The Kenya Revenue Authority has increased the tax rate on loans offered to Kenyans at their workplaces.
In a notice dated January 23, KRA announced that it was raising the Fringe Benefit Tax rate from 13 to 15 per cent.
Fringe Tax is usually paid by employers for every loan they offer their staff. Usually, the loans offered at a place of work have a lower interest rate in comparison with those offered by banks and other financial institutions.
According to KRA, the new rate will take effect for the first three months of 2024.
"For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 15%. This rate shall be applicable for the months of January, February and March 2024," read the notice in part.
Notably, the loan rate will also affect Kenyans who rely on getting loans at workplaces including directors and bosses themselves and relatives.
"Fringe benefits tax is charged on the taxable value of a fringe benefit provided by an employer in a month and is due and payable on or before the 9th of the following month," KRA explained.
While the tax targets the employers only, they may be forced to increase the interest rate for loans they give at their workplaces.
As a result, loans given at work will be more expensive than in previous months.
On the other hand, the Deemed Interest Rate tax was also increased by 2 per cent.
"For purposes of section 16(2) (a) of the Income Tax Act, the prescribed rate of interest is 15%. This rate shall be applicable for the months of January, February and March 2024.
"Withholding tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within five working days following the computation," read the notice in part.
KRA also set the Low-Interest Benefit rate at 14 per cent, marking an increase of 4 per cent from the rate that was set for October to December 2023.
