” TAX ALERT “
What Employers Need to Know.
In March 2025, through the Technical and Vocational Education and Training Act, 2025 (Act 3 of 2025, “the TVET Act”) and by the Circular Standing Instruction No. 1 of 2025 issued by the Ministry of Education and Sports on 26 May 2025 to facilitate the Act’s transitional rollout, a levy referred to as the Skills Development Levy was introduced.
This is a significant new payroll-related obligation aimed at supporting skills development initiatives across Uganda.
The SM & Co. Advocates Tax Team through this publication outlines the levy’s core components, current implementation status, and its tax-related implications for employers.
What is the Skills Development Levy?
The Skills Development Levy is a mandatory 1% charge on the total gross monthly emoluments payable by an employer to their employees.
The rate may be adjusted by the Minister responsible for Technical and Vocational Education and Training (TVET) in consultation with the Minister of finance.
The levy is a contribution to the Skills Development Fund established under the TVET Act. The purpose of the Skills Development Fund is considered below.
Emoluments considered under the TVET Act
The TVET Act defines “emoluments” to include wages, salary, leave pay, sick pay, payments in lieu of notice, commissions, bonuses, gratuities, or other allowances payable under employment contracts.
Unlike employment income as defined under the Income Tax Act, this levy mainly focuses on gross cash payments to employees. We are optimistic that the Regulations will clarify the reach of this levy and if its only limited to such cash payments.
Purpose of the Levy
The levy’s aim is to contribute to the Skills Development Fund, which supports priority TVET programs.
This includes funding for trainees in approved technical and vocational training, industrial placements, the TVET loan scheme, incubation programs for innovations, and investments of surplus funds with ministerial approval.
The Fund serves both public and private TVET providers to enhance workforce skills and economic productivity, with the circular prioritizing trainee support and placements during the initial phase.
Transfers to and from the Fund are to be authorised by the TVET Council. However, the TVET Act requires that the Minister provides further regulations that provide for the procedure for collecting and disbursement of funds in the fund. These regulations are equally not yet in place.
In addition to the levy, the Skills Development Fund also receives funding from parliamentary appropriations, a 10% levy on the revenues of TVET providers as defined under the Act as well as grants, donations, and voluntary contributions.
Who is Obligated to Pay?
The levy is imposed on employers, as defined under the Employment Act; which includes any person or entity engaging workers under contracts of service, with at least five (5) employees.
There is no minimum threshold for total emoluments; the 1% levy applies to the full gross monthly emoluments paid to an employee.
Implications for Taxpayers (Employers)
As discussed, the TVET Act imposes a Skills Development Levy on an employer who employs at least five (5) employees. The introduction of the Skills Development Levy imposes an additional 1% charge on gross payroll.
This levy is distinct from Pay-As-You-Earn (PAYE) and National Social Security Fund (NSSF) contributions, though future regulations may clarify its exact classification and the effect of the levy on the overall PAYE contribution. There is equally a need to understand if this levy is creditable while computing PAYE or if it is allowed as a deduction for corporate income tax computations.
Though compliance modalities are still unclear, compliance requires accurate tracking and reporting, potentially necessitating payroll system updates, with the risk of audits by the TVET Council or URA leading to potential penalties, where applicable.
No Implementing Regulations Yet.
Although the levy is in force, the TVET Act requires the Minister, in consultation with the finance minister, to prescribe regulations for collection and remittance procedures, none of which have been gazetted as of September 2025.
This gap creates uncertainty around deadlines and methods of compliance.
Though the Circular Standing Instruction No. 1 of 2025 provides interim guidance, it largely focuses on the technical vocation aspects and does not address the levy question. As discussed, without proper guidance, there may be challenges with compliance and enforcement of the TVET Act.
Disclaimer:
This publication is for general consumption and should not be taken and relied upon without seeking specific legal advice on any of the matters above.