The Kenya Revenue Authority (KRA) has announced that the market interest rate for Fringe Benefit Tax and the prescribed rate of interest for Deemed Interest under the Income Tax Act will remain at 8 per cent for the last quarter of 2025.
In a public notice issued on Tuesday, KRA said the rate will apply for the months of October, November, and December 2025.
“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 October, November and December 2025,” the notice stated.
Similarly, for deemed interest, KRA said: “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 October, November and December 2025.”
The Authority further reminded taxpayers that a withholding tax rate of 15 per cent on the deemed interest must be deducted and paid to the Commissioner within five working days.
The notice was issued by the Commissioner for Micro and Small Taxpayers and emphasised that taxpayers can access KRA services by dialling *222# free of charge.
Understanding Fringe Benefit Tax
Loan facilities come in handy with the need for that extra cash. Some employers offer loans to their employees at interest rates lower than market rate. This is an employment benefit to the employee(s) which is subject to a tax known as Fringe Benefit Tax (FBT).
Fringe benefit tax is payable by every employer in respect of a loan provided to an employee, director or their relatives at an interest rate lower than the market rate.
The taxable value of fringe benefit tax is the difference between the market interest rate and the actual interest paid on the loan. Where the term of the loan extends beyond the date of termination of employment, it applies as long as the loan remains unpaid. Fringe benefit tax is charged on the taxable value of a fringe benefit provided by employer in a month and is due and payable on or before 9th of the following month.
The prescribed rate of interest is based on the market lending rates as the Commissioner may prescribe every quarter of the year.
Fringe benefit tax is provided under section 12B of the Income Tax Act, which became effective from 12th June, 1998 in respect of loan provided to an employee, director or their relatives at an interest rate lower than the market interest rate.
The taxable value of fringe benefit is determined as follows; In case of loans provided after 11th June, 1998 or loan provided on or before 11th June, 1998 whose terms and conditions have changed after 11th June, 1998, the value of Fringe Benefit shall be the difference between the interest that would have been payable on the loan if calculated at the market interest rate and the actual interest paid.
Fringe benefit tax is paid by employers with PAYE obligation. Failure to remit attracts a penalty of 25% of the tax due and late payment attracts a penalty of 5% of tax due.
