KRA Increases Tax On Loans For Employed Kenyans
The tax rate on loans provided to Kenyan employees at their workplaces has been raised by the Kenya Revenue Authority.
In a communication issued on January 23, the Kenya Revenue Authority (KRA) declared an increase in the Fringe Benefit Tax rate, raising it from 13% to 15%.
Employers typically cover the Fringe Tax associated with loans provided to their employees. In general, workplace loans tend to carry a lower interest rate compared to those offered by traditional banks and other financial institutions.
According to KRA, the new rate will take effect for the first three months of 2024.
“For Section 12B of the Income Tax Act, the Market Interest Rate is 15%. This rate shall be applicable for January, February, and March 2024,” read the notice in part.
Significantly, the interest rate on loans will impact Kenyan individuals who depend on obtaining loans within their workplaces, including directors, bosses, and their relatives.
“Fringe benefits tax is charged on the taxable value of a fringe benefit provided by an employer in a month and is due and payable on or before the 9th of the following month,” KRA explained.
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Although the tax specifically focuses on employers, they might find themselves compelled to raise the interest rates on the loans they provide within their organizations.
Consequently, workplace loans will incur higher costs compared to the preceding months.
Conversely, a 2 percent hike was implemented for the Deemed Interest Rate tax as well.
“For purposes of section 16(2) (a) of the Income Tax Act, the prescribed rate of interest is 15%. This rate shall be applicable for January, February, and March 2024.
“Withholding tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within five working days following the computation,” read the notice in part.
The Low-Interest Benefit rate, as determined by the KRA, has been raised to 14 percent, reflecting a 4 percent increase from the rate established from October to December 2023.
KRA Increases Tax On Loans For Employed Kenyans