KRA fringe benefits tax increase hits employers
Times Tower in Nairobi, the headquarters of the Kenya Revenue Authority (KRA).
What you need to know:
- The fringe benefits tax is a levy imposed on staff receiving extra perks, such as cheap loans, in addition to their wages.
- KRA has raised the fringe benefits tax to eight per cent for the next three months, until September, on account of the prevailing high market interest rates—the first such raise in more than a year.
- Taxable employment income in Kenya is all payments made by an employer to an employee, including salaries, wages, bonuses and fringe benefits received or enjoyed during employment.
Employees entitled to benefits might suffer a setback after the Kenya Revenue Authority (KRA) raised the tax charged on employers granting such facilities.
The fringe benefits tax is a levy imposed on staff receiving extra perks, such as cheap loans, in addition to their wages.
In the latest shift, KRA has raised the fringe benefits tax to eight per cent for the next three months, until September, on account of the prevailing high market interest rates—the first such raise in more than a year.
The fringe benefits tax had been retained at seven per cent across 2021 until the quarter ended in June.
Said Ms Lilian Nyawanda, the KRA commissioner for domestic tax: “For the purposes of Section 12B of the Income Tax Act, the market interest rate is eight per cent. This rate shall be applicable for the three months of July, August and September 2022.”
Taxable employment income in Kenya is all payments made by an employer to an employee, including salaries, wages, bonuses and fringe benefits received or enjoyed during employment.
Withholding tax
At the same time, the taxman has raised the deemed interest rate to eight per cent for the period to September of which a withholding tax of 15 per cent would be deducted and paid to it by the 20th day of each month.
On May 30, the Central Bank of Kenya (CBK) raised its policy lending rate by half a percentage point to 7.50 per cent to stem rising inflation and stabilise the shilling amid rising oil prices and the shocks of economic fallout from the Russia-Ukraine conflict.
This was the first raise at 14 consecutive rounds of retention at seven per cent.
The CBK last month retained the base lending rate at 7.5, saying, international commodity prices, particularly oil, wheat, and edible oils had begun to moderate.
Loans and advances
The weighted average rates for commercial bank loans and advances have held around 12 per cent across 13 months to May this year, CBK data shows.
At their lowest, average weighted market interest rates on loans by commercial banks stood at a flat 12 per cent in January 2021 and 12.17 per cent at their highest in February this year.
During the same period, the CBK rate remained unchanged at seven per cent until May.
