- The Kenya Revenue Authority announced both the Fringe Benefit Tax Market Interest Rate and the Deemed Interest Rate at 9% for the final quarter of 2026
- Employers who provide staff loans below the 9% benchmark face a tax obligation, with Fringe Benefit Tax due by the 9th of each following month
- A 15% withholding tax on deemed interest must be remitted to KRA within five working days of deduction
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The Kenya Revenue Authority (KRA) has set both the Fringe Benefit Tax Market Interest Rate and the Deemed Interest Rate at 9% for the October to December 2026 quarter, according to a public notice dated October 22, 2026.
Source: Twitter
The notice, signed by the Commissioner for Micro and Small Taxpayers, is directed at employers and businesses that offer low-interest loans to employees, directors, or related parties.
This also includes those involved in financing arrangements where interest is considered to arise even without an actual payment changing hands.
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"Employers, businesses and other affected taxpayers are encouraged to take note of these rates and ensure compliance with the applicable tax requirements," KRA said.
What the KRA notice covers
Under Section 12B of the Income Tax Act, the 9% rate functions as the market benchmark for Fringe Benefit Tax.
Where an employer extends a loan to a staff member or director at a rate below 9%, the gap between the two rates is treated as a taxable benefit.
The employer, not the employee, is liable for the resulting tax, which is charged at 30% of the calculated benefit value and must be paid on or before the 9th day of the month following the one in which the benefit arose.
To illustrate, an employer who lends an employee KSh 3 million at 3% while the market rate stands at 9% generates a taxable benefit of 6% on that loan, equivalent to KSh 180,000 annually or KSh 15,000 per month. The fringe benefit tax liability on that monthly figure would be KSh 4,500.
Under Section 16(2)(ja) of the same Act, the 9% rate also applies to deemed interest, covering scenarios where tax law treats interest as earned or paid even when no funds actually move between parties.
In these cases, a 15% withholding tax applies and must be deducted and forwarded to KRA within five working days.
Failure to remit fringe benefits tax on time attracts a penalty of 25% of the outstanding amount, with an additional 5% penalty for late payment.
Scope of fringe benefit tax obligations
Beyond staff loans, the fringe benefit tax covers several other non-cash benefits.
These include the private use of an employer-provided vehicle, taxed at the higher of 2% of the vehicle's original cost per month or the Commissioner's prescribed rate, as well as employer-provided housing, calculated as a portion of the employee's taxable pay.
Any benefit, advantage, or facility valued at more than KSh 5,000 per month or KSh 60,000 per year also falls within the scope of the tax.
Employers are advised to audit existing staff loan arrangements for the October to December period, ensure timely remittance of any tax due, and consult a tax professional where the applicable obligations are unclear.
KRA is expected to revise the rates again at the start of the next quarter.
Source: TUKO.co.ke