Priority of tax claims during corporate insolvency in Uganda: a comparative study of the law and practice with UK and Australia

Abstract

In Uganda, tax claims are given priority of recovery over claims by the general body of unsecured creditors during corporate insolvency, contrary to the internationally benchmarked principle of pari passu.1A doctrinal research based on an assessment of Ronald Dworkin’s equality theory has concluded that pari passu should be the fundamental principle in the development of laws that impact the commissioner of tax’s ranking in the order of distribution during insolvency, since any preference accorded to tax claims lacks the necessary fairness and equity that decisions on the priority of distribution in insolvency requires. The study reveals that because of Uganda’s breach of the pari passu principle by preferring tax claims over other unsecured creditors during insolvency, it has yielded a poor investment climate, high costs of credit and bred a lazy tax collector. A comparative study of Uganda with the law and practice of Australia and the United Kingdom (hereinafter referred to as UK) in ranking tax claims during corporate insolvency, has yielded a recommendation for Uganda to adopt Australia’s route of total abolition of all tax priorities, instead of the UK’s partial abolition and secondary preference of indirect taxes. This is because UK’s route still breaches the pari passu principle, yet such indirect taxes can be recovered through alternative means that are statutorily provided to the commissioner of tax. The study further recommends that in case of total abolition of all tax priorities, the commissioner of tax’s collection tools should be boosted, and existing taxation laws should be revised in order to curb any indirect tax preferences likely to occur as the case is currently in Australia. It is hoped that the recommendations made by the study will go a long way in ensuring a stronger insolvency regime that treats all unsecured creditors in an equitable manner during insolvencies in Uganda.