The Kenya Revenue Authority (KRA) has set the market interest rate used to calculate fringe benefit tax and the prescribed deemed interest rate at 9% for the October to December 2026 quarter, outlining the applicable rates for employers and taxpayers with interest-free or low-interest loans.
In a public notice dated October 22, 2026, KRA said the 9% market interest rate would apply for fringe benefit tax purposes under Section 12B of the Income Tax Act. The same rate will apply as the prescribed interest rate for deemed interest under Section 16(2)(ja) of the Act.
Fringe benefit tax applies to the taxable benefit arising when an employer provides an employee with a loan at an interest rate below the prescribed market rate. The applicable rate helps determine the value of the benefit for tax purposes.
The deemed interest rate, meanwhile, applies in circumstances covered by the Income Tax Act involving loans provided interest-free or at a rate below the prescribed rate. The tax treatment depends on the relevant provisions and the circumstances of the loan.
KRA also stated that withholding tax at a rate of 15% must be deducted from deemed interest and paid to the Commissioner within five working days. Taxpayers and businesses affected by these provisions need to account for the prescribed rate and meet the applicable deduction and payment deadlines.
The quarterly notice provides guidance to employers and other taxpayers when calculating their tax obligations for the final three months of 2026. Businesses handling employee loans or other arrangements covered by the deemed interest provisions may need to review their calculations to ensure compliance.
The announcement highlights the importance of tracking KRA’s periodic tax notices, as changes to prescribed rates can affect calculations and reporting obligations. Employers and taxpayers should consult the relevant provisions of the Income Tax Act or seek professional tax advice where the treatment of a particular loan is unclear.
The 9% rates will remain applicable for October, November and December 2026, according to the notice issued by KRA’s Commissioner for Micro and Small Taxpayers.
