The Kenya Revenue Authority (KRA) has introduced notable changes in tax rates for employers and employees, effective January 2025. These adjustments focus on the Fringe Benefits Tax, Deemed Interest Rate, and Low-Interest Benefit rates, offering relief to taxpayers amidst recent financial reforms.
Key Updates
-
Fringe Benefits Tax Rate:
The tax rate on loans provided by employers at interest rates lower than the market rate has been reduced from 16% to 13%. This change is aligned with Section 12B of the Income Tax Act. The tax applies to both monetary and non-cash benefits, such as vehicles or other perks, offered to employees. -
Low-Interest Benefit Rate:
Similarly, the rate for the Low-Interest Benefit has decreased from 16% to 14%, applicable for loans given at reduced rates. -
Applicability Period:
- Deemed Interest Rate: Applicable for the first quarter of 2025 (January–March).
- Low-Interest Benefit: Extended to cover the first half of the year (January–June).
These rates remain in effect even if the loan tenure extends beyond the employee’s termination date.
- Market and Prescribed Interest Rates:
- Market Interest Rate: 13% for January to March 2025.
- Prescribed Rate of Interest: 14% for January to June 2025.
Context of the Announcement
These changes come shortly after the Tax Laws Amendment Act was implemented on December 27, 2024. Other notable reforms include adjustments to excise duty on various imported goods, including pharmaceuticals, nicotine products, plastics, and sugar (excluding imports from East African Community member states).
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