-clubs-like-pope-paul-court-orders-ura-in-kla-club-vat-case\/","title":{"rendered":"Stop taxing social clubs like Pope Paul, Court Orders URA in K\u2019la Club VAT Case"},"content":{"rendered":"\n

In a 14-page judgment, Ag Judge Susan Odongo of the Commercial Division of the High Court has famously set aside the Tax Appeals Tribunal (TAT) 31st<\/sup> October 2023 decision authorizing Uganda Revenue Authority (URA) to enforce recovery of Shs166,541,103 from Kampala Club.<\/p>\n\n\n\n

The Kampala Club has been in existence since 1912 and it mainly provides leisure, recreation and health club services strictly to its paid-up members-and not to whoever walks in. The Club has always duly paid its taxes to URA.<\/p>\n\n\n\n

In April 2022, URA suddenly came up with an assessment demanding that the Club pays up VAT arrears deriving from money it collected from annual membership and subscription fees payments by members during the years 2020 and 2021.<\/p>\n\n\n\n

URA\u2019s original claim was Shs215,854,864 covering the two years. Kampala Club objected to this assessment. URA considered the objection and the assessed VAT obligation for 2020 was subsequently reduced from Shs51,217,498 to Shs39,435,306 and that of 2021 from Shs164,637,366 to Shs127,105,797. That is how the overall outstanding VAT obligation was adjusted to Shs166,541,306-up from the original Shs215,854,864.<\/p>\n\n\n\n

Still aggrieved and dissatisfied, Kampala Club filed an application (no. 256 of 2022) at the TAT.<\/p>\n\n\n\n

The Club, which had all along been paying its fair share of taxes (even when it\u2019s a company limited by guarantee and therefore not for profit), asserted in its application that money collected from annual subscription and registration fees paid by its members did not constitute \u201ctaxable supplies\u201d under the VAT Act Cap 349.<\/p>\n\n\n\n

However, the TAT disagreed with them and ruled in favour of URA. The TAT decision of 31st<\/sup> October 2023 was protested by the Kampala Club hence their (Civil Appeal No. 0115 of 2023) appeal to the High Court whose Commercial Division has since overturned the decision.<\/p>\n\n\n\n

Led by Canon Naboth Muhairwe and Daphine Ahebwa of M\/s Agaba Muhairwe & Co Advocates, the Club\u2019s lawyers submitted that the annual membership fees paid by members was meant to qualify for membership and access to the Club\u2019s premises in order to access sports & health facilities for recreational purposes, and as such didn\u2019t constitute \u201ca business activity\u201d ought to be taxable under Section 18(3) of the VAT Act. They also tendered the Club\u2019s Constitution to demonstrate the fact that the entity doesn\u2019t operate for profit.<\/p>\n\n\n\n

It was also asserted that the money paid is solely to obtain Club membership and not for purchase of any specific service rendered.<\/p>\n\n\n\n

This being generally a new area, the lawyers had to rely on comparative jurisprudence from elsewhere-including Custom & Excise Commissions vs. Lord Fischer [1981] STC 238, where annual membership contributions paid for leisure activities were held not to attract VAT.<\/p>\n\n\n\n

The Judge agreed with the appellant\u2019s submission that annual membership subscriptions didn\u2019t amount to consideration for services rendered, and therefore not subject to tax.<\/p>\n\n\n\n

That the membership fees paid merely entitle members to certain rights and privileges rather than being payment for a quid pro quo service. It\u2019s not payment for a quid pro quo service that is subject to VAT.  Reflecting on the doctrine of estoppel, the appellant\u2019s lawyers also invited Court to inquire into why the taxman had never required Kampala Club to pay VAT on such annual membership subscription payments since its inception in 1912.<\/p>\n\n\n\n

In her ruling, the Judge held against URA and made it clear that \u201chobby or leisure activities [similar to what Kampala Club members pay for] are primarily undertaken for enjoyment, relaxation or personal satisfaction without the dominant purpose of profit-making or structured commercial enterprise.\u201d<\/p>\n\n\n\n

The Judge added that: \u201cIn contrast, business activities typically consist of tasks conducted regularly with an intent to profit and in an organized commercial manner. Mere recreational or hobby pursuits, even if they occasionally yield income, do not constitute business activity\u201d that qualify to be taxed.<\/p>\n\n\n\n

Kampala Club activities were clearly distinguished by the Judge, agreeing with the appellant\u2019s lawyers, to be purely for \u201cpleasure and social enjoyment,\u201d and therefore not constituting business activities under the relevant provisions of the VAT Act. That for a transaction to be subject to VAT, direct quid pro quo must be demonstrated to be present namely \u201cthe payment being made directly for the service rendered.\u201d<\/p>\n\n\n\n

The Kampala Club General Manager\u2019s evidence helped to demonstrate the fact that the annual membership subscription payments are not direct payment or consideration for services supplied or rendered.<\/p>\n\n\n\n

Sharply disagreeing with TAT\u2019s finding that Kampala Club members wouldn\u2019t be paying these annual fees without receiving services in return, Justice Susan Odongo recognized existence of non-commercial motivations for members to make annual payments. She enumerated these to include \u201csocial, recreational and communal benefits which do not necessarily amount to taxable supplies.\u201d<\/p>\n\n\n\n

Court found that such annual membership fees are an act of cost-sharing, enabling the Club to meet premises\u2019 maintenance expenses.<\/p>\n\n\n\n

The Judge also agreed with counsel\u2019s submissions that a company limited by guarantee, like Kampala Club, offers recreational services or facilities to its members only, and doesn\u2019t operate like profit-making commercial entities like a gym or a hotel.<\/p>\n\n\n\n

The GM\u2019s evidence demonstrated clearly that the service offered at Kampala Club is \u201cpredominantly recreational, social and communal.\u201d<\/p>\n\n\n\n

The Judge concluded that the assessed VAT liability of Shs166.5m deserved to be quashed and the TAT ruling set aside because the annual subscription is paid \u201cfor membership qualification, retention and not as a direct fee for specific services rendered.\u201d<\/p>\n\n\n\n

This is why non-payment causes one to be denied access. That the annual membership fee payment serves as \u201ca condition precedent to enjoyment of membership rights,\u201d and it\u2019s not consideration for a discrete service. Non-payment results to forfeiture\/suspension of membership rights, including denial of access, as opposed to the defaulter being held liable for \u201cbreach of service contract.\u201d<\/p>\n\n\n\n

The Judge held that membership fees was distinguishable from service fee.<\/p>\n\n\n\n

Hence it was erroneous for the TAT members to conclude and construe payment of subscription and membership fees as constituting payment for services.<\/p>\n\n\n\n

The decision will be a source of relief for many similarly-placed non-profit, leisure and recreational associations whose subscription and annual membership renewal fees won\u2019t be encroached upon by URA anymore, since doing so has clearly been declared illegal.<\/p>\n\n\n\n

Many are already celebrating Justice Susan Odongo for making it abundantly clear that such entities or associations (limited by guarantee and aren\u2019t for profit) won\u2019t have to be subjected to VAT for as long as they are not for profit and for as long as there is no direct quid pro quo between the membership fees and the specific services rendered.<\/p>\n\n\n\n

The judgment not only enriches Uganda\u2019s tax jurisprudence but also unequivocally recognizes the fact that hobby, leisure and recreational activities\/services offered by non-profit making entities (like Kampala Club) fall outside the scope of taxable business activities. No more ambiguity about that anymore. Membership fees paid to such entities are clearly accepted as contributions for access to membership rights and privileges, and not payments for taxable services.<\/p>\n\n\n\n

URA, whose decision to wake up in 2020 and suddenly demand VAT payment on such membership fee payments for the first time yet Kampala Club has existed since 1912, will also think twice before coming up with arbitrary tax assessments.<\/p>\n\n\n\n

\u201cWe welcome this decision. It provides the long-awaited legal certainty for a wide range of non-profit organizations, member-based associations and recreational clubs that have always been at the risk of arbitrary VAT assessments by Uganda Revenue Authority,\u201d said a prominent Kampala lawyer who went on to declare the case a locus classicus decision on matters relating to the taxman\u2019s insistence to enforce tax obligations arising from collection of annual membership and subscription fees.<\/p>\n\n\n\n

The decision also distinguishes the fact that not all payments are considerations, under the VAT Act-and in the context of non-profit entities that provide recreational and leisure services for their members\u2019 exclusive enjoyment. It also clarifies on what constitutes \u2018taxable supplies\u2019 regarding payment for \u2018membership rights and payment for \u2018offered services.\u2019<\/p>\n\n\n\n

The decision will also impact and inform future reforms in tax-related laws and also policy making by URA. Equally true, there is a lot that the TAT must learn from this decision, overturning their earlier one of 31st<\/sup> October 2023.<\/p>\n\n\n\n

And this is how one big-name Kampala lawyer concluded on the matter: \u201cBy addressing whether subscription and membership fees paid to non-profit member clubs constitute a taxable supply under the VAT Act, this decision provides authoritative legal clarity, draws comparative jurisprudence and provides wide-ranging implications for similar entities, tax administration practices and future policy formulation.\u201d <\/p>\n\n\n\n

Editor:msserwanga@gmail.com<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

In a 14-page judgment, Ag Judge Susan Odongo of the Commercial Division of the High Court has famously set aside<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[65],"tags":[],"class_list":["post-16128","post","type-post","status-publish","format-standard","hentry","category-national-news"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack-related-posts":[{"id":5904,"url":"https:\/\/prowebinhost.com\/anzu\/ura-wins-another-big-case-as-tax-appeals-tribunal-orders-dhl-to-pay-1-48bn-in-vat\/","url_meta":{"origin":16128,"position":0},"title":"URA WINS ANOTHER BIG CASE AS TAX APPEALS TRIBUNAL ORDERS DHL TO PAY 1.48BN IN VAT","author":"UgandaUpdate","date":"June 12, 2022","format":false,"excerpt":"Big name -DHL Supply Chain International Ltd, a Ugandan subsidiary of the the Deutsche Post (DHL group in Germany) has been ordered to pay UGX 1,484,422,000 of Value Added Tax (VAT) to URA . 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