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Katwesigye, aged 30 allegedly committed the offence at Fasta factory in Yaqshida district in the Somali capital.
The accused is attached to the UPDF engineering brigade.
Appearing before the General Court Martial in Kampala, he was on Tuesday also charged with failure to protect war materials.
Court presided over by Brigadier Charles Angina, the trial chairman heard that Katwesigye shot dead Mungyera using an AK47 sub machine gun on February 16, 2012 after he demanded him to refund his dollar but he declined.
The state alleges that the accused failed to protect war materials when he misused the ammunition he used to kill his colleague.
Katwesigye denied the charges and was remanded until June 5.
The state prosecutor, Capt. Fred Kangwamu asked for a long adjournment to allow him time to transport witnesses from Mogadishu.