More Tax on Loans for Employees After KRA Raises Fringe Tax to 16 Percent in Review
The Kenya Revenue Authority (KRA) has increased the fringe tax rate from 15 percent to 16 percent.
In a statement released on Tuesday, April 9th, it was disclosed that the revised rate would be implemented from April through June.
The fringe tax pertains to taxes typically imposed on employee perks provided by employers, such as loans, and it is the responsibility of the employers to pay this tax.
“For Section 12B of the Income Tax Act, the Market Interest Rate is 16%. This rate shall be applicable for the three months of April, May, and June 2024,” read the statement in part.
Fringe tax typically pertains to taxes imposed on perks provided by employers to employees, such as loans, and is paid by the employers themselves.
As a result of the tax rate hike, numerous employers might feel compelled to raise their interest rates to avoid being disadvantaged in the situation.
“Fringe benefit tax is payable by every employer in respect of a loan provided to an employee, director, or their relatives at an interest rate lower than the market rate.
ALSO READ:
- How not to make a mistake when choosing the best bookmaker in Kenya
- Understanding Gatwiri’s Cause of Death: Unraveling Positional Asphyxiation
- KRA Rules Out Tax Relief on SHIF Deductions
- Understanding Why Married Women Cheat: Common Reasons Behind Infidelity
- Violence Erupts in Mozambique: Three Killed, 66 Injured in Protests Over Disputed Election
“The taxable value of fringe benefit tax is the difference between the market interest rate and the actual interest paid on the loan. Where the term of the loan extends beyond the date of termination of employment, it applies as long as the loan remains unpaid,” KRA explained in its tax breakdown.
Significantly, this marks the second consecutive occasion where the rates have risen. Back in January, there was a 2 percent increase in the tax rate from the 13 percent set for the fourth quarter of 2023.
Typically, fringe tax needs to be paid by the 9th of each month, and employers may incur penalties for remitting payments after this deadline.
At the same time, there was a one percent increase in both the deemed and withholding tax rates.
“For purposes of section 16(2)(a) of the Income Tax Act, the prescribed rate of interest is 16%. This rate is applicable for April, May, and June 2024.
“The Withholding Tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner by the 20th day of the month following the month of computation,” read the notice in part.
More Tax on Loans for Employees After KRA Raises Fringe Tax to 16 Percent in Review
