The Kenya Revenue Authority (KRA) has dealt a blow to Kenyan workers' pockets by increasing the tax rate on employer-provided welfare benefits for the fourth consecutive quarter.

This move comes amidst high market interest rates and aims to align tax regulations with current economic realities.

The tax in question, known as the fringe benefits tax, applies to employee benefits like low-interest loans offered by employers on top of regular wages.

Rispah Simiyu, Commissioner for Domestic Tax at the KRA, announced the new rate.

"For purposes of section 16(2) (a) of the Income Tax Act, the prescribed rate of interest is 16 per cent. This rate is applicable for the months of April, May, and June 2024," Simiyu said.

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This significant increase follows a series of adjustments over the past year.

The fringe benefits tax stood at 7 per cent throughout 2021 before rising to 8 per cent in June 2022.

It was then adjusted again to 9 per cent in December 2022 and remained so until March 2023.

Finally, it jumped to 15 per cent for the quarter ending in March 2024 before reaching the current 16 per cent.

The KRA justified the tax hike by citing prevailing high market interest rates.

However, this decision comes as the Central Bank of Kenya (CBK) maintains a more optimistic economic outlook.

On March 4, 2024, the CBK opted to hold its benchmark interest rate steady at 13 per cent, citing reduced inflationary pressures and a stabilizing foreign exchange rate.

This decision followed two consecutive rate increases in February aimed at curbing inflation and supporting the Kenyan shilling.

The CBK's decision reflects recent positive economic trends. Headline inflation, for example, dropped to a two-year low of 5.7 per cent in March, driven by falling prices of essential food items.

Additionally, the Kenyan shilling has strengthened against other global currencies.

Despite these improvements, the KRA has chosen to maintain a higher tax rate on fringe benefits, potentially impacting the overall value of employee welfare packages.