KRA Raises Interest Rates on Employee Loans to 9% for October to December 2026

The Kenya Revenue Authority (KRA) has set the Fringe Benefit Tax market interest rate and the deemed interest rate at 9% for the final three months of 2026, affecting employers and other taxpayers involved in employee lending arrangements.

In a notice issued on Thursday, October 22, KRA announced that the rates would apply throughout October, November and December. The new rates represent an increase from the 8% charged during the July to September quarter.

The adjustment is particularly relevant to employers who provide loans to employees, company directors or their relatives at interest rates below the prescribed market rate. Under Kenya’s tax rules, the financial benefit arising from such arrangements is subject to Fringe Benefit Tax, which is payable by the employer.

Fringe Benefit Tax is calculated using the difference between the market interest rate set by the Commissioner and the actual interest rate charged on an employee’s loan. The higher the difference, the greater the taxable benefit arising from the arrangement.

For example, an employee who receives a loan of KSh3 million at an annual interest rate of 3% would have a six-percentage-point difference when the prescribed market rate is 9%. Applying that difference to the loan amount produces an annual taxable benefit of KSh180,000, equivalent to KSh15,000 per month, using the figures provided in the example.

The authority also confirmed that the deemed interest rate would stand at 9% for the same period. KRA reminded taxpayers that deemed interest attracts a withholding tax of 15%, which must be deducted and remitted to the authority within five working days, in line with the applicable tax requirements.

Employers are required to calculate and pay Fringe Benefit Tax on the taxable value of the benefit provided each month. The payment deadline is the ninth day of the following month, meaning affected businesses must keep accurate loan records and observe the prescribed filing and payment timelines.

KRA has urged employers, businesses and other affected taxpayers to take note of the revised rates and comply with their tax obligations. The quarterly adjustment forms part of the authority’s regular review of market interest rates used to determine taxable benefits arising from below-market employee loans.

Source: https://www.facebook.com/100046664565790/posts/1843281767237291/?app=fbl

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