By CPA Nobert Turyamuhaki,
DEEP FOCUS
The Ugandan government has proposed changes to the Personal Income Tax (PIT) system for the financial year 2026/27, aimed at reducing the tax burden on employees while maintaining fairness across all salary levels. The current tax-free threshold of UGX 235,000 per month, set in 2012, has not been adjusted for inflation over the past decade. This has increased the tax burden on low-income workers despite rising living costs. The proposed reform seeks to update this threshold and improve the progressivity of the tax system, ensuring that taxation is fair and responsive to the current economic realities.
Legal Basis for the Reform
The proposed changes are anchored in Section 19 of the Income Tax Act (ITA), which provides for the taxation of employment income, including salaries, allowances, and benefits. Schedule 4 of the ITA specifies the applicable tax rates for resident individuals. The reform seeks to revise Schedule 4 to increase the tax-free threshold and adjust mid-level bands while keeping the top rates unchanged. By doing so, the government aims to modernize the system and provide relief to employees across all income levels.
Contrary to public concerns, the reform does not increase taxes; instead, it increases take-home pay, particularly for those who need it most.
What Has Changed: Old vs. New PAYE Structure
Under the old PAYE system, the first UGX 235,000 of monthly income was tax-free, and employees paid progressively higher rates up to 40% for salaries exceeding UGX 10,000,000. The proposed reform widens the tax-free threshold to UGX 335,000 per month, meaning more income is exempt from tax for low-income earners. Minor adjustments are also made in the mid-bands to slightly reduce PAYE for middle-income employees, while higher bands remain largely unchanged. This ensures the system remains progressive, fair, and responsive to today’s economic conditions.
How the Changes Affect Take-Home Pay
The reform is designed to provide meaningful relief to employees across all income levels, with the greatest impact on low- and middle-income earners. For example, someone earning UGX 500,000 per month would see PAYE drop from UGX 52,000 under the old law to UGX 38,250, giving them an extra UGX 13,750 to spend or save. Employees earning UGX 1,000,000 monthly will see a reduction from UGX 202,000 to UGX 188,250. Even higher-income earners benefit slightly; a salary of UGX 5,000,000 will see PAYE decrease from UGX 1,402,000 to UGX 1,388,250, while those earning UGX 12,000,000 will experience a reduction from UGX 3,702,000 to UGX 3,688,250. The widened tax-free band and minor adjustments in the mid-bands ensure that all workers, regardless of income, retain more of their earnings.
Fairness and Economic Impact
While the reform is expected to reduce government revenue by UGX 96 billion in the first year, this is a deliberate trade-off to provide relief to employees and improve equity in the system. By reducing the burden on low- and middle-income earners, the government expects better compliance, increased disposable income, and higher economic activity. Over time, these factors are projected to offset the initial revenue reduction, demonstrating that fair taxation can coexist with sustainable public finances.
What You Need to Know
If Parliament approves the changes, the new PAYE bands will be implemented from 1st July 2026, providing immediate relief to low- and middle-income earners.
Contrary to public concerns, the reform does not increase taxes; instead, it increases take-home pay, particularly for those who need it most. The widened 0% band, minor mid-band adjustments, and retention of the progressive structure make the system more equitable, modern, and responsive to Uganda’s current economic realities.
The writer, Nobert Turyamuhaki (CPA, MBA), is a seasoned tax and accounting professional with 8+ years’ experience in private and INGO sectors, holding an MBA (MUBS), BBS (KyU), and PODITRA (EAST), and is a member of ICPAU. Contact: 0750948198: nobertturyamuhaki2@gmail.com
