Kenya Finance Act 2026 Adds 16% VAT to Payment Fees

In Short

Banks and fintechs in Kenya are preparing to apply a 16% Value Added Tax, VAT, to fees charged for some digital payment services.

The change comes under the Finance Act 2026 and affects fees for payment processing, card settlement and payment gateway operations.

What Happened

The Finance Act 2026 changes how Kenya taxes services used to move money between customers, merchants, banks and payment networks.

Banks have notified customers about the tax, with one notice citing November 1, 2026 as the date the charge takes effect.

The VAT applies to fees for specified payment services, rather than automatically applying to the full value of every electronic transaction.

The article says ordinary person-to-person money transfers, including standard M-Pesa and Airtel Money transfers, are treated separately from the payment-processing services covered by the change.

The new tax follows disputes over whether certain electronic payment services qualified as exempt financial services under Kenya’s previous VAT framework. The Finance Act 2026 changed the statutory treatment of payment processing, settlement, merchant network connectivity and payment gateway services, bringing the fees charged for those activities within the VAT framework.

The article gives the example of payment gateways such as Pesapal, which provide infrastructure that lets businesses accept electronic payments through connected systems. It notes that gateway fees are separate from what a customer pays for goods or services, so the VAT applies to the service charges.

Why It Matters

The change adds a new cost for businesses that rely on electronic payments.

It also clarifies that VAT is being applied to the service layer that supports digital payments, not to the full value of each transaction by default.