Fringe Benefit Tax in Kenya: KRA raises the rate to 9% for October to December 2026

If your company lends money to staff or directors at a low interest rate, the cost of doing so just went up. In a public notice dated 22 October 2026, the Kenya Revenue Authority set the Fringe Benefit Tax (FBT) market interest rate and the deemed interest rate at 9% for October, November and December 2026. Earlier quarters this year were at 8%. Here is what that means for your business.

What is Fringe Benefit Tax? FBT applies when an employer gives an employee a loan at a below-market interest rate. The tax is calculated on the benefit the employee receives from the cheaper loan, not on the loan itself. For FBT, the notice cites Section 12B of the Income Tax Act.

What changed for Q4 2026. KRA set the FBT market interest rate at 9% for the three months of October, November and December 2026. The prescribed rate of interest for deemed interest under Section 16(2)(ja) is also 9% for the same months. KRA did not give a reason for the increase. It reviews these rates every quarter.

Deemed interest and withholding tax. The notice says a 15% withholding tax on the deemed interest must be deducted and paid to the Commissioner within 5 working days. That deadline applies to the deemed interest withholding tax. Because the rules on which loans attract deemed interest are technical, confirm with a tax adviser whether any of your arrangements are caught.

How FBT is calculated. Work out the monthly taxable benefit first: loan balance × (market rate − interest rate actually charged) ÷ 12. Then apply the employer tax rate to that benefit. For companies, that is the 30% corporate rate.

A worked example at the new rate. Say an employee has a KSh 3,000,000 loan at 3% interest. The gap is now 6% (9% − 3%), so the annual benefit is KSh 180,000, or KSh 15,000 a month. At 30%, the employer owes KSh 4,500 a month. At the old 8% rate, the same loan cost KSh 3,750 a month, so the increase adds KSh 750 a month for every KSh 3,000,000 lent at 3%. This matches the style of illustration KRA itself uses to explain the tax.

When to pay. FBT is charged monthly on the benefit provided in that month, and is due on or before the 9th of the following month, the same date as PAYE. So the tax on October benefits is due by 9 November. KRA's PAYE penalties for missing the date are the higher of 25% of the tax due or KSh 10,000 for late filing, and 5% of the tax due plus 1% interest per month for late payment. Check your obligation on iTax each month.

Loans that outlast employment. Where a loan runs beyond the date employment ends, the rates still apply for as long as the loan remains unpaid.

Who needs to pay attention. Any employer with a staff loan scheme, including SACCO-style arrangements run through the company. Any company lending to directors or their relatives, which are often the largest balances.

If you charge the full market rate or more, no taxable benefit arises. The tax only applies to the shortfall.

What to do now. 1. Recalculate your loan book at 9% for October onwards. 2. Decide whether to reprice staff loans to the market rate. 3. Update your payroll and accounting workings before the 9th of each month. 4. Diarise a rate check for the first week of January, because the rate is reviewed every quarter.

How JPL365 can help keep your books organised. FBT is a small calculation that goes wrong when loan balances live in a spreadsheet and the rate lives in someone's memory. We help businesses put that into a proper system. Here is what we can set up for you.

A single loan register. Every staff and director loan tracked in one place, with balance, interest rate charged, start date and repayment schedule, inside Zoho Books or QuickBooks, or as a custom module if you need more detail.

Automated FBT workings. A configured calculation that applies the current KRA market rate to each outstanding balance and produces the monthly taxable benefit and tax payable, so nobody rebuilds the formula every month.

Quarterly rate updates. When KRA publishes a new rate, we update it once and your workings follow, instead of finding out three months late.

Reminders and a clean audit trail. Payment reminders ahead of the 9th, with every payment, working paper and loan agreement attached to the right record.

Accounting that matches the tax. Loans, interest and tax postings coded correctly in your ledger, so your books agree with what you file on iTax.

eTIMS and M-Pesa, handled. Compliant invoicing through Zoho Books, and M-Pesa Paybill or Till payments matched to sales automatically, so month-end is not a scramble.

Clean-up and migration. If your books are behind, or you are moving from spreadsheets or QuickBooks to Zoho Books, we can tidy the records first and then set up the structure to keep them tidy.

Tax rates will keep changing every quarter. What protects you is a system that absorbs those changes without anyone having to remember them. If you want a second pair of eyes on your loan book or your accounting setup, talk to JPL365.

Source: KRA Public Notice on Fringe Benefit Tax and Deemed Interest Rate, 22 October 2026. The payment date and penalties reflect KRA's standing PAYE rules. This article is for general information and is not tax advice. Speak to a qualified tax professional about your specific situation.