M-Pesa and Payment Platforms Draw Fresh Tax Pressure in Finance Bill

The Treasury has proposed a new 16 percent VAT charge on companies that facilitate digital payments in Kenya, opening the door to possible increases in transaction costs across mobile money and merchant payment networks.

The proposal, contained in the Finance Bill, targets licensed payment service providers operating the infrastructure behind mobile transfers, tills, paybills and online checkout systems. While Treasury officials say the levy is aimed at service providers rather than customers sending money, the added tax burden could eventually flow into consumer pricing through revised transfer charges.

Among the firms likely to be affected are Safaricom, operators of M-Pesa, alongside fintech and switching companies such as Pesapal and Kenswitch. The proposed change would narrow VAT exemptions currently attached to parts of Kenya’s financial services sector.

Albert Mwenda, director-general for budget at the National Treasury, said the tax would apply to entities supplying payment-enabling technology rather than individuals making transactions.

“The person who supplies ICT to enable payments, including paybills or tills, is the one subject to VAT,” he said.

The proposed amendment follows a legal dispute that blocked the Kenya Revenue Authority from collecting VAT from payment processors. In that case, the High Court ruled that receiving and transmitting payments on behalf of merchants fell within VAT-exempt financial services under the existing law.

Treasury officials are now attempting to redefine that treatment through legislative changes separating payment-processing activity from other exempt banking services.

Several conventional financial activities would remain outside VAT rules, including ATM withdrawals, foreign exchange transactions, securities trading, cheque processing and loan underwriting. That distinction has drawn concern from sections of the fintech industry, where operators argue the proposal creates uneven tax treatment between digital payment firms and traditional banking institutions.

Mobile money remains one of Kenya’s most widely used financial channels, handling billions of transactions annually across consumer transfers, business payments and retail purchases. Because transaction fees form a major revenue stream for payment service providers, any additional operating tax is likely to influence pricing structures across the sector.

Recent financial disclosures from Safaricom illustrate the scale of that market. M-Pesa processed 46.4 billion transactions in the year ending March 2026, up from 37.1 billion a year earlier. The total value moved through the platform rose to Sh41.7 trillion.

Revenue generated from M-Pesa climbed 13.4 percent to Sh182.7 billion during the period, accounting for 44.2 percent of Safaricom’s total earnings. Monthly active users in Kenya reached 37.91 million.

Some services linked to M-Pesa would continue enjoying VAT exemption under the proposal. Products operated jointly with banks, including Fuliza and M-Shwari, would still fall under exempt financial services because of their banking structure.

Legal advisers and industry analysts say the broader concern now centres on affordability and access. Kenya’s mobile money ecosystem has become deeply integrated into day-to-day commerce, particularly among users operating outside formal banking channels. Higher transfer costs could affect transaction frequency among low-value users and small businesses that rely on mobile payments for routine activity.

Current M-Pesa tariffs range from Sh7 for transfers above Sh100 to Sh108 for transactions exceeding Sh50,000. Transactions below Sh100 remain free of charges.

Kenya currently has 42 licensed payment service providers, including Cellulant Kenya, Craft Silicon and Kenya Airports Parking Services. Debate around the Finance Bill is expected to intensify as telecom operators, fintech firms and business groups push for changes before the legislation is finalised.

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