The Kenya Revenue Authority (KRA) recently announced a 2 percent increase in the Fringe Benefit Tax, affecting employers who provide loans to their employees. The tax hike raises the Fringe Benefit Tax from 11 percent to 13 percent, effective from October to December 2023.
The Fringe Benefit Tax is a levy imposed on employers who offer workplace loans, typically at lower interest rates than those offered by traditional banks. Employers are now considering raising interest rates on these loans to offset the increased tax burden.
The taxable value of the Fringe Benefit Tax is determined by the difference between the market interest rate and the actual interest paid on the loan. The tax applies for as long as the loan remains unpaid, even if it extends beyond the employee’s termination of employment.
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“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,” KRA explained.
The tax rate has been steadily increasing throughout the year. It started at 9 percent from January to March and then rose to 10 percent from April to June. Additionally, a Deemed Interest Rate of 13 percent applies to outstanding loans provided to Kenyan residents by non-resident entities.
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The adjustment in Fringe Benefit Tax rates reflects evolving taxation policies with financial implications for both employers and employees, especially in the context of workplace loans. These changes are part of KRA’s ongoing efforts to streamline taxation and enhance revenue collection in Kenya.
