Employers offering below-market loans to staff, directors or related parties face a wider tax gap this quarter after the Kenya Revenue Authority raised the market interest rate used for Fringe Benefit Tax to 9%, according to a report on a KRA public notice dated 22 October 2026.

The reported notice, signed by the Commissioner for Micro and Small Taxpayers, puts the rate at 9% for the October to December 2026 quarter, up from 8% in the previous quarter.

Under Section 12B of the Income Tax Act, the benchmark is used to work out the benefit where an employer charges less than the market rate. The difference between the rate charged and the benchmark is treated as a benefit enjoyed by the borrower, and the employer is liable for Fringe Benefit Tax on it.

The tax is charged at 30% of the calculated benefit value and falls due by the 9th day of the month after the benefit is granted.

The report illustrated the arithmetic with a KSh 3 million loan issued at 3%. The 6% gap between the loan rate and the benchmark produces a taxable benefit of KSh 180,000 a year, or KSh 15,000 a month. At 30%, the monthly fringe benefit tax comes to KSh 4,500.

The same 9% figure applies to deemed interest under Section 16(2)(ja) of the Act, according to the report. On this front, a 15% withholding tax is deducted and forwarded to KRA within five working days.

Penalties for late remittance were also set out. Failing to pay fringe benefits tax on time attracts a penalty of 25% of the tax due, plus a further 5% for late payment.

The fringe benefit tax net extends beyond cash loans, the report added. Private use of an employer-provided vehicle is taxed at the higher of 2% of the vehicle’s original cost per month or the Commissioner’s prescribed rate, as applicable, while employer-provided housing is taxed on a portion of the employee’s taxable pay. Any benefit, advantage or facility valued above KSh 5,000 a month, or KSh 60,000 a year, falls within the tax’s scope, according to the report.

The authority indicated it will revise the rates at the start of the next quarter.

Separate guidelines released on 19 October 2026 clarified the rental income position for the 2026/2027 tax year, according to the same report. Landlords earning below KSh 288,000 annually, or KSh 24,000 a month, are exempt from the Monthly Rental Income tax regime.

Those earning between KSh 288,000 and KSh 15 million a year pay Monthly Rental Income tax at 7.5% of gross rent, with no deductions allowed. Landlords above the KSh 15 million mark, along with owners of commercial property, fall under the annual income tax regime.

Non-resident landlords face a 30% final tax on gross rental income from Kenyan property, with returns and payments due by the 20th of the following month.

Late filing of rental income tax attracts a penalty of KSh 2,000 or 5% of the tax due, whichever is higher. Late payment carries a 5% penalty as well as 1% monthly interest. Eligible landlords may also be liable for the 1.5% Affordable Housing Levy.