Reprieve as KRA Lowers Tax Rate on Loans Given to Employees at Workplaces

The Kenya Revenue Authority (KRA) has lowered the Fringe Tax rate from 13% to 9% in the latest review, offering reprieve to both employers and employees.

In a notice by the taxman, it was noted that the lowered rate would take effect for three months beginning in April 2025.

Fringe Tax is usually paid by employers for the loans they extend to the employees and other company executives such as directors. The workplace loans are usually cheaper than those offered by banks and other financial institutions.

Consequently, the Fringe Tax payable by the employers is calculated by minusing the employer’s interest rate from the KRA set rate. The rate is then multiplied by the loan given to the employee. 

Read Also: CBK to Physically Inspect Bank Books to Confirm Reduction of Loan Rates 

“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 9%.  This rate shall be applicable for the three months of April, May and June 2025,” read the statement in part.

"Withholding tax at the rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within 5 working days," read the statement in part.

Therefore, by lowering the tax rate, employers could also lower their interest rates, making the workplace loans even more affordable for the employees.

Workplace loans are usually viable for many employed Kenyans, given the high interest rates that have been set by banks in the last two years.  

Some banks have been offering loans to Kenyans with interest as high as 16%. According to CBK, the average lending rate by banks for February was 16.4%.

The high interest rates have therefore seen Kenyans opt for other institutions for loan facilities including workplaces. However, in recent years, the workplace loans were also expensive given the tough economic times. In 2024, the Fringe Tax rate was high, even hitting 15% between January and March 2025. 

The rate was later increased to 16% for the April to December period.

Read Also: Why Banks Are Avoiding Lending to Kenyans Despite High Interest Rates

The new lowered rate comes amid a push by the CBK and banks to lower interest rates for Kenyans.

In its recent monetary policy committee meeting, CBK lowered the Central Base Rate to 10% , a move that will also see banks lower their rates.

“The Committee concluded that there was scope for a further easing of the monetary policy stance to stimulate lending by banks to the private sector and support economic activity, while ensuring exchange rate stability. Therefore, the Committee decided to lower the Central Bank Rate (CBR) by 75 basis points to 10%  from 10.75%,” CBK noted in its monetary policy committee meeting.