
Times Tower, Kenya Revenue Authority Headquaters in Nairobi
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On Friday, January 17, the Kenya Revenue Authority (KRA) unveiled substantial reductions in tax rates concerning fringe benefits, deemed interest, and low-interest benefits.
This move aims to alleviate the financial burden on employees while recalibrating the tax landscape in Kenya. The KRA has announced that the Fringe Benefits Tax rate will decrease from 16 percent to 13 percent. Concurrently, the Deemed Interest Rate has been revised from 16 percent to 13 percent, while the Low-Interest Benefit has been adjusted from 16 percent to 14 percent.
These changes are reflective of the KRA's commitment to fostering a more equitable tax regime. Fringe Benefits Tax, legislated under section 12B of the Income Tax Act since June 1998, applies to loans extended by employers to employees at interest rates below prevailing market rates. The tax is calculated on the difference between the market interest rate and the interest paid by the employee.
This taxation extends to non-cash benefits provided by employers, which may include vehicles and various perks that are outside the regular gross earnings of employees. The KRA has indicated that these new tax rates will remain in effect, regardless of whether the loan term surpasses the employee's period of employment.
Taxpayers will need to comply with the revised Deemed Interest Rate and Low-Interest Benefit during the first three months of 2025 (January to March) and the Low-Interest Benefit for six months (January to June 2025). Specifically, the market interest rate for the period of January to March 2025 has been established at 13 percent for Section 12B, while for Section 5(2A), the prescribed interest rate between January and June 2025 is set at 14 percent.
These recent tax adjustments are part of a broader reform initiative that includes noteworthy changes under the Tax Laws Amendment Act, effective December 27, 2024. This legislation introduced revised excise duties on imported goods, notably increasing the excise duty on imported sugar from Sh5 to Sh7.50 per kilogram, excluding sugar imported from East African Community member states.
The revised tax rates are expected to significantly influence both employers and employees positively, potentially easing financial pressures and fostering a more conducive economic environment.