The Kenya Revenue Authority (KRA) has announced new interest rates that will affect employers and businesses dealing with certain employee loans and financing arrangements during the final three months of 2026.

In a public notice issued on Thursday, October 22, KRA set the market interest rate used to calculate Fringe Benefit Tax at 9 per cent for October, November and December.

The authority also set the prescribed rate for deemed interest at 9 per cent over the same period, up from 8 per cent in the previous quarter.

KRA said the changes apply to specific tax calculations under the Income Tax Act and urged affected taxpayers to comply with the updated requirements.

How the New KRA Rates Affect Employee Loans

The 9 per cent rate for Fringe Benefit Tax applies when an employer provides a qualifying loan to an employee, director or their relatives at an interest rate below the prescribed market rate.

The taxable benefit is calculated using the difference between the prescribed market rate and the actual interest charged on the loan.

For example, if an employer charges an employee 3 per cent interest on a qualifying loan, while the prescribed market rate is 9 per cent, the difference is six percentage points.

That difference is used to determine the value of the taxable benefit. The applicable tax is then calculated under the relevant rules.

The 9 per cent benchmark does not mean every employee automatically pays 9 per cent tax on their loan. The calculation depends on the loan terms and the applicable tax provisions.

KRA Sets Deemed Interest Rate at 9 Per Cent

KRA has also set the deemed interest rate at 9 per cent for the three months ending December 2026.

Deemed interest rules can apply to qualifying financing arrangements where interest is not charged or is charged below the prescribed rate, including certain arrangements involving shareholders and related parties.

For tax purposes, the prescribed rate is used to determine the interest treated as having accrued under the applicable law.

The authority further stated that withholding tax at 15 per cent on deemed interest must be deducted and paid to the Commissioner within five working days.

Businesses with qualifying arrangements should therefore ensure they calculate the deemed interest correctly and observe the payment deadline.

What Employers and Businesses Should Do

The new rates apply from October through December 2026. Employers offering staff loans should review their loan records and use the correct benchmark when calculating Fringe Benefit Tax.

Businesses should also examine financing arrangements involving shareholders or related parties to determine whether deemed interest rules apply.

The two categories are governed by different provisions of the Income Tax Act, so taxpayers should not confuse the applicable calculations or obligations.

Importantly, the notice does not announce a blanket increase in individual income tax bands or Pay As You Earn (PAYE) rates. It specifically updates the interest benchmarks used to calculate Fringe Benefit Tax and deemed interest.

Affected employers and businesses should consult KRA’s official notice or a qualified tax professional if they are uncertain how the rates apply to their arrangements.