The Kenya Revenue Authority (KRA) has announced that it will set the interest rate for fringe benefits and low-interest employee loans at 8 percent for the first half of 2026. The move provides clear guidance for employers on calculating taxable perks.
In a directive issued on Thursday, January 22, the tax authority stated that under Section 12B of the Income Tax Act, the market interest rate of 8 percent will apply for January, February, and March 2026 when determining fringe benefit tax on employee perks such as company cars, housing, or employer-provided loans.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall be applicable for the three months of January, February and March 2026,” KRA said.
Fringe benefit tax applies to non-monetary benefits that employers provide to their staff. The tax authority calculates the levy using either the market value or the applicable interest rate of the benefit to ensure such perks are taxed alongside regular earnings.
For instance, if a company offers a loan to an employee at a rate below the market interest, the difference is treated as a taxable fringe benefit. The employer bears the responsibility of remitting this tax, which applies even if the employee is otherwise exempt from income tax.
For low-interest loans provided to employees, the prescribed rate of 8 percent will remain in effect from January through June 2026. This allows employers to correctly calculate taxable benefits under Section 5(2A) of the Income Tax Act.
KRA also requires employers to deduct a 15 percent withholding tax on the deemed interest from such loans and remit it to the Commissioner within five working days, in line with tax regulations.
The announcement reinforces that these rates form part of the regulatory framework guiding compliance for both employers and employees, ensuring accurate reporting and tax payments.
Employers are now expected to update their payroll and accounting systems to reflect the new rates and deadlines to avoid penalties for non-compliance.
KRA further confirmed that the deemed interest rate, used when assessing whether a benefit has arisen from a loan, also stands at 8 percent, aligning it with the market rate for the same period.
“For purposes of Section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8%. This rate is applicable for the months of January, February and March 2026,” the authority stated.
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