Kenyans are set to benefit from reduced tax rates as the Kenya Revenue Authority (KRA) has made adjustments to three major taxes.
On Friday, January 17, 2025, KRA announced new, lower rates for the Fringe Benefits Tax, the Deemed Interest Rate, and the Low-Interest Benefit.
In the new rates, the Deemed Interest Rate has been reduced from 16 percent to 13 percent, while the Low-Interest Benefit rate has been cut by two percentage points, from 16 percent to 14 percent.
These changes are expected to bring relief to employers and employees alike, particularly those involved in loans with lower-than-market interest rates or who benefit from non-cash perks like company vehicles or other allowances.
The Fringe Benefits Tax applies to loans provided by employers to their employees at interest rates lower than the market rate. This tax is governed by Section 12B of the Income Tax Act, which has been in effect since June 12, 1998.
The tax is calculated based on the difference between the market interest rate and the interest paid on the loan.
It also applies to non-cash benefits that an employer gives to an employee, such as cars, housing, or other perks that are not part of the employee’s regular salary.
In a specific case where the loan period extends beyond an employee’s termination, KRA has confirmed that the new reduced rates will still apply.
KRA further clarified that the new tax rates for the Deemed Interest Rate and Low-Interest Benefit will be in effect for a three-month period from January to March 2025.
The Low-Interest Benefit rate, on the other hand, will be applicable for six months, from January to June 2025.
For the Deemed Interest Rate under Section 12B, KRA has set the market interest rate at 13 percent for the period of January to March 2025.
Additionally, for the Low-Interest Benefit, the prescribed rate of interest is now 14 percent, which will apply from January through June 2025.
This announcement from KRA follows closely on the heels of new tax reforms introduced by the government under the Tax Laws Amendment Act, which was officially enacted on December 27, 2024.
Among the changes brought about by this Act, there was a significant adjustment in the excise duties on certain imported goods.
Notably, the excise duty on imported sugar was raised from Ksh5 per kilogram to Ksh7.50 per kilogram, though this increase does not apply to sugar imported from East African Community member states.
These tax changes, particularly the reductions, are seen as a positive step by KRA to ease the burden on Kenyan taxpayers, ensuring fairness and offering some relief during these challenging times.
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