Blow to employees as KRA increases tax on benefits to 13 percent
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KRA increases tax on benefits granted to employees to 13 percent for the months of October, November, and December 2023
KRA increases tax on benefits granted to employees to 13 percent for the months of October, November, and December 2023.
The tax on benefits given to employees by employers has been increased by the Kenya Revenue Authority (KRA), marking the second consecutive increase in this charge caused by rising market interest rates.
KRA increased tax on fringe benefits to 13 percent for the months of October, November, and December of 2023.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 13 percent. This rate shall be applicable for the three months of October, November, and December 2023,” said KRA in a notice on Tuesday.
The levy is paid by employers on certain benefits offered to employees, their families, or other associates such as cheap loans.
For example, some employers offer loans to their employees at interest rates lower than the market rate — a provision that is subject to a fringe benefits tax.
The taxable value of fringe benefits is the difference between the market interest rate and the actual interest paid on the loan.
Fringe benefit tax is provided under section 12B of the Income Tax Act, which became effective on June 12, 1998.
Raising the rate of the tax is a blow to workers as employers may raise the rate on cheap loans.
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This comes at a time when interest rates remain high following the decision by the Central Bank of Kenya (CBK) to increase the base lending rate to 10.50 percent in June up from 9.50 percent.
The rate was subsequently retained by the Monetary Policy Committee (MPC) in its meetings in August and October in a bid to tame inµation. Workers are currently struggling with diminishing incomes even as the cost of living continues to rise. Inµation rose to 6.78 percent in September driven by an increase in the cost of key commodities such as fuel and electricity.
Employees are being deducted 1.5 percent of their gross monthly pay for the housing levy.
Similarly, President William Ruto this month assented to the Social Health Insurance Bill, 2023. The Act has raised monthly contributions to the National Health Insurance Fund (NHIF) to 2.75 percent of the gross monthly pay of workers.
The contribution has been capped at Sh5,000.
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