Relief for Kenyan employees as KRA reduces fringe benefits tax to lowest level since 2023
A fringe benefits tax is imposed on employers offering concessional loans to their employees, directors, or their families. The tax remains in effect even if the loan repayment period goes beyond the end of the employment term.
Workers receiving additional welfare benefits have received a boost after the Kenya Revenue Authority (KRA) lowered the fringe benefits tax to nine per cent.
The new rate, effective for April, May and June 2025, marks the lowest level since January 2023 and follows a recent reduction in the Central Bank of Kenya’s benchmark lending rate.
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“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is nine per cent. This rate shall be applicable for the three months of April, May, and June 2025,” said KRA’s Commissioner for Domestic Taxes Rispah Simiyu in a notice.
The fringe benefits tax affects employees who receive welfare perks like low-interest loans alongside their regular pay. It applies when loans are issued at interest rates below the market average, with the tax based on the difference between the market rate and the actual rate paid.
This adjustment by KRA comes in response to the CBK’s decision to cut its base lending rate to 10 per cent from 10.75 per cent on Tuesday.
The move by the CBK is part of its ongoing strategy to make credit more accessible and stimulate economic growth.
A fringe benefits tax is imposed on employers offering concessional loans to their employees, directors, or their families. The tax remains in effect even if the loan repayment period goes beyond the end of the employment term.
Taxable employment income in Kenya includes not only basic pay and bonuses but also additional perks such as fringe benefits. The tax payable must be submitted by the 9th of the month following the month the benefit was given.
In January, KRA reduced the fringe benefit tax to 13 per cent from the previous 16 per cent, which had been in place since April of the previous year. The latest cut reflects continued efforts to align taxation with shifting lending conditions in the financial market.
“The committee concluded that there was scope for a further easing of the monetary policy stance to stimulate lending by banks to the private sector and support economic activity while ensuring exchange rate stability,” CBK’s Monetary Policy Committee said in a statement.
Employers and workers are expected to benefit from the reduced tax rate and lower borrowing costs as commercial banks respond by adjusting their own rates in the coming months.
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