The Kenya Revenue Authority (KRA) has retained the tax rate charged on employee welfare benefits at eight percent for the first quarter of 2026, marking the second successive quarter in which the terms stayed unchanged.
The fringe benefits tax applies to non-cash perks employees receive alongside wages, with cheap credit among the most common welfare benefits offered through staff loan schemes.
Taxable employment income in Kenya covers salaries and wages as well as other benefits received or enjoyed during employment, meaning staff welfare arrangements can attract tax even when cash does not change hands.
Under the KRA benchmark approach, the taxable value is calculated as the difference between the prescribed market interest rate and the actual interest paid by the employee on the loan.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is eight percent. This rate shall be applicable for the three months of January, February, and March 2026,” said KRA in a Thursday notice.
The levy is due on or before the ninth day of the month following the provision of the benefit, and is reviewed quarterly by the KRA based on market lending rates as guided by the Central Bank of Kenya’s (CBK) prevailing monetary policy direction and prevailing credit conditions.
The CBK has been cutting its benchmark rate to spur private-sector credit growth and anchor inflation within its target band, citing improved exchange rate stability and lower food and energy costs that have eased overall consumer price pressures in recent months.
Last month, the CBK effected its ninth straight cut on the benchmark Central Bank Rate (CBR) to nine percent, down from 9.25 percent in October last year, extending its monetary policy easing cycle that began in August 2024.
KRA last adjusted the fringe benefits tax in July 2025, lowering it to eight percent from nine percent, which itself had been reduced from 13 percent in April of the same year.
The taxman’s latest notice follows a similar update issued last October when KRA retained the rate at eight percent for the final quarter of 2025 despite easing borrowing conditions. The October move marked a break from a sustained pattern where the tax rate on staff welfare benefits had tracked broader movements in interest rates throughout the regular quarterly reviews.
