KRA hits workers with fresh tax raise on benefits
Times Tower, Kenya Revenue Authority headquarters in Nairobi.
The Kenya Revenue Authority (KRA) has dealt a setback to workers’ benefits following a fresh raise on the tax rate charged to employers granting such welfare support.
The levy is paid by employers on certain benefits provided to their employees, their families, or other associates.
For example, some employers offer loans to their employees at interest rates lower than the market rate—a provision that is subject to a fringe benefits tax. The taxable value of fringe benefits tax is the difference between the market interest rate and the actual interest paid on the loan.
In the latest adjustment, the taxman has raised the fringe benefits tax to 10 percent for the next three months until June on account of the prevailing high market interest rates—the first raise since the October- December window.
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“For the purposes of Section 12B of the Income Tax Act, the market interest rate is 10 percent. This rate shall be applicable for the three months of April, May, and June 2023” KRA said.
The taxman had retained the fringe benefits tax at nine percent for the three months to March this year—ending two consecutive raises over the six months to December last year.
The fringe benefits tax had been retained at seven percent across 2021 until the quarter ended in June last year when KRA raised it to eight percent for the three months that ended in September.
The tax was then raised to nine percent for the period October to December 2022 on account of the prevailing high market interest rates.
The fringe benefits tax is a levy imposed on employees receiving extra welfare benefits such as cheap loans in addition to their wages. Taxable employment income in Kenya includes all payments made by an employer to an employee. This will include salaries, wages, bonuses, and fringe benefits received or enjoyed during employment.
The taxman also raised the deemed interest rate to 10 percent for the three months to June of which a withholding tax of 15 percent would be deducted and paid to it by the 20th day of each month. The deemed interest rate had been raised to nine percent for the three months to March.
The Central Bank of Kenya (CBK) last month increased the benchmark lending rate to the highest level in five years to curb inflation.
The Monetary Policy Committee (MPC) increased the CBK rate to 9.5 percent from 8.75 percent, matching the 0.75 percentage rise of September last year that triggered banks to increase lending rates.
The huge rate hike is aimed at easing demand for credit in the hope of cooling inflation, which rose to 9.2 percent in February from 9.0 percent in January, reversing the fall in the cost of living measure for three consecutive months
The 9.5 percent rate is the highest since March 2018 and will egg banks on to make a fresh round of lending rate increases that will hurt businesses in a recovering economy.
