Local Service Tax: the payroll deduction URA does not collect

Every employer remembers the 15th for URA. Fewer remember that one deduction on the payroll is not URA’s at all. Local Service Tax (LST) works to a different calendar and is collected by a different office: your local government.

The rule

The taxes that local governments may levy, charge and collect shall include the following— … (b) local service tax to be levied on all persons in gainful employment or who practice any profession or on business persons and commercial farmers who produce on a large scale.
Local Governments Act, Cap. 138 (Revised Edition 2023), section 83(2)(b), as consolidated on ULII at 31 December 2023.

The mechanism

LST is a local government tax, not a URA tax. In Kampala, read KCCA wherever this article says local government: the Kampala Capital City Act names local service tax among the taxes the Authority may levy (Cap. 195, section 62(5)). That is why it slips. It is not one of the URA returns due on the 15th, and the office that collects it works to a different calendar.

For staff on a salary, the employer is the collector. Employers deduct LST from staff pay and pay it to the local government, on that local government’s timetable. KCCA’s published guidance (February 2017), for example, has the employer send it a salary schedule with each employee’s LST worked out. We do not print bands or amounts here; ask your local government for this year’s. Whatever the amount, it is the employer’s payroll file that has to show the deduction.

The checks

Think like the person reviewing a payroll file: five questions, each a yes or no.

1. Is LST on your payroll at all? If your staff are liable, it should appear as its own deduction line, separate from PAYE and NSSF.
2. The timetable. Do you know your local government’s deduction and payment dates for this year, in writing?
3. Paid over. Was each amount paid to the local government, not left in the bank account?
4. The proof. Do you hold the local government’s receipt for each payment, filed with the payroll for the month it relates to?
5. Joiners and leavers. Has the position of anyone who joined or left during the year been checked separately?

The date to find

We are not printing a date here, on purpose. Ask your local government for its deadline now, in writing, and work back from it. It will not appear on URA’s return calendar.

If a check fails

Before you correct a missed deduction, for example by adding it to a later month’s pay, ask how your local government wants it handled. The correction depends on the rules it applies. That is exactly the question we answer for employers.

The verdict

LST is small per employee and easy to forget across a whole payroll. A five-question check now takes minutes. A missed deduction found later is slower and harder to put right.

The next move

WhatsApp us “LST” on +256 773 987 457 and we will check your payroll position with you.

Related: Monthly Tax Filing · The 15th: VAT, PAYE and WHT in one checklist

Not sure where you stand? Let’s find out, before URA does it for you.