Employers are set to pay more for loans given at workplaces after the Kenya Revenue Authority (KRA) raised the Fringe Benefit Tax by 2 per cent.
In a notice dated Tuesday, the taxman explained that the Fringe Benefit Tax would be increased from 11 per cent to 13 per cent.
The new rates will cover October to December 2023.
Fringe Tax is a levy imposed on employers for providing workplace loans, typically at a reduced interest rate compared to those given by banks.
"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 three months of October, November and December 2023," read the notice in part.
Therefore, with the increase of the fringe tax, employers will raise the interest rate to cushion themselves against higher taxes.
"Fringe benefit tax is payable by every employer regarding a loan provided to an employee, director or their relatives at an interest rate lower than the market rate.
"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 details.
Significantly, the tax has been increasing since the start of the year.
From January to March, the rate was set at 9 per cent, while from April to June, the rate was set at 10 per cent.
On the other hand, the Deemed Interest Rate was set at 13 per cent.
The Deemed Interest Rate targets outstanding loans that have been given to Kenyans by non-residents.
