The Kenya Revenue Authority (KRA) has raised the Fringe Tax Rate from 15 per cent to 16 per cent.
In a statement dated Tuesday, April 9, it was revealed that the new rate would take effect from April till June.
Fringe tax is a tax that is usually applied to employee benefits which are extended by the employers such as loans. The tax is payable by the employers.
"For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 16%. This rate shall be applicable for the three months of April, May, and June 2024," read the statement in part.
Most employees usually, prefer to take loans from their employers because they are usually offered at lower interest rates.
Therefore, with the increase in the tax rate, many employers may be forced to increase their interest rates to ensure that they are not disadvantaged in the process.
"Fringe benefit tax is payable by every employer in respect of 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," KRA explained in its tax breakdown.
Notably, this is the second consecutive time that has seen the rates increase. In January, the tax rate was increased by 2 per cent from the rate of 13 per cent which was set for 2023 Quater 4.
Fringe tax is usually payable by the 9 of every month with employers also facing penalties for late remittance.
Meanwhile, the deemed and withholding tax rates were also increased by 1 per cent.
"For purposes of section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 16%. This rate is applicable for April, May, and June 2024.
"The Withholding Tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner by the 20th day of the month following the month of computation," read the notice in part.
