The Kenya Revenue Authority (KRA) has implemented a tax rate adjustment on loans provided to Kenyan employees at their workplaces in an announcement made on Tuesday.
The Fringe Benefit Tax rate, applicable to loans granted by employers, has been increased from 13% to 15%, as revealed in the notice.
Typically, employers are obligated to pay Fringe Tax for each loan extended to their staff, with workplace loans commonly featuring lower interest rates compared to those offered by traditional financial institutions.
The revised rate, effective for the initial three months of 2024, has been stipulated by KRA for the purposes of Section 12B of the Income Tax Act.
The modified rate will impact not only employees but also individuals such as directors, bosses, and their relatives who rely on workplace loans. According to KRA, Fringe Benefits Tax is levied on the taxable value of a fringe benefit provided by an employer each month, with payment due on or before the 9th of the subsequent month.
While the tax primarily targets employers, there is a potential repercussion where they might need to raise the interest rates for workplace loans. Consequently, loans obtained at the workplace will incur higher costs compared to previous months.
Simultaneously, the Deemed Interest Rate tax has seen a 2% increase. According to the notice, for the months of January, February, and March 2024, the prescribed rate of interest under section 16(2)(a) of the Income Tax Act is set at 15%, and a withholding tax rate of 15% on the deemed interest must be deducted and remitted to the Commissioner within five working days following the computation.
Additionally, KRA has adjusted the Low-Interest Benefit rate to 14%, reflecting a 4% increase from the rate set for the October to December 2023 period.
