The Kenya Revenue Authority (KRA) has announced an increase in tax on loans offered to Kenyans at their workplace effective immediately.
According to a notice released today, January 23rd 2024, the tax man has announced that effective on the first three months of this year (January, February, March) the authority will increase the Fringe Benefit Tax rate from 13 to 15 per cent.
“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.”
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Fringe Tax is usually paid by employers for every loan they offer their staff. Usually, the loans offered at a place of work have a lower interest rate in comparison with those offered by banks and other financial institutions in the country.
The increase of Fringe Tax means that loans at work places will become more expensive as compared to previous months and will be charged by KRA on or before the 9th day of every month according to the nitice released.
“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.”
This means that the tax targets employers and therefore, for them to meet the obligations of Kenya Revenue Authority, the employers will offload the load to employees by increasing the interest rate for loans they give at their workplaces.
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The Deemed Interest Rate tax was also increased by 2 per cent. The notice directed that;
“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 the months of 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.”