The Kenya Revenue Authority has reduced the tax on fringe benefits to 8 percent for the next three months, easing the financial burden on both employers and employees.

The decision follows the Central Bank of Kenya’s latest cut in its base lending rate, which has steadily declined over the past year.

This tax applies to extra welfare benefits employers give to their workers, such as subsidised loans charged at interest rates below the market norm.

The tax is calculated on the difference between the official market interest rate and the actual interest rate paid by employees on these loans.

Rispah Simiyu, KRA’s Commissioner for Domestic Taxes, stated, “For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is eight percent. This rate shall be applicable for the three months of July, August, and September 2025.” The current rate marks the lowest fringe benefits tax level since 2022.

The Central Bank has gradually lowered the benchmark lending rate from 13 percent in August last year to 9.75 percent this June.

This was the sixth consecutive reduction, aimed at encouraging more borrowing and stimulating the economy.

CBK Governor Kamau Thugge explained that inflation was expected to remain stable, supported by steady food and energy prices.

By aligning the fringe benefits tax with the new lower market interest rate, KRA aims to reflect the current economic environment and reduce costs for employers who provide welfare benefits to staff. The tax is due monthly and includes wages, bonuses, and other benefits, making it a key part of employment income tax.

Where loans extend beyond the employee’s tenure, the tax continues until full repayment. This ensures the tax system fairly accounts for benefits received even after employment ends.

The reduction in fringe benefits tax is expected to benefit both the private sector and employees, as it allows for cheaper borrowing costs and reduces the overall tax burden on welfare perks.