Stamp Duty Tax on Professional Licences scrapped off

Section 2(h) of the Stamp Duty (Amendment) Act 2020 introduced a stamp duty tax of Ushs. 100,000 on every professional licence/certificate issued.

The Uganda Law Society and other professional bodies such as the Uganda Medical Association, were aggrieved by the amendment and thus sued the Attorney General in the Constitutional Court of Uganda vide Constitutional Petition No. 32 of 2020; ULS & 12 Others v. Attorney General.

In their petition, it was argued that Section 2(h) of the Stamp Duty (Amendment) Act 2020 is – (a) discriminatory in that it only applies to private practitioners since professionals that are employed by the Government and other public bodies are exempted from annual renewal of practicing certificates/licences; (b) a clog on their constitutional right to practice their professions; and (c) a reintroduction of a tax or charge that was previously struck out in High Court decisions. They accordingly asked Court to declare the impugned provision null and void for being inconsistent with:  Article 21(1) of the Constitution (all persons are equal before and under the law in every respect); Article 40(2) of the Constitution (every person in Uganda has a right to practice their profession or any other lawful occupation, trade or business); and Article 92 of the Constitution (Parliament shall not pass any law to alter the decision of any court).

The respondent (Attorney General) opposed the petition and denied that the impugned provision is discriminatory. The respondent argued that the provision did not circumvent any High Court decision and neither is it a retrospective enactment by the Parliament – that the rationale behind the provision was to enable URA obtain the necessary information about professional service providers and enforce tax compliance in accordance with Section 135(3) of the Income Tax Act Cap. 340 which requires a tax identification number to be shown before any professional license is issued.

Three issues for determination were framed by the Court namely: 1) Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 is discriminatory against professionals in private practice; 2) Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 contravenes professionals’ constitutional right to practice their professions; and 3) Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 reintroduced a tax that was previously struck out by the High Court.

Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 is discriminatory against professionals in private practice.

The Court held that it was discriminatory because the impugned provision does not fall within the ambit of the exceptions provided for in Article 21(4) (a) and (b) of the Constitution. The exceptions that exist within Article 21(4) (a) and (b) of the Constitution are meant to promote equality and freedom from discrimination as they permit the Parliament to enact laws for the purposes of redressing any social, economic, educational or other imbalance in society. The Court was of the view that there was no social or economic imbalance among professionals prior to the amendment and therefore there was no need for the enactment of Section 2(h) of the Stamp Duty (Amendment) Act 2020. For example, professionals in both private practice and public service all have their gross employment income taxed under the Income Tax Act Cap. 340 – so, clearly there was no economic imbalance among professionals to necessitate the coming into force of Section 2(h) of the Stamp Duty (Amendment) Act 2020.

Further, while resolving this issue, the Court’s eyes were drawn to an important and inevitable question that had not been explicitly raised for determination: Are professionals supposed to pay stamp duty for their licences in the first place? In answering this important question, Hon. Lady Justice Irene Mulyagonja, who wrote the lead judgment, with which the other four Justices of the Court agreed, made reference to the Halsbury’s Laws of England Vol. 99 (2023) which provide that stamp duty is chargeable on instruments and that until execution is completed no duty attaches. Hon. Lady Justice Mulyagonja then applied the said laws of England to the professional licenses issued in Uganda and her observation, as I understand it, was that professionals in Uganda do not execute/sign on their licences/certificates and therefore there’s no way they can be made to pay stamp duty on a license – that professional licences in Uganda are executed/signed by the issuing authorities and so ideally stamp duty tax on such licences ought to be paid by the issuing authorities since they are the ones that execute the licenses – but the issuing authorities are exempted from paying such tax by virtue of Section 3(2) and (3) of the Stamp Duty Act 2014 as amended. The learned Justice of the Constitutional Court therefore concluded that: “….clearly Parliament was misled into amending a law to facilitate the collection of stamp duty on instruments that are executed by government officials and so exempted from payment of such duty by the parent Act”.

Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 contravenes professionals’ constitutional right to practice their professions. 

The Court held that it does contravene the constitutional right to practice a profession. Hon. Lady Justice Mulyagonja reasoned that the impugned provision places a disproportionate burden on professionals in private practice that hangs over their heads should they fail to pay the tax – a ‘disproportionate’ burden in the sense that professionals in private practice already have a separate regime for fees and taxes under their governing and regulatory bodies.

Whether Section 2(h) of the Stamp Duty (Amendment) Act 2020 reintroduced a tax that was previously struck out by the High Court.

The Court resolved this issue in the affirmative and found that the amendment of the Stamp Duty Act to impose a tax upon professionals in private practice on obtaining a practicing license amounts to retrospective legislation that’s prohibited by Article 92 of the Constitution. In reaching this finding, the Court relied on a number of cases in which the High Court had ruled prior to the amendment that further taxes should not be imposed on obtaining professional licences e.g., Pharmaceutical Society of Uganda v. Attorney General, High Court (Civil Division) Miscellaneous Cause No. 260 of 2019, and Uganda Law Society v. KCCA & Attorney General HCMA No. 243 of 2017.

Declaration

In the result, the Court declared Section 2(h) of the Stamp Duty (Amendment) Act 2020 null and void for its inconsistency with Articles 21(1), 40(2), and 92 of the 1995 Constitution of the Republic of Uganda.

Conclusion

The decision handed down in Constitutional Petition No. 32 of 2020; ULS & 12 Others v. Attorney General brings clarity to the interpretation of statutory provisions that touch the fees associated with the issuance of professional licences in Uganda. By nullifying Section 2(h) of the Stamp Duty (Amendment) Act 2020, the Constitutional Court has put an end to the disproportionate burden on professionals in private practice as they will now be required to only pay the fees set out by their governing and regulatory bodies. This development is not only a victory for professionals in private practice but is also a significant milestone for university students pursuing courses that lead to the practice of a profession. It sets a precedent that ensures fair treatment among professionals; and it also alleviates financial burdens for professionals-to-be, fostering a more encouraging environment for aspiring professionals.