Workers have suffered a setback as a result of the Kenya Revenue Authority boosting the tax rate assessed to firms providing employee benefits.
Due to the current high market interest rates, the taxman adjusted the fringe benefits tax to 11% for the upcoming three months until September—the second increase since the April–June timeframe.
“The market interest rate is 11% for the purposes of Section 12B of the Income Tax Act, this rate will be valid for the three months of July, August, and September 2023.” According to KRA
Employers are responsible for paying the levy on specific benefits provided to staff members, their families, or other associates.
Employees who receive cheap loans or other additional welfare benefits on top of their pay are subject to the fringe benefits tax.
All payments made by an employer to an employee are considered taxable employment income in Kenya. This will contain any compensation earned or used while employment, such as salaries, wages, bonuses, and other benefits.
For instance, some firms provide loans to their staff at interest rates below the going rate; however, such a benefit is subject to a fringe benefit tax.
The difference between the market interest rate and the actual interest paid on the loan constitutes the taxable value of fringe benefits tax.
For the three months ending in March of this year, the KRA kept the fringe benefits tax at 9%, putting an end to two consecutive increases for the six months ending in December of last year.
The tax was again increased three months later, to 10%, until March.
Prior to the quarter that ended in June of last year, when the KRA increased it to 8% for the three months to September, the fringe benefits tax was kept at 7% throughout 2021.
Due to the then-currently-high market interest rates, the tax was later increased to 9% for the time period of October to December 2022.
For the three months leading up to September, the taxman also increased the presumed interest rate to 11%; a withholding tax of 15% would then be deducted and paid to it by the twentieth day of each month.
For the three months ending in June, the considered interest rate was increased to 10%.
Last month, the Central Bank of Kenya (CBK) increased its indicative rate from the previous level of 7.5% to 10.5%.
The Central Bank Rate (CBR), the benchmark lending rate, was unexpectedly increased by the Monetary Policy Committee (MPC) of the CBK on June 27 from 9.5% to 10%, marking an 82-month high and the highest level since July 2016.
The CBR increased by 150 basis points (1.5%), in July 2015, marking the greatest rate of growth in almost eight years.
The cost of borrowing between commercial banks has also increased, reaching its highest level in 55 months as a result of a tighter cash supply and signaling new increases in the pricing of credit by the lenders.
