New PAYE direction raises more questions than answers

There is a silent frustration growing among Ugandan employees. Not because people do not want to pay taxes.

Most salaried workers already understand that taxation is part of nation-building. Every month, Pay As You Earn (PAYE) is deducted before salaries even hit bank accounts. Employees have accepted that reality for years.

The frustration now is different. It is about whether Uganda is beginning to punish people simply for trying to earn extra income.

The recent communication from the Uganda Revenue Authority (URA) regarding PAYE on secondary employment has triggered serious debate among professionals, accountants, Human Resource teams, consultants, lecturers, doctors, engineers, and ordinary workers who take on side jobs to survive today’s economic pressures.

Under the current implementation direction, income from secondary employment is subject to a fixed PAYE rate of 40 percent, regardless of the employee’s income level.

A person earning Shs800,000 from a side teaching job. A consultant doing part-time work after office hours. A nurse working weekend shifts. A lecturer teaching at two universities. A software developer freelancing at night.

All may now face a 40% PAYE deduction simply because that income is classified as “secondary employment.” The question many Ugandans are asking is:

Is URA trying to simplify tax administration… or indirectly discouraging people from having second jobs?

Understanding Primary vs Secondary Employment

Before emotions take over the debate, it is important to first understand what URA means by primary and secondary employment.

What is primary employment?

Primary employment is the employee’s main job.

Usually:

It is the job where the employee spends most of their working time.

It is the employer declared as the main employer.

It is where the graduated PAYE tax bands are applied.

Under the proposed PAYE structure for resident individuals, the monthly tax rates are expected to look like this:

0 – 335,000 = 0%

335,000 – 410,000 = 20%

410,000 – 485,000 = 25%

485,000 – 10,000,000 = 30%

Above 10,000,000 = 40%

Meaning the system is progressive. The more you earn, the higher the marginal tax rate.

That principle has been accepted globally because it attempts to balance fairness and the ability to pay. But then comes secondary employment.

What is secondary employment?

Secondary employment refers to any additional employment outside the employee’s declared primary employer.

For example:

An accountant employed full-time by Company A, but also teaches evening classes.

A doctor working in a government hospital, but also practicing in a private clinic.

A marketing manager employed by one company but doing consultancy work elsewhere.

A university lecturer teaching in multiple institutions.

Previously, many employees assumed PAYE on secondary employment would still follow normal graduated tax bands.

However, URA’s direction is now clear:

Secondary employment income will be taxed at a fixed 40%.

Not progressive. Not graduated. Not dependent on how much you earn.

It is simply fixed.

That means whether your side income is Shs500,000 or Shs5 million, the tax treatment remains 40%.

And honestly, that doesn't make any sense.

The big question: Why 40% immediately?

This is where many professionals are beginning to question the rationale.

URA argues that secondary employment falls under regulations requiring withholding at the highest marginal tax rate.

Administratively, this may seem easier. But economically and socially, does it make sense?

Because reality on the ground is different.

Most Ugandans taking second jobs are not doing so because they are wealthy.

They are doing it because: rent has increased, school fees are high, fuel prices fluctuate constantly, family responsibilities keep growing and salaries have not increased proportionately with the cost of living.

For many professionals today, one salary is no longer enough.

So, when the government introduces a system where additional effort attracts the highest tax rate immediately, people naturally begin asking: Are we taxing extra productivity or punishing survival?

The Psychological effect nobody is talking about Taxes do not only affect money. They affect behaviour.

Imagine this scenario:

A lecturer earns Shs4 million from their primary university employment. They get an opportunity to teach part-time elsewhere for Shs1 million. Under the secondary employment rule, Shs400,000 immediately goes to PAYE.

The lecturer remains with Shs600,000 before considering transport, preparation time, internet costs, and personal exhaustion.

Eventually, some professionals may begin asking themselves: “Is the second job even worth it anymore?”

That question alone should concern policymakers.

Because economies grow when people are encouraged to be productive, innovative, and hardworking. Not when they feel penalised for doing more.

Could this increase informal work instead?

Ironically, policies intended to improve compliance can sometimes produce the opposite effect.

One dangerous possibility is that people may prefer informal arrangements.

Instead of official employment contracts:

Some workers may demand cash payments.

Some employers may avoid formal payroll declarations.

Some consultancy arrangements may become intentionally undocumented.

Why? Because employees will try to avoid losing 40 percent of their relatively modest side income.

Once economic activity moves informal, the government may actually collect less tax in the long run. That is the contradiction policymakers must think about carefully.

The confusion around “Highest Marginal Rate”

Another issue causing debate is interpretation.

Many employees believe the 40% rate should only apply once total combined income crosses the highest tax threshold.

For example: If someone earns:

Shs 3 million from their primary job,Shs 700,000 from secondary employment

Their total income is still nowhere near Shs 10 million.

So naturally, people ask: Why should the side income automatically suffer a 40% deduction when the employee is not actually in the highest income bracket overall?

That question has not been adequately addressed in public discussions.

Instead, the current approach seems to treat the nature of the income differently rather than the employee’s total earning capacity. That is what many tax practitioners find difficult to justify from an equity perspective.

What employers need to understand

This change also creates practical complications for employers.

For primary employers Primary employers will continue applying graduated PAYE rates.

However, they now need employees to properly declare whether they have other employment.

This raises operational questions:

How will employers verify disclosures?

What happens when employees fail to declare?

Will employers become liable for wrong classifications?

HR and payroll teams are already concerned about compliance risks.

For secondary employers

Secondary employers now carry the responsibility of applying the 40% fixed rate.

That sounds simple on paper.

But in practice:

How does the employer confirm they are truly the secondary employer?

What if the employee changes jobs mid-year?

What if an employee has three different employers?

What if both employers assume they are the primary employer?

These are not theoretical questions. They are real payroll complications that businesses are likely to face immediately.

The Bigger Economic Question

Uganda has spent years encouraging entrepreneurship, innovation, multiple income streams, youth productivity, and professional growth.

At the same time, the economy has increasingly pushed people toward side income.

Many professionals survive through a combination of salary, consulting, teaching, freelance work, advisory roles, board assignments, digital work, and contract engagements.

This is no longer unusual. It is a modern economic reality.

So, when secondary income automatically attracts the highest PAYE rate, some people see it as contradictory to the broader economic message the government has promoted for years.

The concern is not merely about paying tax.

The concern is whether the system remains fair, proportional, and encouraging toward productivity.

Risk of public distrust

One thing government must guard carefully is taxpayer trust.

People comply more willingly when they believe a system is fair.

But when workers begin feeling overtaxed, misunderstood, or unfairly targeted, compliance becomes emotional rather than cooperative.

And once taxpayers emotionally disconnect from a system, resistance quietly grows. That resistance may not always be an open protest.

Sometimes, it becomes underreporting, informal work, payroll manipulation, or complete disengagement from formal structures.

That is why communication matters.

URA may need to explain this policy more deeply, more transparently, and more convincingly. Because currently, many employees feel shocked rather than informed.

So, What Should Be Done?

There are several possible alternatives that could balance compliance and fairness better.

Option 1: Tax Secondary Income Progressively

Instead of a blanket 40%, secondary income could be aggregated with primary income and taxed progressively based on total earnings. This would align taxation with actual earning capacity.

Option 2: Introduce a threshold

URA could exempt smaller secondary incomes from the 40% rate.

For example: Secondary income below a certain threshold could follow normal PAYE bands. Only higher earners would face the fixed 40% rate. This would protect lower and middle-income professionals.

Option 3: Improve annual reconciliation

Another approach would be allowing overpaid PAYE from secondary employment to be adjusted during annual tax reconciliation. This would reduce the feeling of immediate over-taxation.

Final thoughts

The debate around PAYE on secondary employment is bigger than tax.

Ugandans are not refusing taxation. What many are questioning is this:

Should a person trying to work harder automatically be pushed into the highest tax bracket simply because they have a second employer?

Unless this is addressed carefully, this policy may create more frustration than compliance.

URA still has an opportunity to engage openly with professionals, employers, payroll experts, accountants, and taxpayers before this direction becomes deeply unpopular.