The Kenya Revenue Authority (KRA) has set the applicable market interest rate for both Fringe Benefit Tax and deemed interest at 8 per cent for the April–June 2026 quarter, signaling a key update employers must factor into their tax calculations and payroll systems.
In a notice dated Friday, April 10, the Authority said the new rate for the two taxes will apply for the three months covering April, May and June this year.
“The market interest rate for Fringe Benefit Tax and the Deemed Interest Rate has been set at 8 per cent for the period April to June 2026,” KRA announced.
Fringe Benefit Tax is charged when an employer gives an employee a loan at an interest rate lower than the market rate.
The tax may also apply to non-cash benefits given to an employee by their employer, including cars or other perks that are not part of the employee’s gross earnings.
The 8 per cent rate is used to calculate how much tax is owed on the benefit provided to the employee.
It is provided under section 12B of the Income Tax Act, which became effective on June 12, 1998 and is derived from the difference between the market interest rate and the actual interest paid on the loan.
According to KRA, in a special case where the tenure of the loan extends beyond the date of the termination of employment, the new rates will still be applicable.
On the other hand, deemed interest applies when an employer gives a non-employee a loan without charging interest or charges less than the market rate.
In addition to the two rates, KRA announced that a 15 per cent withholding tax on deemed interest would apply for the aforementioned period.
Employers are therefore required to deduct this tax and remit the funds to the Commissioner within five working days, in line with existing tax regulations.
This now means that employers should update their payroll and accounting systems to reflect these rates and time limits to avoid penalties for non-compliance.
The update is part of KRA’s routine quarterly review of market interest rates used in tax computations, intended to reflect prevailing economic conditions and ensure fairness and consistency in tax administration.