KRA Sets Fringe Benefit and Deemed Interest Rates at 8% for Q2 2026

On the Friday the 10th of April 2026 the Kenya Revenue Authority (KRA) issued a notice that sets the market interest rate for Fringe Benefit Tax (FBT) and Deemed Interest at 8% for the second quarter of the year – so thats 3 months to get your houses in order.

This rate will be in effect for the three months of April, May and June in the year 2026 and its a pretty big deal for employers and accountants in Kenya as its going to require a bit of a shakedown of their payroll systems. Its a chance for them to update and make sure their tax computations are in line with the latestIncome Tax Act directives.

What Does 8% Mean for FBT?

Fringe Benefit Tax is when an employer gives some kind of benefit to an employee and it attracts a tax. In the case of the recent KRA notice, its mostly to do with low interest loans.

How will 8% Affect Loand Interest Rates?

So, FBT kicks in when an employer gives a loan to an employee at an interest rate thats lower than the market rate set by KRA. The tax bill ends up with the employer and is actually charged at the corporate tax rate (which at the minute is 30%).

The Maths Behind FBT

You work out the taxable value of the fringe benefit by finding the difference between the KRA market rate and the rate the employee was actually paying on their loan, then multiply that by the size of the loan.

$$Taxable Value = (\text{market rate} – \text{employee’s loan rate}) \times \text{loan amount}$$

For instance, if an employer gives a loan with an interest rate of 3% and the KRA market rate is 8%, the tax bill comes in at 5%.

Deemed Interest and Withholding Tax

While FBT is about employees, Deemed Interest is when an employer or a company gives a loan to someone who isn’t an employee (like a director or a related company) at an interest rate that is lower than the market rate.

The Key Bits

• Market rate for Deemed Interest: 8% for the next three months.
• withholding tax rate: Its 15% – good to know.
• When do you need to pay it?: You need to deduct and send the tax to the Commissioner within 5 working days of the end of the month when the interest was deemed.

Beyond Loans – Other Non-Cash Perks

Its worth remembering that FBT isnt just about cash loans. You also need to think about other non-cash benefits that are not part of an employee’s earnings – things like use of a company owned vehicle, or a house provided by the employer.

Why Does the Rate Change?

The KRA performs a routine quarterly review of these rates to ensure they reflect the prevailing economic conditions in Kenya. By adjusting the rate to 8%, the Authority aims to align tax benchmarks with current market lending rates, ensuring fairness in tax administration.

Historical Context

The legal framework for these taxes is found under Section 12B of the Income Tax Act, which has been operational since June 1998. Even if an employee is terminated, if the loan tenure continues beyond their last day of work, the prevailing KRA market rates still apply to the remaining balance.

Checklist for Employers and Payroll Managers

To avoid penalties for non-compliance, businesses should take the following steps immediately:

1. Update Payroll Software: Ensure your accounting or ERP system is updated with the 8% market rate for the April–June period.
2. Audit Employee Loans: Review all active staff loans to identify those with interest rates below 8%.
3. Monitor Deadlines: Remit withholding tax on deemed interest within the 5-day window to avoid late payment interest and penalties.
4. Review Termination Clauses: Ensure that loans for exited staff are still being taxed according to the new quarterly rates.

Summary of KRA Rates: April – June 2026

The Bottom Line: Staying on top of these quarterly shifts is essential for maintaining a clean tax record. If you are unsure how these rates apply to your specific company structure, it is advisable to consult with a certified tax professional or visit the KRA’s official portal for further clarification.