The Kenya Revenue Authority (KRA) has extended the 8 per cent interest rate for fringe benefits and the deemed interest rates starting this month to determine how employers will be taxed on loans and benefits extended to employees.

🇰🇪 Breaking It Down

In a statement seen by  Kenyans.co.ke on July 8, the taxman said that Kenyans who enjoy a soft loan from their employer or who sit on unpaid directors' fees will feel the pinch differently starting this month until September.

“KRA notifies taxpayers that the Market Interest Rate, Deemed Interest Rate, and Low Interest Benefit prescribed rate have been set at 8 per cent for the applicable periods in 2026,” stated KRA.

The 8 per cent rate applies to three separate tax obligations, the Fringe Benefit Tax, the Deemed Interest Rate, and the Low Interest Rate Benefit, all tied to the amount of interest that counts as a taxable benefit.

📌 What You Need to Know

The Fringe Benefit Tax will use this 8 per cent Market Interest Rate for July, August, and September. A Fringe Benefit Tax (FBT) is a tax levied on employers for non-cash perks provided to employees outside of their regular salary. On the other hand, the same rate applies to Deemed Interest, the tax mechanism used to calculate the taxable benefit when an employer provides a low-interest or interest-free loan to an employee, director, or another individual. However, KRA emphasises that a 15 per cent withholding tax applies to the Deemed Interest Rate, which must be paid within five working days to the KRA Commissioner.

“For purposes of Section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8 per cent. This rate is applicable for the months of July, August, and September 2026,” stated KRA.

Adding, “Withholding tax rate of 15 per cent on the deemed interest shall be deducted and paid to the Commissioner within 5 working days.”   KRA has indicated that the Low Interest Benefit applies the same 8 per cent rate from July right through to December. This means beneficiaries will have a taxable financial advantage when a company lends them money at an interest rate below the market rate.  Because you save money on interest, tax authorities view this as a fringe benefit, and the difference is subject to employment income taxes.

That extended window gives Human Resource Managers and payroll teams more time to adjust calculations before the December deadline creeps up.

📰 Source: Kenyans.co.ke