KRA retains fringe benefit tax on low interest rates

The Kenya Revenue Authority (KRA) has retained the fringe benefit tax at seven per cent for the next three months until June on prevailing low market interest rates.

The fringe benefit tax is a levy imposed on employees receiving extra benefits such as cheap loans in addition to their wages.

“For the purposes of Section 12B of the Income Tax Act, the market interest rate is seven per cent. This rate shall be applicable for the three months of April, May and June 2022,”  KRA said.

Taxable employment income in Kenya includes all payments made by an employer to an employee. This will include salaries, wages, bonuses, and fringe benefits received or enjoyed by virtue of employment. 

Base lending rate

At the same time, the taxman has retained the deemed interest rate at seven per cent for the period from, which withholding tax at the rate of 15 per cent on the deemed interest is deductible and payable to KRA on the 20th day of the month.

Central Bank of Kenya (CBK) on March 29 retained its base lending rate at seven per cent for the 13th time in a row, shrugging off mounting jitters over the economic fallout from the Russia-Ukraine war.

According to data from the CBK, the weighted average rates for commercial bank loans and advances have held in and around 12 per cent across 10 months to February this year.

At their lowest, average weighted market interest rates on loans by commercial banks stood at a flat 12 per cent in January 2021 and 12.17 per cent at their highest in February this year.

During the same period, the Central Bank Rate (CBR) has remained unchanged at seven per cent.