The Kenya Revenue Authority (KRA) has retained the interest rates applied to employee and company loans for the April to June 2026 quarter.
In a notice issued on 10 April 2026, the authority confirmed that the market interest rate used in calculating fringe benefit tax will remain at 8 percent over the three-month period.
According to the statement, this rate is set in line with Section 12B of the Income Tax Act and will apply throughout April, May, and June 2026.
Fringe benefit tax is charged to employers when they extend loans to employees, directors, or their relatives at rates below the prevailing market level. In such cases, the difference between the concessional rate and the market rate is treated as a taxable benefit.
The same 8 percent benchmark will also be used to compute deemed interest on loans issued by companies to directors, shareholders, or related parties where either no interest is charged or the rate applied is below market levels.
Additionally, the Commissioner for Micro and Small Taxpayers has directed that deemed interest will attract a 15 percent withholding tax, which must be deducted and remitted within five working days.
Understanding Fringe Benefit Tax
Fringe Benefit Tax (FBT) arises when an employer grants a loan at a subsidised interest rate. The benefit derived from the lower rate is treated as part of the employee’s taxable income.
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The taxable value is calculated as the gap between the market interest rate and the actual rate charged on the loan.
If a loan remains outstanding even after employment ends, the tax obligation continues until it is fully repaid. Employers are required to account for this tax monthly, with payments due by the 9th day of the following month.
The applicable rate is reviewed every quarter by the Commissioner, based on prevailing lending conditions.
Example of Calculation
Consider an employee who takes a loan of KSh3,000,000 at an interest rate of 3 percent, while the market rate stands at 8 percent.
The difference of 5 percent represents the fringe benefit. This translates to an annual taxable benefit of KSh150,000, or KSh12,500 per month.
The employer then applies a 30 percent tax rate to this monthly amount, resulting in a fringe benefit tax of KSh3,750 payable each month.
