The Kenya Revenue Authority (KRA) has announced a revision in the rates for Fringe Benefit Tax, increasing it from the initial 9 percent set at the beginning of 2023 to the current rate of 15 percent.
The Fringe Benefit Tax is applied to the taxable value of fringe benefits provided by employers on a monthly basis.
Effective for the months of January, February, and March 2024, the new rate of 15 percent will be applicable.
Employers are required to deduct and remit the withholding tax rate of 15 percent on the deemed interest within five working days following the computation, according to the announcement from KRA.
Furthermore, the prescribed rate of interest, as per section 5(2A), is set at 14 percent for the months of January, February, March, April, May, and June 2024.
This adjustment comes after successive changes in the Fringe Benefit Tax rate over the past year.
“For the purposes of Section 12B of the Income Tax Act, the market interest rate is 15%. This rate shall be applicable for the months of January, February and March 2024. For purposes of section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 15 percent.” said KRA.
In July 2023, KRA increased the rate to 11 percent, followed by another hike to 13 percent in November 2023. The latest adjustment to 15 percent reflects ongoing updates in tax regulations and economic considerations.
Fringe Benefit Tax, instituted in 1998, is paid by employers with a Pay As You Earn (PAYE) obligation. It is applicable to loans provided to employees at an interest rate lower than the market value, considering it as a benefit to the employee.
The taxable value of the Fringe Benefit Tax is calculated based on the difference between the market interest rate and the actual interest paid on the loan.
Employers are reminded that failure to remit the Fringe Benefit Tax attracts penalties, with a 25 percent penalty on the tax due for non-remittance and a 5 percent penalty for late payment.
The adjustments in Fringe Benefit Tax rates underscore the dynamic nature of tax policies, reflecting efforts to align with economic conditions and revenue needs.