CARE International v URA: PAYE Payment Allocation and Tax Waivers in Uganda

A taxpayer can pay the exact amount agreed as principal tax and still discover years later that the tax ledger shows principal outstanding and interest continuing to accumulate.

That problem sat at the centre of CARE International in Uganda v Uganda Revenue Authority, TAT Application No. 353 of 2025, decided by Uganda's Tax Appeals Tribunal on 7 September 2026.

The ruling is important for finance and tax teams because it moves the discussion beyond whether tax was paid. It asks the next control question: how was the payment actually allocated on the taxpayer's ledger?

FGL takeaway: Paying a tax assessment is not the final control. The payment must also be reconciled to the tax authority's ledger, including how the amount was split between principal tax, penal tax and interest.

The dispute in brief

CARE International in Uganda is a non-profit international organisation involved in humanitarian activities and emergency response. The underlying dispute followed a URA compliance audit covering the period from June 2007 to June 2017.

URA issued a PAYE assessment of UGX 3,762,794,162, comprising:

• UGX 1,992,639,380 in principal tax; and
• UGX 1,770,154,782 in interest.

CARE challenged the assessment in TAT Application No. 42 of 2018 and, as part of maintaining that application, paid a statutory deposit of UGX 1,128,838,249.

Following further engagement, URA recorded in a letter dated 11 February 2020 that CARE would pay the assessed principal tax of UGX 1,992,639,380 in full, while the corresponding interest would be considered separately for a recommendation for remission.

CARE then paid a further UGX 863,801,131 on 6 March 2020. Together, the two payments totalled UGX 1,992,639,380 — exactly the amount of assessed principal PAYE.

Statutory deposit: UGX 1,128,838,249

Second payment: UGX 863,801,131

Total paid: UGX 1,992,639,380

Assessed principal PAYE: UGX 1,992,639,380

Where the problem arose: the tax ledger

After reviewing its tax ledger, CARE discovered that URA had not treated the full UGX 1.9926 billion as extinguishing the principal PAYE liability.

URA's system had applied the payments according to its interpretation of the statutory payment-allocation rules. The result was that part of the principal tax remained on the ledger and continued to carry consequences for interest.

The dispute therefore became less about whether money had been paid and more about what liability the money had legally discharged.

This is a useful extension of a theme FGL has examined in other Uganda tax cases. In Medisell v URA, accounting differences and reconciliations became central to the tax controversy. In the present case, the reconciliation issue moved directly into the taxpayer's PAYE ledger.

CARE's position

CARE challenged URA's use of the "earliest liability first" rule under section 38 of the Tax Procedures Code Act (TPCA), including the way it had been applied to historical liabilities.

CARE also relied on URA's own February 2020 communication. Its case was that the parties had identified the purpose of the payment: the assessed principal PAYE was to be settled in full, while the related interest was to be considered separately.

CARE therefore argued that URA could not receive the exact principal amount on that basis and later allocate part of the money to interest in a way that recreated an unpaid principal balance.

CARE further argued that, if the payments had been correctly applied to principal, the remaining interest and penalties would have been affected by statutory waivers.

URA's position

URA raised both preliminary and substantive objections.

It argued, among other things, that the Tribunal had already dealt with the earlier dispute and had become functus officio. URA also contended that the later ledger allocation was an administrative implementation of the previous settlement rather than a fresh taxation decision capable of review.

On the allocation itself, URA maintained that section 38 required payments to be applied to the earliest outstanding PAYE liabilities and that its ledger system had followed that rule.

URA also pointed to the remission process then underway. On 6 January 2026, the Commissioner General had recommended remission of an outstanding PAYE liability of UGX 2,130,187,090, and the recommendation was subsequently tabled before Parliament.

The Tribunal first confirmed that the ledger allocation could be reviewed

URA argued that no new assessment or objection decision had been issued. The Tribunal, however, focused on the substance and effect of URA's position.

URA's emails of 6 and 29 October 2025 communicated how the payments had been allocated and what amounts remained outstanding. The Tribunal found that these communications were not merely provisional. They conveyed URA's settled position on the taxpayer's account.

Because that allocation affected CARE's principal tax, the interest charged on its account and its entitlement to statutory waivers, the Tribunal held that it amounted to a taxation decision capable of review.

This is significant for taxpayers. A dispute can arise not only from a formal assessment notice, but also from a later administrative decision that materially changes the tax position recorded on the ledger.

How section 38 applied to the payments

The Tribunal did not accept CARE's argument that applying section 38 to the payments necessarily gave the law retrospective effect. It held that section 38 regulated the treatment of a payment when the payment was made, even where some underlying liabilities arose before commencement of the TPCA.

But that was not the end of the analysis.

The Tribunal emphasised that section 38(1), as applicable at the time of the payments, prescribed the order in which the components of a liability were to be discharged:

Principal tax first → penal tax second → interest last.

The "earliest liability first" rule addressed which liability should be dealt with first where several liabilities existed. It did not reverse the statutory ordering within the identified liability.

The purpose of the payment mattered

The Tribunal found it material that URA knew both the source and purpose of the payments.

When the second payment was added to the statutory deposit, the total was the exact amount of principal tax under the disputed PAYE assessment. The Tribunal found no sensible basis for treating that correspondence as accidental.

It held that section 38 did not authorise URA to disregard the identified purpose of the payment, appropriate part of the money to interest on the same assessment, and then treat an equivalent portion of principal tax as unpaid.

The February 2020 URA letter reinforced that conclusion because it recorded URA's own understanding that the principal tax would be paid in full while the corresponding interest would be considered separately.

The Tribunal therefore found that the two payments totalling UGX 1,992,639,380 discharged the principal PAYE tax that was the subject of TAT Application No. 42 of 2018.

Control lesson: Where a payment is made under a tax settlement, finance teams should retain the settlement letter, payment reference, assessment schedule and post-payment tax ledger together. The purpose of the payment may later become central evidence.

Statutory waiver is different from discretionary remission

The second major issue concerned statutory waivers.

The Tax Procedures Code (Amendment) Act, 2020 inserted section 40C, now section 46, which waived interest and penalty outstanding as at 30 June 2020.

The Tribunal treated the language as direct and unconditional. It held that the waiver did not require a taxpayer application, a recommendation by the Commissioner General, or approval by the Minister or Parliament.

Because CARE had paid the full assessed principal by 30 June 2020, the Tribunal found that any qualifying interest and penalty then outstanding in relation to that assessment fell within the statutory waiver.

Importantly, the Tribunal held that a subsequent remission process could not revive amounts that had already been extinguished by operation of law.

This distinction should matter to any finance team dealing with legacy tax balances: a statutory waiver and an administrative remission are not the same process.

The 2026 waiver also affected the ledger

The Tribunal separately considered section 47C, introduced in 2026.

That provision applies to tax — including principal tax, penal tax and interest — owed as at 30 June 2016 and still outstanding when the 2026 amendment commenced.

The Tribunal stressed that the age of the liability alone was not enough. The amount also had to remain outstanding when section 47C came into force.

Because the PAYE assessment covered June 2007 to June 2017, the account contained liabilities falling on both sides of the statutory cut-off. URA was therefore required to identify, from the ledger, any qualifying principal tax, penal tax or interest attributable to the period ending 30 June 2016 and remove qualifying amounts from CARE's account.

The Tribunal's final orders

CARE's application succeeded.

The Tribunal ordered that:

1. URA's decision allocating CARE's payments in a manner that left part of the assessed principal PAYE outstanding be set aside.
2. The payments of UGX 1,128,838,249 and UGX 863,801,131, totalling UGX 1,992,639,380, be credited in full against the principal PAYE tax in the June 2007 to June 2017 assessment.
3. URA give effect to the applicable statutory waivers.
4. URA identify and remove qualifying principal tax, penal tax or interest owed as at 30 June 2016 and still outstanding when section 47C commenced.
5. URA prepare and serve CARE with a revised, period-by-period reconciliation of the PAYE account within 30 days.
6. Costs of the application be awarded to CARE.

For finance professionals, the requirement for a period-by-period reconciliation is especially notable. The Tribunal did not treat the taxpayer's ledger as an unquestionable single balance; it required the account to be rebuilt in a way that gave effect to the correct legal treatment of each component.

What finance teams should learn from the case

The practical lesson is straightforward: do not close a tax matter simply because payment has been made.

Payment is only one side of the control. The other side is how the tax authority records and allocates that payment.

For material assessments, objections and settlements, finance teams should perform a post-payment reconciliation covering:

• the assessment or liability to which each payment relates;
• the tax period against which the payment was posted;
• the split between principal tax, penal tax and interest;
• the settlement or objection correspondence supporting the intended treatment;
• the taxpayer ledger after the payment was processed;
• any continuing interest after settlement;
• any statutory waiver or remission separately applicable to the balance; and
• the final closing balance after all adjustments.

This approach also complements the reconciliation discipline discussed in FGL's guide to reconciling ERP sales, EFRIS, VAT and income tax returns. Whether the balance arises from an ERP, a return, an assessment or the tax authority's ledger, an unexplained difference should be traced to its source rather than accepted at face value.

A useful tax-settlement control

For significant tax disputes, CFOs and tax managers can maintain a simple settlement reconciliation file linking:

Assessment → Objection/settlement → Payment → Tax ledger → Statutory relief → Closing balance

The file should preserve the assessment, objection decision, settlement correspondence, payment registration number or receipt, tax ledger before and after allocation, and any applicable statutory relief.

The reason is visible in this case: URA's February 2020 letter became important evidence of the intended treatment of the payment.

Internal audit should also pay attention

A control that asks only whether a tax assessment was "paid" may be incomplete.

For material tax disputes, internal audit can test whether:

• settled assessments were reconciled back to the tax ledger;
• principal, interest and penalties were tracked separately;
• settlement correspondence was retained;
• historical balances continued attracting interest after payment;
• statutory waivers were independently evaluated; and
• unexplained ledger balances were escalated promptly.

That turns tax-dispute management into a financial-control process rather than treating it solely as a legal or compliance matter.

The broader governance lesson

The case illustrates a familiar governance problem: the legal or commercial understanding of a transaction can differ from what an administrative system records.

When those two realities diverge, the system balance can acquire consequences of its own.

That is why reconciliations matter.

An official system should be treated as an important source of evidence, but not as a substitute for reconciling the underlying transaction.

Readers interested in related Uganda tax disputes can also review FGL's analysis of Bujagali Energy v URA, Bata v URA, and Medisell v URA.

Final FGL takeaway: A tax payment receipt proves that money was paid. It does not, by itself, prove that the taxpayer's ledger was credited correctly.

Source and further reading

Primary source: Tax Appeals Tribunal of Uganda, CARE International in Uganda v Uganda Revenue Authority, TAT Application No. 353 of 2025, ruling delivered 7 September 2026.

Explore more analysis in the Uganda Tax Resource Centre and the FGL Case Briefs library.

For FGL's approach to research and source verification, see Sources & Research Methodology. This article is for educational purposes and should not be treated as legal or tax advice. See the FGL Disclaimer.