Fringe Benefit Tax and Deemed Interest Rate
Section 12B of the Income Tax Act provides for the payment of the fringe benefits tax. Pursuant to this section, fringe benefits tax is payable by every employer in respect of a loan provided at an interest rate lower than the market interest rate, to an individual who is a director or an employee or is a relative of a director or an employee, by virtue of his position as director or his employment or the employment of the person to whom he is related.
Recently, the Kenya Revenue Authority notified the public of the market interest rate on loans to be 10%. This market interest rate is applicable for three months from April to June 2023. In this regard, persons who are liable to pay fringe benefits tax must ensure that they pay the fringe benefits tax in line with the new market interest rate.
In addition, the Kenya Revenue Authority has also notified the public of the prescribed interest rate on deemed interest rate to be 10%. This rate is applicable for three months from April 2023 to June 2023. A withholding tax of 15% on this deemed interest tax shall be deducted and paid to the Commissioner by the 20th day of the month after the month of computation.