The Kenya Revenue Authority (KRA) has raised the market interest rate used to calculate Fringe Benefit Tax (FBT) to 9 per cent for October, November and December 2026, a change that employers offering low-interest loans to their workers need to understand.
In a public notice dated October 22, 2026, KRA confirmed that the new rate would apply during the final quarter of the year, increasing from the 8 per cent benchmark used between July and September.
The adjustment is important for businesses, employers, directors and workers who receive loans at interest rates below the prescribed market rate. However, the announcement does not mean that every employee will automatically pay 9 per cent tax on their salary or outstanding loan.
Instead, the market interest rate is used to calculate the value of the financial benefit an employee receives when an employer offers a qualifying loan at a lower interest rate. The employer is responsible for calculating and paying the resulting Fringe Benefit Tax. KRA public notice.
What is Fringe Benefit Tax in Kenya?
Fringe Benefit Tax is a tax imposed on employers in respect of certain benefits arising when they provide loans to employees, directors or their relatives at interest rates below the prescribed market rate.
Under Section 12B of Kenya’s Income Tax Act, the taxable benefit is determined using the difference between the prescribed market interest rate and the actual interest rate charged on the loan.
The purpose of this calculation is to establish the financial advantage enjoyed by someone who receives a loan on more favourable terms than the prescribed benchmark.
For example, if an employer lends money to an employee at an interest rate of 3 per cent while the applicable market interest rate is 9 per cent, the six-percentage-point difference is used to calculate the value of the benefit.
The tax is then calculated on that benefit, rather than simply applying the 9 per cent benchmark to the employee’s entire loan balance as tax.
What is the KRA Fringe Benefit Tax rate for 2026?
KRA’s prescribed market interest rates for 2026 are as follows:
Period Market interest rate
January–March 202 68%
April–June 2026 8%
July–September 2026 8%
October–December 2026 9%
The final-quarter rate represents an increase of one percentage point from the previous quarter. The rates are published by KRA and can be reviewed on its official public notices page.
It is important to distinguish between the market interest rate and the tax charged on the resulting benefit. The 9 per cent figure is the benchmark used to calculate the benefit. The applicable Fringe Benefit Tax rate is 30 per cent of the taxable benefit, payable by the employer.
How much tax could an employer pay?
Consider an employee who receives a qualifying loan of KSh3 million from their employer at an annual interest rate of 3 per cent.
Using the 9 per cent market interest rate applicable in the final quarter of 2026, the calculation would work as follows:
Loan amount: KSh3,000,000
Prescribed market interest rate: 9%
Actual interest rate charged: 3%
Difference: 6 percentage points
Annual taxable benefit: KSh3,000,000 × 6% = KSh180,000
Monthly taxable benefit: KSh180,000 ÷ 12 = KSh15,000
Monthly Fringe Benefit Tax: KSh15,000 × 30% = KSh4,500
Under these assumptions, the employer would pay KSh4,500 in Fringe Benefit Tax for a full month at the stated rates.
This example follows the calculation method provided in KRA’s official guidance on taxation of employee loans.
The actual amount payable will depend on the loan balance, the interest charged, the applicable rate and the period for which the benefit arises.
What does the change mean for Kenyan workers?
For employees, the most immediate concern is whether the new benchmark will affect the cost of borrowing through employer-provided loans.
Workers with qualifying loans at below-market interest rates may generate a larger taxable benefit when the prescribed market rate rises, assuming the loan balance and actual interest rate remain unchanged.
However, the tax is generally an employer obligation. Employees should not confuse the FBT benchmark with their PAYE rate or assume that KRA has increased the tax charged directly on their monthly salaries.
Employees should review their loan agreements and ask their employers how the new benchmark affects the calculation of benefits, especially where staff loans have variable interest rates or changing outstanding balances.
Employers, meanwhile, should review payroll and tax records to ensure that the correct rate is used for the relevant period.
Fringe Benefit Tax versus deemed interest
KRA’s October notice also sets the prescribed rate for deemed interest at 9 per cent for October, November and December 2026.
Although the two rates are announced together, Fringe Benefit Tax and deemed interest are different tax concepts.
FBT relates to qualifying low-interest loans provided by employers to employees, directors or their relatives. Deemed interest applies to certain financing arrangements covered by Section 16(2)(ja) of the Income Tax Act, including qualifying arrangements involving interest-free or low-interest advances.
KRA has also specified a 15 per cent withholding tax on deemed interest, which must be deducted and paid to the Commissioner within five working days under the notice.
Businesses should therefore establish which provision applies to each financing arrangement rather than treating the two rates as interchangeable.
What employers should do before the end of 2026
Employers providing staff loans should review outstanding balances, interest terms and payroll calculations for October through December. They should also confirm that their tax filings reflect the applicable quarterly rate and that any required payments are made within the relevant deadlines.
Where a loan extends over several quarters, the employer should use the prescribed rate applicable to the relevant period when calculating the benefit.
For workers, the practical step is to understand the terms of any employer-provided loan and seek clarification where the tax treatment is unclear. Businesses with complex loan arrangements should consult a qualified tax adviser or seek clarification directly from KRA.
The latest announcement is a quarterly adjustment to the interest benchmarks used in specific tax calculations. It is not a general increase in PAYE or a blanket 9 per cent tax on employee loans.
The bottom line: Kenya’s Fringe Benefit Tax market interest rate is 9 per cent for October to December 2026, but the tax itself is calculated at 30 per cent of the resulting taxable benefit. Understanding this distinction will help employers comply with the rules and help workers understand how low-interest staff loans are treated for tax purposes.
