Fringe Benefit Tax, Deemed Interest Rate And Low Interest Benefit

Taxation of Fringe Benefits:

Fringe benefits are additional perks or benefits provided by an employer to an employee, beyond their salary or wages. These benefits can include things like company cars, housing allowances, health insurance, and more. In many jurisdictions, including Kenya, fringe benefits are subject to taxation.

Calculation of Fringe Benefit Tax:

The taxation of fringe benefits in Kenya is governed by various sections of the Income Tax Act. For example, Section 12B deals with the taxation of market interest rates, while Section 16(2)(ja) pertains to the taxation of deemed interest rates.

Market Interest Rate:

According to Section 12B of the Income Tax Act, the market interest rate applicable for the months of January, February, and March 2024 is 15%. This rate is used for calculating the taxable value of certain benefits provided to employees.

Deemed Interest Rate:

Section 16(2)(ja) of the Income Tax Act prescribes a deemed interest rate of 15% for the same period, January to March 2024. This rate is relevant for determining the taxable value of certain benefits deemed to be provided by the employer to the employee.

Withholding Tax:

Employers are required to deduct and pay withholding tax at a rate of 15% on the deemed interest portion of fringe benefits. This tax should be remitted to the Commissioner within five working days following the computation of the taxable amount.

Low Interest Benefit:

Additionally, for benefits categorized as low interest benefits under Section 5(2A) of the Income Tax Act, the prescribed rate of interest is 14% for the months of January to June 2024. This rate is used to calculate the taxable value of such benefits.

Compliance and Reporting:

It is essential for employers to ensure compliance with the provisions of the Income Tax Act regarding fringe benefit taxation. This includes accurately calculating the taxable value of fringe benefits, deducting withholding tax where applicable, and timely remittance of taxes to the tax authorities.

Conclusion:

Understanding the taxation of fringe benefits is crucial for both employers and employees to ensure compliance with tax laws and regulations. By adhering to the prescribed rates and reporting requirements outlined in the Income Tax Act, employers can avoid penalties and maintain good standing with the tax authorities. Additionally, employees should be aware of the tax implications of fringe benefits provided by their employers to accurately report their income and fulfill their tax obligations.