New PAYE Tax Commencing Next Week

Starting next month, Ugandans will wake up to new tax adjustments and tax administration measures, including the Income Tax (Amendment) Act 2026, as the 2026/2027 National Budget implementation begins next week (July 1).  One of the main features in this Act is the adjustments in the Pay-as-You-Earn tax, a direct tax that is considered the easiest to get, as it is deducted from a worker’s gross salary before the worker even receives the money.   

Key changes in this include raising the monthly PAYE tax-free threshold to 335,000 shillings (4 million shillings per year), from the current 235,000 shillings, which slightly increases the number of earners excluded from this tax, but also slightly increases savings for those already in the PAYE tax-paying bracket.   

A middle-income band has also been introduced, taxing earnings between a monthly 410,000 and 485,000 shillings at 25 percent, meaning that the earners currently taxed at 30 percent in this range would instead pay tax at a rate of 25 percent, giving middle‑income earners some relief.   

According to Trevor Lukanga, Associate Director, PwC Uganda, since the first 335,000 shillings becomes tax‑free for everyone, all PAYE‑paying employees will contribute slightly less tax overall, meaning slightly increased savings, though others have called it insignificant.  “One thing is clear: if you currently pay PAYE, you stand to take home slightly more pay if the changes are approved. It may not be a huge amount, but it is still some relief,” he says, adding that although this seems surprising at a time when the government urgently needs to increase revenue, there are reasonable explanations. 

These include boosting disposable income, increasing consumption, and reducing income inequality and poverty. He says that when taken together, these changes show an effort to prioritise social equity over pure revenue mobilisation, which the public has often demanded from the government. 

“The proposals provide targeted relief to lower‑ and middle‑income earners at a time when many households are struggling.” 

Another reason is that these changes were long overdue, with the PAYE brackets having been last revised in 2012, when the threshold increased from 130,000 to 235,000 shillings per month, amidst inflation, cost of living, and wage levels.  An analysis by the Institute of Certified Public Accountancy (ICPAU) says that the new threshold of 335,000 is still too low to create a real impact in the economy. “This change does not go far enough to effectively impact the disposable income”.   

ICPAU is also uncomfortable with the “heavy contribution” for the higher band (those earning above 120 million shillings per annum), which has been maintained at 40 percent. “The 40 percent income tax rate impedes the ability of the highest-earning category to save more and drive local entrepreneurship, which would enhance economic activity.” The body adds that these high rates and lower income limits may also affect Uganda’s competitiveness in the region as a location for many regional head offices and projects. 

Lukanga says that to balance this, the government must reinforce social services so taxpayers get tangible value for the taxes they pay and so the broader economy can benefit from a healthier, more productive population. Uganda Manufacturers Association, one of the largest employers in the country, opposed the amendment, saying it would increase the burden on some workers.   

While discussing the proposed reform, UMA Member John Jet Tusabe urged the government to either do away with the proposed 40 percent rate or reduce it to 35 percent.   “Workers are already overtaxed, attraction and retention of talent in Uganda is increasingly becoming difficult, partly due to the unfavorable PAYE tax rates,” Tusabe said.   They also proposed increasing the PAYE threshold from 235,000 shillings to 500,000 shillings per month, citing the rising cost of living and warning that excessive taxation could undermine compliance and affect revenue collection.   

PAYE Calculator     

Assuming one’s gross pay is 1.9 million shillings a month:

The first step will be to deduct the 5 percent NSSF, and apply the Progressive PAYE Brackets

Uganda’s updated 2026 progressive tax system applies the following tiered brackets to your monthly gross income:

Income Bracket (UGX)            Tax Rate         Income Calculation            PAYE Tax Owed 

(UGX)0 – 335,000                    0%                 Tax-free threshold              UGX0

UGX 0335,001 – 410,000        10%               10×(410,000 – 335,000)      UGX 7,500

410,001 – 10,000,000               20%              20×(1,900,000 – 410,000)    UGX 298,000

Total Monthly PAYE sum  of all tiers                                                           UGX 305,500

To find your exact net pay, subtract both the statutory PAYE tax and the employee NSSF amount from your initial gross pay: 

1,900,000 – 305,500 – 95,000

Net Pay/Take Home is 1,499,500 Shillings.

This, however, has not taken into account other possible statutory deductions like Local Service Tax. Under the current (2025/2026) calculator, the net pay would be 1,330,000 shillings