Ugandan workers will face new Pay-as-You-Earn tax bands from July 1, 2026, as the government begins implementing the 2026/2027 National Budget.
The changes are contained in the Income Tax (Amendment) Act, 2026. They raise the monthly PAYE tax-free threshold from Shs235,000 to Shs335,000.
This means employees earning up to Shs335,000 a month will not pay PAYE.
The adjustment also gives limited relief to workers already paying PAYE, since the first Shs335,000 of monthly income will now be tax-free.
New PAYE Bands Introduced
Under the new structure, the annual tax-free threshold rises to Shs4.02 million.
Income above Shs4.02 million but not exceeding Shs4.92 million per year will be taxed at 20 percent.
A new middle band has also been introduced. Annual income above Shs4.92 million but not exceeding Shs5.82 million will attract Shs180,000 plus 25 percent of the amount above Shs4.92 million.
Income above Shs5.82 million but not exceeding Shs120 million will attract Shs405,000 plus 30 percent of the amount above Shs5.82 million.
For individuals earning above Shs120 million annually, the additional 10 percent charge has been maintained.
Experts Say Relief Is Modest
Trevor Lukanga, Associate Director at PwC Uganda, said PAYE-paying employees will take home slightly more money under the new bands.
“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 said.
Lukanga said the changes appear designed to increase disposable income, support consumption, and reduce income inequality.
“The proposals provide targeted relief to lower- and middle-income earners at a time when many households are struggling,” he said.
He added that the reforms were overdue because Uganda last revised PAYE brackets in 2012. At the time, the tax-free threshold rose from Shs130,000 to Shs235,000 per month.
Since then, inflation, living costs, and wage levels have changed significantly.
Accountants Say Threshold Remains Low
The Institute of Certified Public Accountants of Uganda said the new Shs335,000 threshold remains too low to create a major economic impact.
“This change does not go far enough to effectively impact the disposable income,” ICPAU said in its analysis.
The accountants’ body also criticised the continued 40 percent rate for high earners.
“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,” ICPAU said.
ICPAU added that Uganda’s high PAYE rates could weaken the country’s competitiveness in the region.
It warned that the rates may affect Uganda’s ability to attract regional head offices and major projects.
Manufacturers Oppose 40 Percent Rate
The Uganda Manufacturers Association also opposed parts of the PAYE amendment.
UMA member John Jet Tusabe urged the government to drop the 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.
UMA also proposed raising the PAYE threshold from Shs235,000 to Shs500,000 per month.
The manufacturers argued that the rising cost of living requires a higher tax-free threshold. They also warned that excessive taxation could hurt compliance and weaken revenue collection.
Lukanga said the government must improve social services to balance the tax burden.
He said taxpayers need to see tangible value from the taxes they pay. He added that better services would support a healthier and more productive population.
PAYE Example for a Shs1.9m Salary
For an employee earning a gross monthly salary of Shs1.9 million, the 5 percent employee NSSF deduction would be Shs95,000.
Using the new PAYE bands, the estimated monthly PAYE would be Shs458,250.
That would leave estimated take-home pay of about Shs1,346,750 before other deductions such as Local Service Tax.
Under the current PAYE structure, the same worker would pay about Shs472,000 in PAYE.
After deducting PAYE and 5 percent NSSF, the worker’s estimated take-home pay would be about Shs1,333,000.
This means the new PAYE structure would increase take-home pay by about Shs13,750 per month for this salary level.
The final figure may vary depending on other statutory deductions, benefits, or payroll-specific adjustments.