Uganda’s new PAYE rates: What employers, workers need to know

• Uganda introduced new progressive PAYE rates effective July 1, 2026.

• Employers who used the old rates for July and August may need to recalculate tax and amend their URA returns.

• Any PAYE overpaid by employees should be refunded through payroll adjustments.

• Workers should also check their payslips and understand that higher tax rates apply only to income within each tax band.

A salary can look deceptively simple on a payslip. There is gross pay, a few deductions and, somewhere in between, PAYE, the amount withheld and remitted to the Uganda Revenue Authority (URA) on behalf of the employee.

But PAYE is not simply a percentage taken off one’s salary. It is a progressive tax, and the distinction matters.

Uganda’s new PAYE rates introduced under the Income Tax (Amendment) Act, 2026 have changed the way resident individuals’ monthly chargeable income is taxed. More importantly, the new rates are effective from 1 July 2026, creating an immediate responsibility for employers to review payrolls and, where necessary, correct returns that may already have been filed using the previous rates.

URA’s September 7, 2026, public notice should therefore not be interpreted as the date on which the new PAYE rates began. The Uganda Revenue Authority has clarified that the Income Tax (Amendment) Act, 2026, although assented to on August 20, 2026, prescribes an effective date of July 1, 2026. Accordingly, the new PAYE provisions apply from the beginning of the 2026/27 financial year.

For resident individuals, the new monthly chargeable-income bands are:

UGX0 – 335,000: Nil

UGX335,001 – 410,000: 20% of the amount above UGX335,000

UGX410,001 – 485,000: UGX15,000 plus 25% of the amount above UGX410,000

UGX485,001 – 10,000,000: UGX33,750 plus 30% of the amount above UGX485,000

Above UGX10,000,000: UGX33,750 plus 30% of the amount above UGX485,000, plus an additional 10% of the amount above UGX10 million.

The most important word here is progressive.

An employee who enters the 30% band does not pay 30% on the entire income. Likewise, an employee earning more than UGX10 million does not pay 40% on the entire salary. The additional 10% applies only to the portion above UGX10 million.

This is perhaps one of the biggest misconceptions employees and even some payroll practitioners can have when looking at the new rates.

Under the new structure, monthly chargeable income up to UGX335,000 attracts no PAYE.

For someone with UGX350,000 of monthly chargeable income, therefore, the first UGX335,000 is tax-free and only UGX15,000 is subjected to the 20% rate. PAYE would consequently be UGX3,000.

At UGX450,000, the calculation moves through the bands rather than applying 25% to the entire amount. The PAYE becomes UGX25,000.

At UGX485,000, cumulative PAYE reaches UGX33,750. Thereafter, the 30% rate applies only to the amount above UGX485,000.

For example, at UGX1 million of monthly chargeable income, the PAYE would be UGX33,750 plus 30% of UGX515,000, giving UGX188,250.

The principle remains the same even at the upper end. An employee with UGX12 million does not pay 40% on UGX12 million. The additional 10% applies only to the UGX2 million above the UGX10 million threshold.

But what exactly is chargeable income? This is another area where payroll discussions can become misleading.

The PAYE bands apply to chargeable income, not necessarily simply the figure labelled "basic salary" on an employment contract.

An employee's taxable employment income can include relevant allowances, benefits and other employment-related amounts, subject to the provisions of the Income Tax Act. Payroll therefore needs to establish the correct taxable or chargeable amount before applying the PAYE bands.

This means that simply changing a payroll spreadsheet's tax percentages may not be sufficient. Employers must ensure that the underlying taxable income has also been correctly determined.

The July and August problem

The most significant practical issue for employers is now the treatment of payrolls already processed.

Because the new rates are effective from 1 July 2026, an employer that processed July or August payroll using the previous PAYE rates may have deducted more tax than was ultimately required under the amended regime.

URA has specifically instructed employers whose July or August 2026 PAYE returns were declared before the system update to amend the affected returns and declare the correct tax. The employer is required to download the new PAYE return template from the URA portal and use it for the amendment.

This means the issue should not simply be treated as a September payroll adjustment.

Employers should go back to the affected months, identify the employees affected, recalculate their PAYE under the new rates, compare the revised liability with what was originally declared and make the necessary amendments.

What happens to the PAYE credit?

This is where the employer-employee relationship becomes particularly important.

Where the amended return results in a credit, URA states that the credit will be available to the employer for utilisation against a subsequent PAYE return.

However, the employer should not confuse the URA account treatment with the employee’s economic entitlement.

If an employee’s salary was subjected to excessive PAYE, that employee bore the cost of the over-deduction. URA therefore expressly states that employers are obliged to refund the overpaid tax to affected employees, including through an adjustment to a subsequent payroll.

For employers, this calls for a proper employee-by-employee reconciliation rather than simply taking the credit on the URA account and moving forward.

A simple example below shows the real impact:

URA provides a particularly useful illustration.

Suppose an employee earned UGX500,000 in July 2026.

Under the old calculation, PAYE would have been:

UGX25,000 + 30% × (UGX500,000 – UGX410,000)= UGX52,000.

Under the new rates, the PAYE becomes:

UGX33,750 + 30% × (UGX500,000 – UGX485,000)= UGX38,250.

The difference is UGX13,750.

For the employee, that is UGX13,750 that was unnecessarily deducted from July's pay under the old calculation and should be accounted for through the correction process. For the employer, it represents an amount that must be properly reconciled between the payroll records, the amended URA return and the employee's subsequent payroll adjustment.

Every payroll department should treat this as a compliance exercise.

First, update the payroll system to reflect the new rates.

Second, review July and August 2026 payrolls to identify employees whose PAYE was calculated under the old bands.

Third, recalculate the correct PAYE based on the new rates and the employee's actual chargeable income.

Fourth, amend affected PAYE returns using the updated URA template.

Fifth, reconcile the resulting credit or liability against the employer's PAYE account.

Finally, where employees were overtaxed, refund or adjust the overpayment through payroll, while retaining adequate documentation supporting the reconciliation.

This is not merely an accounting exercise. It is a tax-compliance and employee-payroll matter.

Employees should not necessarily expect every salary to change dramatically. The effect depends on the individual's chargeable income and the application of the progressive bands.

However, employees should examine their July and August payslips, where applicable, and understand how much PAYE was deducted.

If an employee was overtaxed, the key question should not simply be, "Will URA refund me?" The immediate mechanism identified by URA is that the employer corrects the return and refunds the employee, potentially through a subsequent payroll adjustment.

Employees should therefore engage their HR or payroll teams where their deductions appear inconsistent with the revised rates.

The new PAYE regime is ultimately about more than changing percentages.

For employers, it is about accurate payroll computation, timely correction, proper reconciliation and protecting the integrity of PAYE compliance.

For employees, it is about understanding that PAYE is progressive and that entering a higher tax bracket does not mean the entire salary is taxed at that higher rate.

Most importantly, both sides need to appreciate the significance of 1 July 2026.

The new rates are effective from that date. The September system update does not move the legal commencement date to September. Consequently, employers who used the old rates for July or August should review and, where necessary, amend their returns.

The best way to understand the new PAYE system is to picture it as a ladder: the first UGX335,000 is not taxed; successive portions are taxed at progressively higher rates; and only the portion above UGX10 million attracts the additional 10%.

For every employer, the immediate instruction is simple: Review. Recalculate. Amend. Reconcile. Refund. Update.

And for every employee: Know your chargeable income. Know your PAYE bands. Check your payslip.

A tax system is most effective when taxpayers understand not only how much they are paying, but why they are paying it.

The writer is a Chartered Accountant and a Chartered Tax Adviser.