The Kenya Revenue Authority (KRA) has maintained the tax rate on employee welfare benefits at eight percent for the quarter ending December 2025, breaking a trend that had seen the levy adjusted in line with changes in the Central Bank of Kenya’s (CBK) benchmark lending rate.
This is the first time in five quarters that the tax rate has remained unchanged despite a cut in the CBK’s Central Bank Rate (CBR).
The CBK lowered the CBR to 9.25 percent from 9.50 percent on October 7, 2025, extending a monetary policy easing cycle that began in August last year and has reduced the rate by a total of 3.75 percentage points.
“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is eight percent. This rate shall apply for the months of October, November, and December 2025,” KRA said in a notice.
The decision marks a break from the previous pattern where KRA’s fringe benefit tax rate closely followed the CBK’s base lending rate each quarter. By holding the rate steady, the taxman has effectively decoupled the taxable market interest rate from the CBK’s monetary policy stance for the first time since October 2024.
The fringe benefit tax is imposed on employees who receive extra welfare benefits such as low-interest loans in addition to their salaries. It also applies to employers who extend loans to employees, directors, or their relatives at an interest rate below the market rate.
The taxable value is determined by the difference between the market interest rate and the actual interest paid on such loans. Where a loan extends beyond an employee’s tenure, the tax remains applicable until the loan is fully repaid.
Employers are required to remit the fringe benefit tax by the ninth day of the month following the provision of the benefit. The rate is reviewed quarterly by KRA, based on prevailing market lending rates and the CBK’s monetary policy direction.
In July 2025, KRA reduced the fringe benefit tax to eight percent from nine percent, following earlier cuts from 13 percent in April, aligning with CBK’s successive rate reductions aimed at boosting credit growth and stabilizing inflation.
The CBK’s ongoing rate cuts have been intended to encourage private-sector lending and maintain inflation within target levels. The central bank has cited improved exchange rate stability and easing food and energy prices as factors that have lowered overall consumer price pressures in recent months.
