What is Local Service Tax in Uganda?
Local Service Tax (LST) is a tax levied by local governments in Uganda on employees working within their jurisdiction. It is separate from PAYE (which goes to URA) and NSSF (which goes to NSSF Uganda). LST is collected by employers and remitted to the relevant local government authority — either Kampala Capital City Authority (KCCA) for Kampala employees, or the district local government for employees working in other districts.
Key fact: LST is an employer obligation — you must deduct it from your employees' salaries once per year (typically in the first quarter) and remit it to the relevant local authority. Failure to do so can result in fines.
LST Rates Uganda 2026
LST rates are set by each local government and may vary slightly by district. The standard KCCA rates for Kampala employees are:
| Annual Gross Salary | Annual LST | Monthly Equivalent |
|---|---|---|
| Below UGX 2,820,000/year (UGX 235,000/month) | Exempt | Nil |
| UGX 2,820,001 — 4,020,000/year | UGX 15,000/year | UGX 1,250 |
| UGX 4,020,001 — 4,920,000/year | UGX 25,000/year | UGX 2,083 |
| UGX 4,920,001 — 12,000,000/year | UGX 100,000/year | UGX 8,333 |
| Above UGX 12,000,000/year | UGX 100,000/year | UGX 8,333 |
When is LST Deducted?
Unlike PAYE which is deducted monthly, LST is typically deducted as a lump sum once per year — usually in the first quarter (January to March). Most employers deduct the full annual LST amount from the employee's January or February salary. Some larger employers spread it across two months.
How to Remit LST in Kampala
- Deduct the LST from all qualifying employees in Q1 of the year
- Complete the LST return form from KCCA (available at City Hall or online at kcca.go.ug)
- Attach a schedule showing each employee's name, salary band, and LST deducted
- Make payment to KCCA via bank transfer or KCCA payment counters at City Hall
- Retain the KCCA receipt as proof of remittance
LST for Employees in Districts Outside Kampala
For employees working in other districts, LST is paid to the district local government where the employee works — not where the employer is registered. If you have staff in Gulu, Mbarara, Jinja, or other districts, you must remit their LST to those specific district local governments. LST rates may differ slightly by district.
LST vs PAYE — Key Differences
| PAYE | Local Service Tax | |
|---|---|---|
| Paid to | Uganda Revenue Authority (URA) | KCCA or District Local Government |
| Frequency | Monthly | Annual (usually Q1) |
| Filing deadline | 15th of following month | 31 March each year |
| Rate basis | Progressive — income level | Flat bands — income level |
| Maximum annual | Varies — no cap | UGX 100,000/year |
LST Rates by Income Band (2026)
LST is an annual tax charged on a sliding scale by monthly income. For employees and professionals, the commonly applied bands are: monthly income of UGX 100,000–200,000 pays UGX 5,000/year; 200,000–300,000 pays UGX 10,000; 300,000–500,000 pays UGX 20,000; 500,000–700,000 pays UGX 30,000; 700,000–900,000 pays UGX 40,000 (and around UGX 50,000 in the upper-professional band); and income above UGX 1,000,000/month pays the maximum of UGX 100,000/year. The tax tops out there — there is no higher charge however much someone earns.
When and How LST Is Paid
This is the part employers most often get wrong: LST is not deducted every month like PAYE. It is deducted from employees in four equal installments between July and October each year and remitted to the local government where the employee resides (KCCA in Kampala). For an employee in the top band, that means four deductions of UGX 25,000 across those four months. Professionals, artisans and business owners are assessed alongside their trading licence, and payment can be made through KCCA one-stop shops or mobile platforms (MTN, Airtel).
Who is exempt? LST does not apply to the military and police, civil servants, the unemployed, or those living in poverty. Everyone else in paid employment, self-employed professionals, tradespeople and commercial farmers above the income floor is liable. One technical note: there is a long-standing inconsistency between the Local Government Act and the Income Tax Act on whether LST is deducted before or after PAYE — most advisors follow the Income Tax Act and treat LST as deductible from gross before computing PAYE.
Sources: Kampala Capital City Authority (LST FAQs); Local Government Act; Uganda payroll tax guides 2026. Bands are applied by local governments and can vary slightly by district — confirm with KCCA or your local authority. General guidance, not tax advice.
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