Relief for Kenyan workers as KRA lowers fringe benefits tax to 13 per cent
The adjustment reflects KRA’s efforts to align with CBK’s monetary policy and pass on the benefits of lower market interest rates to taxpayers.
Employees benefiting from perks such as low-interest loans can breathe a sigh of relief as the Kenya Revenue Authority (KRA) has lowered the fringe benefits tax rate to 13 per cent, the lowest in a year.
Effective for January, February and March 2025, the change follows the Central Bank of Kenya’s (CBK) recent move to cut its indicative lending rate to 11.25 per cent in December 2024.
More To Read
- KRA schedules 8-hour shutdown of customs management system for maintenance
- KRA summons activist Morara Kebaso over alleged Sh186 million tax evasion
- Tough year ahead for Kenyans as KRA records Sh174 billion revenue shortfall
- KRA to undergo transformation with focus on professionalism, says new Board chair Muriithi
Fringe benefits tax is charged on employees who enjoy additional perks such as low-interest loans on top of their regular pay.
“For the purposes of Section 12B of the Income Tax Act, the market interest rate is 13 per cent. This rate shall be applicable for the months of January, February, and March 2025,” reads a notice by KRA Commissioner for Domestic Taxes, Rispah Simiyu.
Previously set at 16 per cent since April 2024, the fringe benefits tax is calculated as the difference between the market interest rate and the actual interest paid on loans offered by employers.
Even after an employee leaves the company, the tax remains payable until the loan is fully repaid.
“The taxable value of fringe benefit tax is the difference between the market interest rate and the actual interest paid on the loan. Where the term of the loan extends beyond the date of termination of employment, it applies as long as the loan remains unpaid,” the taxman says.
Employers are required to remit the fringe benefits tax by the ninth day of the following month, with the taxable value determined quarterly based on market lending rates prescribed by the KRA.
According to KRA, failure to remit the tax on time results in a penalty of 25 per cent of the tax due, while late payments incur an additional penalty of five per cent of the tax due.
In a similar move, the taxman has also reduced the deemed interest rate to 13 per cent for the same period.
Employers must deduct a 15 per cent withholding tax from this rate and remit it within five working days. This is a drop from the previous 16 per cent, which was applicable during the quarter ending December 2024.
The adjustment reflects KRA’s efforts to align with CBK’s monetary policy and pass on the benefits of lower market interest rates to taxpayers.
Top Stories Today
