Employers to pay more in taxes as KRA increases Fringe Benefit Tax to 15 per cent
Fringe benefits are like soft loans that employers give to their workers as part of their salary package.
Kenya Revenue Authority (KRA) has increased the market interest rate on fringe benefits to 15 per cent for the next three months.
This decision is a result of the impact of rising interest rates, and it will directly affect employers, who will now have to pay higher taxes.
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Fringe benefits are like soft loans that employers give to their workers as part of their salary package.
Employers give these loans to employees at zero or below market rates, serving as incentives.
Taxable value
The KRA periodically determines the market rate, and the difference between the rate charged by the employer and the market rate is considered taxable.
The corporate income tax rate of 30 per cent is then applied to this taxable value.
"Withholding tax rate of 15 per cent on the deemed interest shall be deducted and paid to the Commissioner within five working days following the computation," KRA stated.
According to a notice from the KRA, the market interest rate for fringe benefits will be 15 per cent for the months of January, February, and March 2024.
This marks an increase from the previous market rate of 13 per cent, which was applicable for the last quarter of 2023.
Employers who now face higher tax bills on these benefits may respond by raising the interest rates on the loans they provide, which could reduce the benefits for employees.
This change represents the third successive increase in the market interest rate, and it is a significant jump from the nine per cent rate that was in place during the same period last year. This increase highlights the steep rise in market lending rates.
The fringe benefit tax is governed by Section 12B of the Income Tax Act, which came into effect on June 12, 1998. This latest adjustment is part of the ongoing efforts to align tax regulations with the current economic landscape.
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