Banks and fintechs in Kenya have begun adding 16% VAT to certain digital payment fees. One bank said the charge takes effect November 1, 2026. The tax covers payment processing, card settlement, and payment gateway operations.
What is taxed
The levy applies to fees for helping businesses receive, process, and settle electronic payments. Payment gateways such as Pesapal and networks connecting merchants, banks, and card firms fall under the rules. The VAT is charged on the service fee, not the full transaction amount.
Transfers left out
Standard M-Pesa and Airtel Money person-to-person transfers are not covered. Customers sending money to friends and family remain outside the new VAT treatment. The distinction turns on the service being supplied, not whether money moves digitally.
Why the rules changed
Disputes with the Kenya Revenue Authority preceded the change. In August 2025, the High Court sided with Pesapal over a KSh110.8 million demand. The Finance Act 2026 then made the covered payment services taxable.
Banks and payment providers are updating systems to apply the new charge. Merchants using card machines and payment gateways should check their next statements. The change sits alongside a CBK goal to lower person-to-person transfer costs to KSh10 by 2028.