KRA Sets 8% Prescribed Interest Rate for Key Tax Provisions Effective July 2026

The Kenya Revenue Authority (KRA) has announced new prescribed interest rates that will apply to several tax provisions during the second half of 2026, setting the rate at 8 percent across three major tax categories.

The revised rates, which take effect from July 2026, will apply for different durations depending on the applicable tax provision and are expected to guide employers, businesses and taxpayers in meeting their tax obligations.

KRA Sets Fringe Benefit Tax Interest Rate at 8%

According to a notice issued on Wednesday, July 8, KRA confirmed that the market interest rate for Fringe Benefit Tax will be 8 percent during the third quarter of 2026.

“For the purposes of Section 12B of the Income Tax Act, the Market Interest Rate is 8%. This rate shall be applicable for the three months of July, August and September 2026,” the notice read.

The prescribed rate will apply throughout July, August and September, affecting employers who provide employees with loans at below-market interest rates.

Deemed Interest Rate Maintained at 8%

KRA also retained the prescribed interest rate for deemed interest at 8 percent for the same three-month period.

“For purposes of Section 16(2)(ja) of the Income Tax Act, the prescribed rate of interest is 8%. This rate is applicable for the months of July, August and September 2026,” the notice added.

The tax authority noted that businesses should continue complying with the applicable rules governing deemed interest transactions.

15% Withholding Tax Still Applies

Despite maintaining the prescribed interest rate, KRA reminded taxpayers that withholding tax on deemed interest remains in force.

“Withholding tax rate of 15% on the deemed interest shall be deducted and paid to the Commissioner within 5 working days,” the notice further read.

Businesses are therefore required to deduct and remit the withholding tax within the stipulated period to avoid possible penalties.

Low Interest Benefit Rate Applies Until December

For Low Interest Benefit, KRA prescribed the same 8 percent interest rate but extended its application over a longer period.

“For purposes of Section 5(2A) of the Income Tax Act, the prescribed rate of interest is 8%. This rate is applicable for the months of July, August, September, October, November and December 2026,” the notice concluded.

The six-month rate is expected to guide employers who offer concessionary loans to employees during the second half of the year.

Latest Tax Changes Follow Removal of Bottled Water Excise Duty

The latest announcement comes just days after KRA confirmed the removal of excise duty on bottled water following amendments introduced under the Finance Act, 2026.

In a notice issued on Monday, July 6, the authority said the changes took effect on July 1, effectively eliminating both the excise duty and the requirement for excise stamps on bottled water manufactured or imported from that date.

“Bottled water manufactured or imported on or after this date will not be subject to excise duty and will not require to be affixed with excise stamps,” the notice read.

KRA also announced that it will issue further guidance on handling unused excise stamps.

“The Commissioner will issue detailed guidelines on the return of unutilized stamps and the decommissioning of digital stamps, which will be published on the official KRA website,” the notice added.

However, manufacturers have been reminded that tax obligations arising before the amendment remain payable.

“Manufacturers are reminded of their obligation to submit their Excise Duty Returns for the month of June 2026 and pay the taxes due by 20th July, 2026,” the notice further read.

With the latest prescribed interest rates now in effect, businesses, employers and tax professionals are expected to review their payroll, lending and tax compliance processes to ensure they remain aligned with KRA requirements throughout the remainder of 2026.

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