The Kenya Revenue Authority (KRA) has raised the tax rate charged on employers granting welfare support for the fourth straight quarter, dealing a setback to workers’ benefits.
The fringe benefits tax is a levy imposed on employees receiving extra welfare benefits such as cheap loans in addition to their wages.
In the latest adjustment, the taxman has raised the fringe benefits tax to 16 per cent for the next three months on account of the prevailing high market interest rates.
“For purposes of section 16(2) (ja) of the Income Tax Act, the prescribed rate of interest is 16 per cent. This rate is applicable for the months of April, May, and June 2024,” said commissioner for domestic tax Rispah Simiyu.
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 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.
Fringe benefits tax is charged on the taxable value of a benefit provided by the employer in a month and is due and payable on or before the 9th of the following month. The prescribed rate of interest is based on the market lending rates as the Commissioner may prescribe every quarter of the year.
The fringe benefits tax had been raised to 15 per cent for the quarter to March this year, from 13 per cent in the three months to December 2023.
It had been retained at seven per cent across 2021 until the quarter ended in June 2022 year when KRA raised it to eight per cent for the three months that ended in September. The taxman then raised the tax to nine per cent for the quarter to December 2022—a rate it retained for the period to March 2023.
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.
