The Kenya Revenue Authority (KRA) has dealt workers’ benefits a blow following a fresh raise on the tax rate charged to employers granting such welfare support.
The latest adjustment has seen the taxman raise the fringe benefits tax to nine per cent for the next three months till December on account of the prevailing high market interest rates, the second such in more than a year.
The fringe benefits tax is a levy imposed on staff receiving extra welfare benefits such as cheap loans on top of their wages.
“For the purposes of Section 12B of the Income Tax Act, the market interest rate is nine per cent. This rate shall be applicable for the three months of October, November and December 2022,” KRA commissioner for domestic taxes, Rispah Simiyu said.
The fringe benefits tax had been retained at seven per cent across 2021 until the quarter ended in June this year when KRA raised it to eight per cent for the three months that ended in September.
Taxable employment income payments made by an employer to an employee. This will include salaries, wages, bonuses and fringe benefits received or enjoyed during employment.
At the same time, the taxman has raised the deemed interest rate to nine per cent for the three months to December of which a withholding tax of 15 per cent would be deducted and paid to it by the 20th day of each month.
The Central Bank of Kenya (CBK) on September 29 raised the benchmark interest rate by 75 basis points to 8.25 per cent to anchor inflation expectations, marking the second hike this year and the steepest since July 2015.
Top commercial banks have already begun increasing lending rates by up to 1.1 percentage points in line with the CBK’s decision to raise its benchmark interest rate.
NCBA Group, Standard Chartered, Housing Finance, and Stanbic Bank are some of the lenders that have notified clients that the base rate on their loans will rise this month.
Reports show that NCBA raised its base interest rates by 1.1 percentage points from November 11 while Stanbic and Standard Chartered increased theirs by 0.75 percentage points.
Banks use a base rate, the cost of funds, plus a margin and a risk premium, to determine how much they charge a particular customer.
They are now reviewing base rates and many have applied to the CBK to revise upwards the risk premium in what could end the era of cheap credit.
