This article guides HR and payroll administrators on enabling or disabling Fringe Benefit Tax (FBT) calculations on low-interest staff loan categories in the system.
Important Note on FBT: Under Section 12B of the Kenya Income Tax Act, Fringe Benefit Tax (FBT) is a 100% employer-borne tax liability paid directly out of company funds on any interest discount offered on employee loans—calculated at 30% of the difference between the employer's loan rate and KRA's official market rate (which typically hovers around 8%)—meaning it must never be configured as a payroll deduction from an employee's salary or payslip. Because the system automatically handles the calculation once enabled, admins simply need to confirm KRA's quarterly published rate to ensure compliance.
Step-by-Step Guidance
How to Enable or Disable Fringe Benefit Tax on a Loan Category
Navigate to the Payroll module on your admin dashboard.
Select the Loans submodule.
Click Loan Settings at the top-right of the Loans dashboard to view all active loan categories (e.g., Staff Loan, Study Loan, Emergency Loan).
Locate the loan category you want to update, click the Three Dots (⋮) action menu on the far right, and select Edit.
Locate the setting labeled 'Has Fringe Benefit':
To enable FBT: Check the box. The system will automatically calculate FBT on the interest discount (KRA Prescribed Rate minus Employer Loan Rate) and assign it as an employer liability.
To disable FBT: Uncheck the box to zero out FBT calculations for this loan category.
Click Save Changes to update the loan configuration.
Go to Payroll Processing and reprocess the current month's or affected payroll to apply the changes to your employer tax liability reports.