By Dedan Mutatinensi
A quiet frustration is growing among Ugandan employees—not because they oppose paying taxes, but because many feel they are being penalised for working harder.
Most salaried workers understand that taxation is part of nation-building. Every month, Pay As You Earn (PAYE) is deducted from their salaries before they receive them. What has sparked concern is the Uganda Revenue Authority's (URA) direction that income from secondary employment should be taxed at a fixed rate of 40 percent, regardless of how much a person earns.
This affects professionals such as lecturers, doctors, nurses, consultants, software developers and others who take on additional work to supplement their incomes. Whether someone earns Shs500,000 or Shs5 million from a second job, the same 40 percent tax applies.
The question many are asking is whether the policy is simplifying tax administration or discouraging people from seeking additional income.
Primary employment remains an individual's main job, where graduated PAYE rates apply. Under the current structure, income is taxed progressively, with rates ranging from 0 percent for earnings up to Shs335,000 to 40 percent for monthly earnings above Shs10 million. This system reflects the principle that those who earn more should pay more.
Secondary employment, however, is treated differently. Any income earned from an additional employer attracts a flat 40 percent withholding tax, regardless of the employee's overall income.
While URA argues this approach simplifies administration by applying the highest marginal rate, many professionals question whether it is fair. Today's economic reality is that one salary is often insufficient. Rising rent, school fees, transport costs and other living expenses have forced many Ugandans to seek second jobs simply to make ends meet.
Taxation influences behaviour. Consider a lecturer earning Shs4 million from a primary employer who earns an additional Shs1 million teaching elsewhere. Under the new arrangement, Shs400,000 is immediately deducted as PAYE, leaving only Shs600,000 before accounting for transport, preparation and other costs.
Faced with such deductions, many may begin asking whether taking on extra work is worthwhile. That should concern policymakers because economies grow when people are encouraged—not discouraged—to be productive.
There is also concern that the policy could unintentionally increase informal work. Employees may prefer cash payments, undocumented consultancy arrangements or other informal engagements to avoid the high deduction. If more economic activity shifts outside the formal system, government could ultimately collect less tax.
Another area of concern is the interpretation of the "highest marginal rate." Many taxpayers believe the 40 percent rate should only apply when a person's total combined income exceeds the highest tax threshold.
For example, someone earning Shs3 million from a primary job and Shs700,000 from secondary employment has a combined income well below Shs10 million. Yet the entire secondary income is taxed at 40 percent simply because of its classification, rather than the individual's total earning capacity. This is the fairness question many tax practitioners continue to raise.
The directive also presents practical challenges for employers. Primary employers must determine whether employees have other jobs, while secondary employers must correctly identify themselves before applying the 40 percent rate. Questions arise where employees change jobs, work for multiple employers or fail to disclose other employment, creating compliance risks for payroll and human resource teams.
Uganda has spent years promoting entrepreneurship, innovation and multiple income streams. Yet this policy appears inconsistent with those objectives by imposing the highest tax rate on additional effort.
There are practical alternatives. Secondary income could be combined with primary income and taxed progressively. A threshold could exempt lower secondary earnings from the 40 percent rate. Alternatively, excess PAYE could be reconciled through annual tax returns to ensure employees are not overtaxed.
The debate is therefore bigger than taxation itself. Ugandans are not resisting tax; they are asking whether people striving to improve their livelihoods should automatically face the highest tax rate simply because they have a second employer.
URA still has an opportunity to engage employers, payroll experts, tax practitioners and workers to ensure the policy achieves compliance while maintaining fairness and encouraging productivity.
The writer is a tax advisor.
