Kenya’s Push to Overtax Digital Payments Sparks Fintech Backlash Fears

As Kenya moves to extend value-added tax to digital payment platforms, including mobile money systems that underpin everyday commerce, is the country tightening fiscal control over a booming fintech sector or quietly testing how far it can push a cashless economy before higher transaction costs begin to slow adoption? The proposal, which would see fees earned by payment service providers taxed at 16%, comes as payment platforms such as M-Pesa, Cellulant, Pesapal and Airtel Money handle billions of transactions annually and sit at the center of Kenya’s financial inclusion story. But with operators likely to pass on costs to users, the measure raises a broader question about whether taxing the infrastructure of digital payments could ultimately reshape how consumers, merchants and lenders interact in one of Africa’s most advanced mobile money markets.

Kenya’s Treasury is proposing a 16 percent value-added tax on transactions processed through all 42 licensed payment platforms, including widely used services such as Safaricom’s M-Pesa,  in a move that could raise the cost of sending and receiving money across the country’s fast-growing digital payments ecosystem and potentially reshape how millions of Kenyans transact daily.

Under the proposal in the Finance Bill, fees earned by payment service providers would be subject to VAT, though officials say end users making transactions would not be directly taxed.

“The person who supplies ICT to enable payments, including paybills or tills, is the one subject to VAT,” Albert Mwenda, director-general of budget at the Treasury, told the Business Daily. “Persons making payments would be out of the scope for VAT as they are not supplying any services.”

However, as with previous tax increments, the cost is widely expected to be ultimately passed on to consumers through higher transaction fees, intensifying concerns about financial inclusion in a market where mobile money is widely used.

Safaricom has previously opposed higher taxes on mobile transfers, warning they disproportionately affect low-income users who rely heavily on services such as M-Pesa.

Kenya has 42 payment service providers, including Kenya Airports Parking Services (KAPS), Craft Silicon Limited and Cellulant Kenya Limited. Tax experts say the proposal could slow fintech expansion.

Michael Mburugu, a partner at PKF Kenya tax advisory services, said Safaricom is likely to push back. “If you look at the financial services that are proposed to basically move from VAT-exempt to taxable status, you will note that they touch on money transfers and M-Pesa services involve money transfers,” he said.

“As to whether there will be any lobbying against it that can be expected, especially given the velocity and number of transactions being done nowadays on M-Pesa. You can imagine the impact of a VAT introduction at the rate of 16 percent on money transfer services.”

M-Pesa charges range from about $0.05 for transfers between $0.77 and $3.85 to as much as $0.83 for transactions above $385.

The Treasury argues that M-Pesa, licensed by the Central Bank of Kenya as a payment service provider, falls within the scope of taxable ICT-enabled financial services.

“The proposal in the Finance Bill is seen as biased towards traditional banking institutions and a discouragement for investments in fintech solutions,” the report notes.

Some services, including Fuliza and M-Shwari, may remain exempt as they involve partnerships with commercial banks.

“It depends on what you are considering. M-Pesa is licensed by CBK as a PSP, but there are financial services that they partner with banks to provide. So, it’s [the application of VAT] all dependent on the service,” Mwenda said.

The proposal follows a broader High Court ruling that previously barred the Kenya Revenue Authority from taxing payment service providers, including Pesapal and Kenswitch, over VAT exemptions on payment processing services.

M-Pesa transaction volumes rose 25.1% in the year to March 2026 to 46.4 billion transactions, up from 37.1 billion a year earlier. The total value of transactions rose 8.9% to about $280 billion, from $257 billion previously. Safaricom generated about 19.6 billion transactions, helping M-Pesa revenue climb 13.4% to roughly $1.25 billion in the year to March 2026.

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