The Government of Uganda has introduced changes to the Pay As You Earn (PAYE) tax system for the 2026/2027 financial year, bringing important adjustments to how employees’ salaries are taxed. One of the major changes is the increase in the tax-free monthly income threshold from UGX 235,000 to UGX 335,000, meaning many low-income earners will keep more of their salaries.
For employees, understanding the new PAYE brackets, statutory deductions, and how net salary is calculated is important for managing personal finances and checking whether payroll deductions are accurate.
This guide explains Uganda’s updated income tax brackets, other employee contributions, and provides practical examples of how salary deductions are calculated.
What Is PAYE?
Pay As You Earn (PAYE) is a type of income tax deducted from an employee’s salary by the employer and submitted to the Uganda Revenue Authority (URA).
PAYE is calculated using a progressive tax system, meaning employees with higher earnings pay tax at higher rates, while lower-income earners pay little or no tax.
The main aim of the PAYE system is to ensure that employees contribute to national development based on their ability to pay.
Uganda’s New Monthly PAYE Tax Brackets
The revised monthly PAYE rates are:
| Monthly Chargeable Income | PAYE Rate |
|---|---|
| Up to UGX 335,000 | 0% (Tax Free) |
| UGX 335,001 – UGX 410,000 | 10% of the amount above UGX 335,000 |
| UGX 410,001 – UGX 10,000,000 | UGX 7,500 + 20% of the amount above UGX 410,000 |
| Above UGX 10,000,000 | UGX 1,925,500 + 40% of the amount above UGX 10,000,000 |
The increase in the tax-free threshold means that employees earning UGX 335,000 or less per month do not pay PAYE.
How PAYE Is Calculated: Simple Examples
Many employees misunderstand PAYE because they think the highest tax rate applies to their entire salary. However, PAYE works by taxing different portions of income separately.
Example 1: Employee Earning UGX 800,000 Per Month
Assume Sarah earns a gross monthly salary of UGX 800,000.
Step 1: The first UGX 335,000 is tax-free
The first UGX 335,000 attracts no tax.
PAYE:
UGX 0
Remaining income:
UGX 800,000 − UGX 335,000
= UGX 465,000
Step 2: Tax the next UGX 75,000 at 10%
The income between UGX 335,001 and UGX 410,000 is taxed at 10%.
Amount:
UGX 410,000 − UGX 335,000
= UGX 75,000
Tax:
10% × UGX 75,000
= UGX 7,500
Step 3: Tax the remaining amount at 20%
Remaining income:
UGX 800,000 − UGX 410,000
= UGX 390,000
Tax:
20% × UGX 390,000
= UGX 78,000
Total PAYE Deduction
| Calculation | Amount |
| First band | UGX 0 |
| 10% band | UGX 7,500 |
| 20% band | UGX 78,000 |
| Total PAYE | UGX 85,500 |
Therefore, Sarah’s PAYE deduction is UGX 85,500.
Other Statutory Deductions Employees Make in Uganda
PAYE is not the only deduction that affects an employee’s take-home pay. Other mandatory contributions include:
1. National Social Security Fund (NSSF)
NSSF is Uganda’s mandatory retirement savings scheme for eligible employees.
The contribution is:
- Employee contribution: 5% of gross salary
- Employer contribution: 10% of gross salary
The employer remits both contributions, but only the employee’s 5% is deducted from the employee’s salary.
Example:
If Sarah earns UGX 800,000:
Employee NSSF:
5% × UGX 800,000
= UGX 40,000
Employer NSSF:
10% × UGX 800,000
= UGX 80,000
Total deposited to NSSF:
UGX 120,000
2. Local Service Tax (LST)
Local Service Tax is charged by local governments on individuals who earn employment income.
Employers normally deduct and remit LST on behalf of employees according to the applicable income bands.
Unlike PAYE, LST is not calculated every month based on a percentage of salary but follows the rates set by local authorities.
3. Other Possible Salary Deductions
Depending on an employee’s situation, additional deductions may include:
- SACCO savings
- Loan repayments
- Salary advances
- Medical insurance contributions
- Private pension contributions
- Trade union fees
- Court-ordered deductions
These deductions are usually based on agreements between the employee and the relevant organization.
Calculating Take-Home Salary
After PAYE and other deductions, the remaining amount is the employee’s net salary.
Using Sarah’s example:
| Item | Amount (UGX) |
| Gross Salary | 800,000 |
| Less PAYE | (85,500) |
| Less NSSF (5%) | (40,000) |
| Estimated Take-Home Pay | 674,500 |
Sarah would receive approximately UGX 674,500 after statutory deductions.
Example 2: Employee Earning UGX 300,000
James earns a monthly salary of UGX 300,000.
Since his salary is below the new tax-free threshold of UGX 335,000:
PAYE:
UGX 0
NSSF:
5% × UGX 300,000
= UGX 15,000
Estimated take-home pay:
UGX 300,000 − UGX 15,000
= UGX 285,000
This shows how the increased PAYE threshold benefits lower-income employees.
Why Employees Should Understand Their Payslips
Understanding salary deductions helps employees:
- Confirm that the correct PAYE amount is being deducted.
- Track retirement savings through NSSF.
- Identify incorrect payroll calculations.
- Plan monthly budgets based on actual take-home income.
- Understand the difference between gross salary and net salary.
Uganda’s updated PAYE tax brackets represent a significant change for employees, especially those earning lower salaries. Increasing the tax-free threshold to UGX 335,000 allows many workers to retain more of their earnings.
However, employees should remember that PAYE is only one part of payroll deductions. Contributions such as NSSF and Local Service Tax also affect the final amount received.
By understanding how taxes and statutory deductions work, employees can better manage their finances, verify their payslips, and make informed decisions about their income.