KRA Announces New Tax Rates for Three Months, What Employers and Workers Should Know

The Kenya Revenue Authority (KRA) has announced new interest rate benchmarks for Fringe Benefit Tax and deemed interest, setting the rate at 9 per cent for October, November and December 2026.

In a notice issued on Thursday, October 22, the tax authority increased the prescribed market interest rate for Fringe Benefit Tax from 8 per cent, which applied during the previous three months, to 9 per cent for the final quarter of the year.

KRA also set the deemed interest rate at 9 per cent under Section 16(2)(ja) of the Income Tax Act. The authority further directed affected taxpayers to deduct withholding tax at 15 per cent on deemed interest and remit the amount to the Commissioner within five working days.

The announcement affects employers, businesses and other taxpayers with qualifying loan arrangements and financing transactions.

For employees, the new benchmark is particularly relevant where an employer provides a loan at an interest rate below the prescribed market rate. In such cases, Fringe Benefit Tax is calculated based on the difference between the prescribed rate and the interest charged to the employee.

For instance, if an employer offers a qualifying loan at an annual interest rate of 3 per cent against the prescribed market rate of 9 per cent, the difference is six percentage points. That difference is used to determine the taxable benefit, with the employer responsible for accounting for the resulting tax.

However, the new rate does not mean that all employee loans will automatically attract tax at 9 per cent. The applicable calculation depends on the loan terms and the relevant provisions of the law.

The deemed interest rate, meanwhile, applies to qualifying financial arrangements where interest is not charged or is charged below the prescribed benchmark. Certain transactions involving related parties may also fall under these provisions.

KRA’s withholding tax directive requires affected taxpayers to deduct 15 per cent on deemed interest and submit the amount within five working days. Businesses involved in such arrangements therefore need to observe both the prescribed rate and the payment deadline.

Employers and businesses have been advised to review their loan agreements and financial records to establish whether their transactions fall under Fringe Benefit Tax or deemed interest rules.

The latest announcement concerns specific interest benchmarks used in tax calculations. It does not introduce a general increase in individual income tax bands or Pay As You Earn rates.

The new rates will remain applicable throughout October, November and December 2026, according to the notice issued by KRA’s Commissioner for Micro and Small Taxpayers.

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