Kenya’s Finance Act 2026, signed into law on June 23, 2026, introduced tax changes effective July 1, 2026, targeting digital payments among other areas. Among the most consequential changes for the fintech sector is a new 16% Value Added Tax on payment processing fees charged by licensed payment service providers such as Pesapal, Cellulant, Kenswitch and others.
The measure originated in a National Treasury proposal to tax the roughly 42 payment platforms operating in Kenya, following a legal defeat for the Kenya Revenue Authority. In August 2025, the High Court ruled in Pesapal Limited v Commissioner of Domestic Taxes that commissions earned by licensed payment service providers are VAT exempt financial services, blocking a multimillion shilling tax assessment against the company. The Finance Act effectively overrides that ruling for a defined category of services.
Crucially, lawmakers narrowed the original proposal during debate. MPs on the Departmental Committee on Finance and National Planning recommended amendments distinguishing between mobile money transfers and support services such as cash handling and payment processing, after objections from Safaricom, Airtel and other stakeholders warning of double taxation and harm to financial inclusion. As a result, standard mobile money transfer charges from providers like M-Pesa and Airtel Money were spared the 16% VAT.
However, the exemption does not extend to gateway and settlement services. Under the final law, payment processing, settlement, merchant acquiring, gateway and aggregation services provided through software or platforms for a fee or commission are now subject to 16% VAT. This is the category into which Pesapal primarily a payment gateway serving merchants rather than a peer to peer transfer service falls, alongside providers like Cellulant, Flutterwave, Paystack, iPay Africa and DPO Pay.
Businesses that rely on these gateways for card and online payments should expect the tax to be reflected in merchant discount rates and processing costs. The Kenya Private Sector Alliance had estimated that combining VAT with existing excise duty on merchant discount rates could push the effective cost of a Kshs 100 card transaction fee to over Kshs 150, once other proposed levies are factored in, though some of those additional charges were also revised during parliamentary debate.
The practical effect for consumers and merchants will become clearer as providers update their fee schedules following the July 1 commencement date.
