KRA has reduced the tax rate for employee welfare benefits, including fringe benefits and deemed interest rates, in line with the recent CBK rate cut. This is to boost economic activity and encourage private sector credit uptake.
Highlights:
- Fringe Benefits Tax (FBT):
- 13% for January to March 2025. Lowest since December 2023.
- 16% from April 2024. Previously 15%.
- Applies to loans offered by employers at below market rates, tax calculated on the difference between market interest and actual interest paid.
- Deemed Interest Rate Adjustments:
- Also 13% for the same three months, 15% withholding tax, payable within 5 working days.
- Employers and Employees:
- Employers to remit FBT on benefits monthly, by 9th of the following month.
- Loans beyond employment are taxed until repaid, current and former employees affected.
- CBK:
- Reduced the base rate to 11.25% in December 2024.
- The MPC has asked banks to lower lending rates by the same margin as the CBR to boost private sector credit.
- Economic Stimulus:
- The tax changes are part of the broader fiscal policy alignment with monetary easing to make credit more affordable and accessible.
- Next:
- CBK meets on February 5, 2025 to review the indicative rate. Expect more cuts.