Kenya’s Treasury is seeking to apply 16% value-added tax to fees earned by payment platforms such as M-Pesa, Pesapal, Kenswitch, and Airtel Money, a proposal that could make digital transactions more expensive if providers pass the tax on to users.
The proposal lands in one of Africa’s most important digital payments markets. M-Pesa had 37.91 million monthly active customers in Kenya in the year to March 2026, while payment volumes rose 25.1% to 46.4 billion unique transactions. That scale makes the tax question larger than a line in the Finance Bill. It is a test of how Kenya taxes the rails that now carry everyday commerce.
The tax is aimed at platforms, but users may feel it
Treasury officials have framed the proposal as a tax on the fees earned by platform owners, not on the people making payments. The distinction matters legally, but it may matter less economically.
Albert Mwenda, Kenya’s director-general of budget, told Business Daily that the person supplying ICT to enable payments, including paybills or tills, would be subject to VAT, while people making payments would be outside the scope because they are not supplying services.
That sounds like a provider-side tax. In practice, VAT costs are often passed on.
Payment platforms make money from user charges, merchant service fees, processing fees, and related transaction services. If those fees become taxable, providers such as Safaricom, Airtel Money, Pesapal, and other licensed payment service providers may choose to adjust pricing rather than absorb the full cost.
That is where the policy becomes sensitive.
Digital payments have become normal in Kenya because they are fast, familiar, and widely accepted. But when low-value transactions become more expensive, users can change behaviour. Some may transact less. Some merchants may push costs to customers. Some users may return to cash for smaller payments.
Kenya is taxing a system it also depends on
Kenya’s public finances need revenue. That part is clear.
The government is looking for ways to widen the tax base and capture value from sectors that have grown quickly. Payment platforms are an obvious target because they sit on large transaction volumes and visible fee income.
M-Pesa’s numbers show why the sector attracts attention. The value of its combined transactions rose 8.9% to Sh41.7 trillion in the year to March 2026, while M-Pesa revenue increased 13.4% to Sh182.7 billion. The service accounted for 44.2% of Safaricom’s earnings in the period.
Those figures make M-Pesa look like a strong revenue pool.
But digital payments are also economic infrastructure. They support small businesses, household transfers, public payments, merchant collections, transport, savings, credit products, bill payments, and informal commerce.
That creates a policy tension.
The more successful the payment system becomes, the more tempting it is to tax. But the more central it becomes, the more careful government must be not to raise the cost of participation.
The small transaction problem
Mobile money is built on volume.
Many transactions are small. A user pays a shopkeeper. A parent sends transport money. A customer pays a bill. A trader sends funds to a supplier. A merchant receives multiple small payments in a day.
If user charges rise, the impact may be felt most strongly by people and businesses that transact frequently in small amounts.
This is why Safaricom has previously opposed tax increases on mobile phone-based transfers, arguing that such measures are likely to hurt lower-income users who rely on mobile transfers and may not have bank accounts.
That argument should not be dismissed as corporate lobbying alone.
A payments tax can look small at the platform level and still feel large to users at the edge of the system. In a market where mobile money is part of daily life, even modest fee changes can affect behaviour.
The policy challenge is to raise revenue without punishing the transaction habits that made digital payments useful in the first place.
The banking comparison will be controversial
One of the more sensitive parts of the proposal is the comparison with traditional financial services.
Kenya’s VAT Act currently exempts financial services from VAT, including money transfer services and the acceptance of over-the-counter payments of household bills. The Business Daily report notes that services such as ATM transactions, telegraphic transfers, foreign exchange transactions, cheque handling, loan underwriting, securities transactions, and guarantees are treated as exempt financial services.
That creates a fairness debate.
If bank-linked financial services remain exempt while payment platforms face VAT on parts of their services, fintech operators may argue that the tax system is favouring traditional banking over digital payment infrastructure.
The Treasury’s position appears to separate payment-platform services from bank-partnered financial services. Some M-Pesa-linked products such as Fuliza and M-Shwari would remain VAT-exempt because they involve partnerships with commercial banks.
That distinction may be legally defensible, but it is likely to be contested by payment companies and tax advisers.
For users, the difference may be less obvious. They see one digital financial experience. The tax system sees multiple legal categories.
A court fight sits in the background
The proposal also comes after a High Court ruling that blocked Kenya Revenue Authority from collecting tax from payment service providers including Pesapal and Kenswitch. The ruling found that services involving receiving, transferring, and processing payments on behalf of third parties or merchants were exempt from VAT.
That background matters because the new proposal appears designed to clarify or change the treatment of such services through the Finance Bill.
In other words, this is not only a tax proposal. It is also a regulatory and legal reset around how Kenya classifies digital payment services.
That reset could have wider implications.
If Kenya succeeds in taxing payment-platform fees, other African governments may watch closely. Many countries are looking for ways to tax digital transactions, mobile money, platform fees, and fintech revenue without discouraging digital adoption.
Kenya’s decision could therefore become a reference point beyond Kenya.
What payment companies will likely argue
Payment companies are likely to push back on three grounds.
First, they will argue that the cost will reach consumers. Even if the tax is formally applied to providers, businesses may pass it on through higher user fees or merchant charges.
Second, they will argue that digital payments support financial inclusion. Higher transaction costs can push users back toward cash, especially for low-value transfers.
Third, they will argue that the proposal creates unequal treatment between digital payment platforms and traditional bank-linked services.
Those arguments will not automatically defeat the proposal, but they will shape the lobbying fight.
Kenya’s Finance Bill process is often politically sensitive because tax changes affect households, businesses, and investor confidence. A proposal touching M-Pesa will attract particular attention because M-Pesa is not just a product. It is part of how Kenya moves money.
The bigger implication for African fintech
Kenya’s VAT proposal is a reminder that successful fintech infrastructure eventually becomes a fiscal target.
When digital payments are small, governments may encourage adoption. When they become large, governments begin asking how much tax revenue they can support.
That is not unusual. But the design matters.
A good tax policy should recognise the difference between taxing corporate profit and raising the marginal cost of everyday payments. It should also consider the impact on merchants, low-income users, small businesses, and digital inclusion.
For African fintech operators, the lesson is clear: regulatory and tax risk are not side issues. They are part of the operating environment.
For policymakers, the lesson is just as clear: payment systems are now economic infrastructure. Taxing them requires more care than taxing an ordinary service.
Kenya’s proposal may raise revenue. But if it raises the cost of digital money too sharply, it could weaken the very payment behaviour that made the sector valuable.
That is the balance Parliament will now have to weigh.
