KRA Tax Increment Serious Impact on Employees and Employers

KRA Tax Increment Serious Impact on Employees and Employers

KRA Tax Increment Serious Impact on Employees and Employers. The Kenya Revenue Authority (KRA) increased the tax rate for companies that offer employee benefits, which has severely hurt workers.

These revisions have the effect of increasing the tax on taxable fringe benefits for the next three months, up to September, from 10% to 11%. Due to the high market interest rates, there has been a second straight increase since April through June.

For the purposes of Section 12B of the Income Tax Act, the market interest rate is 11%. This rate will be in effect for the three months of July, August, and September 2023, according to KRA.

This tax is levied by employers on a range of benefits provided to workers, their families, and business partners. It includes a monthly salary in addition to social benefits like low-interest loans.

Every pay an employee receives in Kenya is recognized as taxable employment income. This includes any pay, including salary, wages, bonuses, and extras, that was obtained or used while an employee.

KRA Tax Increment  Serious Impact on Employees and Employers

Loans provided by employers to their employees at rates below market rates are considered tax-deductible fringe benefits.

The difference between the interest rate on the loan and the market interest rate represents the value of the fringe benefits subject to taxation.

The fringe benefits tax was maintained at 9% by KRA for the first three months of the year, from January through March, after it was increased twice in a row for the first six months of the year, from January through December.

As a result, the tax was increased from 5% to 10% for the period ending prior to March.

For the entire year 2021, the tax on fringe benefits stayed at seven percent, with the exception of the three-month span that ended in June. For the next second three-month period ending in September, it increased to 8%.

Due to the high market interest rates at the time, the tax was then raised to 9% for the months of October through December 2022.

The government has increased the presumed interest rate for the following three months, from July through September, to 11%; it will now be paid on the 20th of every month, net of a 15% withholding tax.

Prior to June, the deemed interest rate was raised to 10% for the preceding three months.

The suggested rate of the Central Bank of Kenya (CBK) climbed last month, reaching 10.5%, its highest level since July 2016.