The Kenya Revenue Authority (KRA) has set the market interest rate for Fringe Benefit Tax and Deemed Interest at 8% for the first quarter of 2026, offering a slight reprieve to borrowers in a volatile economic climate.

The directive, effective for January, February, and March 2026, serves as the benchmark for taxing employer-provided loans and benefits. This rate is critical for HR departments and payroll accountants who must now adjust their systems to remain compliant or face the taxman’s wrath.

What This Means for Your Pay Slip

If you are an employee with a company loan (e.g., a car loan or mortgage) at an interest rate lower than 8%, the difference is considered a taxable benefit. You will be taxed on the "saved" interest.

• Fringe Benefit Tax (FBT): Employers must pay tax on the interest rate advantage they give to directors and employees. With the rate at 8%, the burden is lower than the commercial lending rates of 18-24%, making company loans still highly attractive.
• Deemed Interest: For interest-free loans directed to employees, the KRA "deems" that you should have paid 8% interest, and taxes that notional amount.
• Low Interest Benefit: This also applies to the broader 8% rate for low-interest benefits through June 2026.

A Signal to the Market?

The 8% rate is significantly lower than the Central Bank of Kenya (CBK) benchmark rate, suggesting a disconnect between fiscal policy (taxation) and monetary policy (lending). While the KRA assumes money costs 8%, banks are lending at nearly triple that.

Employers have been given a strict timeline to remit these taxes—within 5 working days for withholding tax on deemed interest. Failure to comply attracts a penalty that could wipe out the benefit of the loan itself.

The Compliance Trap

This routine notice is a subtle trap for the non-compliant. The KRA is increasingly using payroll audits to catch firms that under-declare fringe benefits. By setting a clear rate, they have removed the ambiguity. If your directors are driving company cars or living in company houses and you aren't applying this 8% formula, you are walking into an audit minefield.