Cigarette maker British American Tobacco #ticker:BAT has won the first round in what promises to be a bruising tax battle against the Ugandan government.
The East African Court of Justice (EACJ) has issued an interim order stopping the Uganda Revenue Authority (URA) from imposing excise duties on BAT cigarette imports from Kenya.
The company in August last year filed a case at EACJ, claiming that new excise taxes imposed on cigarettes imported from Kenya into Uganda were discriminatory and in contravention of regional customs regulations.
British American Tobacco (BAT) later sought interim orders to have the excise duties stopped pending a decision on the case, and on January 25 the EACJ obliged.
BAT argues that a 2017 amendment to Ugandan law which imposes duties on manufactured imports from Kenya is discriminatory and in contravention of the East African Community (EAC) treaty.
The company says that by being forced to pay taxes for cigarettes manufactured in Kenya but sold in Uganda, it would suffer irreparable harm to its bottom line and its reputation.
“If the cost were passed on to the company’s consumers the unit price increase would cause a 17 (per cent) market share loss, rendering the business unviable especially given more favourable prices,” BAT argued in submissions to the court.
The Ugandan government argued the amendments to the law had been passed duly by the country’s legislature.
The country further said that this law was in keeping with similar protective action from its neighbours and questioned that BAT would suffer irreparable harm that could not be compensated through damages paid.
EACJ found that BAT had presented a triable case and that the company was “liable to suffer business disruption, as well as reputational injury and loss of goodwill” and therefore ordered the URA to stop collecting the taxes.