The Kenya Revenue Authority (KRA) has maintained the tax rates applicable to employee and company loans for April, May, and June 2026.
In a notice dated April 10, 2026, KRA stated that the market interest rate for the purposes of fringe benefit tax will remain 8 percent.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall be applicable for the three months of April, May, and June 2026,” read part of the statement.
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, according to KRA. This applies when employers provide loans to employees at interest rates below the market rate.
KRA Sets Deemed Interest Rate
As per the notice, the same rate will also apply to Deemed Interest, which is calculated on loans advanced by companies to directors, shareholders, or other related parties when no interest is charged, or a lower rate is charged.
The rate will also apply for April, May, and June 2026.
In addition, the Commissioner for Micro and Small Taxpayers directed that a 15 percent withholding tax on deemed interest be deducted and remitted to the Commissioner within five working days.
Also Read: KRA Collects Ksh2 Trillion After Recording 11.4% Revenue Collection Growth
What You Need to Know About Fringe Benefit Tax
Fringe Benefit Tax (FBT) is payable by an employer in respect of any loan granted to an employee at an interest rate below the prevailing market rate.
These loans are treated as a taxable employment benefit.
The tax is calculated as the difference between the market interest rate and the interest actually charged on the loan. The resulting difference is considered the taxable value of the fringe benefit.
Where a loan continues beyond the termination of employment, the tax remains applicable until the loan is fully repaid.
It is charged monthly and is payable by the employer on or before the 9th day of the following month.
The applicable interest rate is determined quarterly by the Commissioner based on prevailing market lending rates.
Also Read: KRA Issues New Order to Kenyans Declaring Nil Income
How Fringe Tax is Calculated
Here is a simple explainer of how the tax is calculated when an employee takes a loan:
Example:
Ken receives a loan of Ksh3,000,000.
- Loan amount: Ksh3,000,000
- Interest charged: 3%
- Market interest rate for the month: 8%
Fringe benefit is calculated as the difference between the market rate and the actual rate:
(8% − 3% = 5%)
Fringe benefit value:
Ksh3,000,000 × 5% = Ksh150,000 per annum
This translates to KSh12,500 per month.
Fringe Benefit Tax payable by the employer is:
Kshs12,500 × 30% = Ksh3,750 per month.
