28 June 2016

Taxation of employment income



Anyone in Uganda earning income from any source that is deemed to have been sourced in Uganda is supposed to pay income tax. This income could be from business, employment or property.
We shall dwell on employment income.
Employment income is earned by any person who works for another person for remuneration with ascertainable income where the risks of the said work are to the employer. This type of income is all inclusive irrespective of the type of employment. The definition above covers all types that include, contract, permanent, casual, part time or any other that may be conceived by the employer.
An employee is an individual engaged in employment while employment means: holding of a position, acting in a position, directorship of a company, occupation that guarantees one earnings or emoluments of a fixed and regular sum per given period.






Whether a client maintains consolidated emoluments or pays emoluments to an individual on monthly or annual basis, all emoluments arising from employment income are taxable at specified individual income tax rates as stated in the Income Tax Act (ITA) rates of employment income tax schedule, other than those emoluments exempted from tax.
Section 116 of the ITA defines employment income to consist of cash and benefits in kind emoluments (wages, fees, and commissions, any allowance including transport allowance for an employee from home to work and back, and so on) but excludes reimbursements like per-diem.






Taxation of these emoluments is effected through the Pay As You Earn (PAYE) withholding system. PAYE is deducted at a specified rate by employers and remitted to Uganda Revenue Authority. It has to be remitted by close of the 15th day of the month following the month in which the salary was payable or paid. The person withholding it is a withholding agent who is also called an employer. The taxable person is the employee. Hence, PAYE on individual employment income is a form of advance Income Tax also known as tax paid at source.






The following constitute employment income (cash or non-cash) taxable under the Income Tax Act. They are: wages, salaries, leave pay and payment in lieu of leave, overtime pay, fees, commission, gratuity payable to contract and politicians staff bonus, any form of allowances (entertainment, welfare, housing, medical, retirement, mileage, transport and others).
Part time payments or allowances are assessed at a standard withholding rate of 30 per cent on gross emoluments as they are deemed to be earnings from another source which could have already applied the required threshold as provided for under Income Tax (withholding tax) regulations 2000 paragraph (3)15.






Silajji Kanyesigye is the assistant commissioner compliance management, URA.






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