The Uganda Revenue Authority ("URA") recently issued a notice urging the public to comply with the Stamp Duty Act by paying duty on agreements executed or received in Uganda. The notice has sparked debate on several legal concerns including the interpretation of the law, enforceability of unstamped agreements and the applicability of stamp duty to electronic and oral contracts.
This duty is a tax imposed on signed documents that confer a right or liability on the parties. The stamp duty rate may either be a flat fee of UGX 15,000 for each original document or may depend on the value of the instrument.
In the notice, URA highlighted the agreements subject to stamp duty include sale agreements, purchase agreements, rental contracts, employment contracts, and loan agreements, among others. The notice further emphasises that any person who executes an agreement without paying the required stamp duty commits an offence punishable by a fine not exceeding UGX 2,000,000, imprisonment for up to six months, or both.
The Act provides that stamp duty liability only arises when an instrument is executed, meaning when it is signed. In Stanbic Bank Uganda v URA, the High Court reaffirmed that stamp duty is charged on the instrument itself, not on the transaction, and that liability is triggered at the moment of execution. By implication, stamp duty applies only to written agreements.
Electronic and oral agreements
As a result of the URA's notice, some public offices now insist all agreements to be printed and witnessed by a lawyer. However, there is no law in Uganda that specifically requires a lawyer to witness documents. Additionally, oral and electronic contracts executed by WhatsApp and email exchange are also valid and enforceable.
In Dr. Rodney Mugarura v Paramount Hospital the court upheld contracts formed through WhatsApp messages under the Electronic Transactions Act. While the Contracts Act requires contracts of over UGX 500,000 to be in writing, the courts have clarified that the writing requirement is more about evidential value than validity. In Ndyowayesu Ceasar v Serubiri Timothy, the court emphasised that if all the elements of a valid contract are met, namely, mutual agreement, free consent, capacity to contract, lawful consideration, lawful object and the intention to be legally bound, the lack of written documentation does not automatically render the contract invalid.
This evolving legal perspective reflects the flexibility of modern contract formation with technology.
The validity question
One critical point emphasised in the URA notice is that payment of stamp duty makes the agreement authentic and enforceable under the law. This assertion is misleading.
The misconception is that non-payment of stamp duty impacts the authenticity, validity, or enforceability of an agreement. In reality, an agreement remains valid, authentic, and enforceable even if stamp duty is not paid.
Validity of a contract is determined under the Contracts Act and only requires acceptance of an offer and payment of consideration. Payment of stamp duty is not a condition precedent to the formation or validity of an agreement.
The authenticity of an agreement relates to whether the document is genuine and reflects the true intentions of the parties involved. Authenticity is about proper execution - signing and agreeing to the terms, rather than the payment of stamp duty. Therefore, even if stamp duty is not paid, the agreement remains authentic as long as it is executed in good faith by the parties.
The non-payment of stamp duty only impacts the document's evidential value in court proceedings. If the document needs to be presented in court, paying stamp duty becomes necessary for the document to be admissible. The stamp duty can be paid at any point before the document is presented as evidence in court. Even when an objection is raised regarding the admissibility of the document due to non-payment of stamp duty, the party seeking to rely on the document may still be allowed to pay the stamp duty and subsequently present the document as evidence after compliance. This means that while stamp duty is not a prerequisite for the formation of a valid contract, it must be paid before the document can be relied upon in court. This flexibility allows parties to finalise agreements without having to pay stamp duty immediately.
Stamp duty and land transactions
There has been a divergence in court rulings regarding whether under-declaration or non-payment of stamp duty can void land transactions. In Betty Kizito v David Kizito, the Supreme Court ruled that under-declaring the value of a land transaction constitutes fraud, thereby rendering the transaction void. This was intended to enforce public policy against tax evasion.
On the other hand, the Court of Appeal in Haji Numan Mubi Akulamusa v Friends Estate held that stamp duty is based on government valuation and not the parties' declared price. According to this ruling, under-declaring the value of a transaction does not inherently invalidate the agreement. Instead, the court advocated for rectification through proper valuation and payment of the correct stamp duty, along with any applicable penalties.
In 2024, in the case of Ddumba v Bagambe, the Supreme Court faulted the Court of Appeal for ignoring the principle on under-declaration of consideration set out in Betty Kizito. You can read more in our previous article, click here.
Ultimately, payment of stamp duty is not essential to the validity and authenticity of contracts, especially in today's digital age. The requirement for all agreements to be in writing and signed by a lawyer has no legal basis. The public offices tasked with enforcement should focus on ensuring compliance with legal obligations without creating unnecessary barriers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
