Banks in Kenya begin charging 16% VAT on digital payment fees; the Finance Act provision has been in force since 1 July

Banks and payment companies in Kenya have begun adding 16% value-added tax to the fees businesses pay to accept digital payments, Business Daily reported on 28 October 2026. A text message from one of the leading commercial banks, which the newspaper did not name, tells customers that, effective "1st November 2026, a 16 percent VAT will be charged on all digital payment transaction fees."

The tax comes from section 32 of the Finance Act 2026 (Act No. 19 of 2026), which President William Ruto signed on 23 June 2026. The section amends Paragraph 1, Part II of the First Schedule to the VAT Act so that the exemption for financial services does not cover "payment processing, settlement, merchant acquiring, gateway, aggregation services supplied over a software or platform for a fee or commission by a payment service provider". Under section 1 of the Act, every section except 17, 18, 24 and 43 came into operation on 1 July 2026, so this one has been in force since that date. The Kenya Revenue Authority (KRA) says these fees are not exempt from VAT, and the accounting firm EY says they are taxed at the standard rate of 16%.

A spot check by Business Daily found that banks and payment firms had set up their systems to charge the levy, which took effect in July.

The Act also defines a payment service provider. Under the definition, it is a person or organisation that owns, operates or controls a public switched network for payment services, or one that processes or stores data for such a provider or its users.

The extra cost falls on the services businesses use to take payments: card machines, merchant tills and commercial Paybills. Ordinary money transfers through M-Pesa and Airtel Money remain exempt.

The professional services firm PwC warned that the tax would raise costs across the payments industry and that the costs were likely to be passed on to merchants and consumers. KPMG said the new law should bring clearer rules and fewer disputes with the KRA, but that the changes were also expected to increase transaction costs.

The Act has a second payments change. It adds interchange fees and merchant service fees from card payments to the definition of management or professional fees in the Income Tax Act, which the KRA says means they are treated as such for withholding tax purposes.

On 27 August 2025, the High Court ruled for Pesapal, a licensed payment service provider, in a dispute with the KRA, holding that its commissions were exempt from VAT, according to EY. Business Daily put the tax demand in that case at KSh 110.8 million, including interest and penalties. The Finance Act 2026 now makes these fees explicitly subject to VAT.