Kenya Finance Bill 2026 Expands Digital Royalties Tax

In Short

• Kenya’s Finance Bill 2026 proposes a broader digital royalties tax.
• The bill would treat some payments to card networks, platforms, and software providers as “royalties” for income tax.
• Banks, fintechs, and startups could see higher costs for cross-border payments, cloud, and enterprise software.

What Happened

Kenya’s Finance Bill 2026 is proposing changes that could expand how the country taxes cross-border technology services. The bill widens the definition of “royalty” under Kenya’s Income Tax Act. A royalty is usually a fee paid for using someone else’s intellectual property, like paying to use a patented tool or a licensed software product.

Under the proposal, royalties would include payments linked to “a proprietary digital platform, payment platform, payment network, payment card scheme, payment processing system, switching system, clearing system, or settlement system.” In plain terms, this targets the behind-the-scenes systems that move money, especially for card payments and digital payment rails.

The bill also expands royalty treatment to software-related charges, including licence fees and payments for development, training, maintenance, and support. That matters because many Kenyan businesses pay foreign providers for cloud services, business software, cybersecurity tools, and payment infrastructure.

For fintechs and online merchants, the impact can show up as higher provider bills or higher transaction fees, depending on how suppliers pass costs through. Payment gateways and processors, including products like Paystack, could also face knock-on effects if their upstream card and software costs change.

Why It Matters

Kenya is one of Africa’s largest digital economies, and its startups and banks depend heavily on imported technology. If more fees are taxed as royalties, companies may need to withhold tax (set aside and remit a portion to the tax authority) when paying overseas vendors. That can raise the all-in cost of running a payments stack or a software-heavy business.

The bigger question is execution. Kenya will need to balance raising revenue with keeping digital services affordable enough for SMEs, fintechs, and investors who back scaling across the region.