KRA Announces Q2 Tax Rates for Employee Loan Benefits

The Kenya Revenue Authority (KRA) has set the market interest rate used to calculate taxes on employee loans at 8 percent for the period between April and June 2026.

In a notice issued in line with the Income Tax Act, KRA said the rate will guide the computation of Fringe Benefit Tax (FBT), which applies when employers offer staff loans at below-market interest rates.

The tax is charged on the difference between the prescribed market rate and the actual rate offered to employees.

This means that where an employer extends a loan at a rate lower than 8 percent—or offers an interest-free loan—the benefit enjoyed by the employee will be deemed taxable, with the employer required to account for the tax.

“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall be applicable for the three months of April, May, and June 2026,” KRA said.

At the same time, KRA set the deemed interest rate at 8 percent for the same three-month period.

This applies mainly to loans advanced to company directors, shareholders, or related parties where no interest, or below-market interest, is charged.

In such cases, the law assumes interest at the prescribed rate and treats it as taxable income.

” For purposes of Section 16(2) (ja) of the Income Tax Act, the prescribed rate of interest is 8%. This rate is applicable for the months of April, May, and June 2026,” the Authority directed.

The authority further directed that a withholding tax of 15 percent be applied on the deemed interest.

Employers or companies are required to deduct and remit the tax to KRA within five working days.

” Withholding tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within 5 working days,” KRA added.

The updated rates are part of KRA’s routine quarterly review aimed at aligning tax computations with prevailing market conditions and ensuring proper taxation of non-cash benefits.

The move is expected to impact employers offering staff loan schemes, as well as companies that extend credit facilities to related parties, by increasing compliance requirements and potential tax liabilities during the period under review.

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KRA said the rate will guide the computation of Fringe Benefit Tax (FBT). PHOTO/ MyGov Screengrab.