Kenya plans to impose tax on royalties earned by digital payment platforms and software providers, a move that could raise the cost of using card schemes such as Visa and enterprise software packages such as Microsoft.
New proposals in the Finance Bill, 2026 expand the definition of royalties – payments made for the use of intellectual property (IP) such as copyrights and patents – to include digital platforms, software systems and payment infrastructure.
Such payments are treated as income and attract withholding tax of between five percent and 20 percent.
The changes would bring processing fees charged by card providers such as Visa and Mastercard, software licences from firms such as Microsoft, Kaspersky and Cellulant, and switching systems such as Pesalink into the tax net for the first time.
The shift could increase costs for fintech firms, banks, telcos and global software providers operating in Kenya, effectively raising the cost of digital services.
Under Kenya’s current Income Tax Act, royalties mainly refer to payments made for the use of intellectual property such as copyrights, patents, trademarks, scientific equipment and industrial processes.
These are payments made to the owner of an asset, such as a song, by someone using it commercially. Inventors are also compensated when their patented technology is used in products.
Royalty payments are classified as income and attract withholding tax, which is deducted at source by the payer and remitted to the Kenya Revenue Authority (KRA).
The withholding tax rate is currently five percent for Kenyan residents and 20 percent for non-residents on gross royalty payments.
Tax stretch
The Finance Bill proposes amending the definition of royalty to include “a payment made as a consideration for the use or the right to use any copyright of a literary, artistic or scientific work; any software, proprietary or off-the-shelf.”
It further proposes that royalties include payments for software “whether in the form of licence, development, training, maintenance or support fees”.
The bill also introduces a new category covering payment networks, card schemes and switching systems.
It states that this includes transaction costs charged for the use of payment systems, “whether the consideration is periodic or transaction-based and whether or not the payment is described as a service fee, transaction fee, network fee, assessment fee, processing fee or similar charge.”
This means interchange fees, merchant service fees and network charges associated with card payments – previously treated as operational service charges – could be reclassified as royalty payments subject to withholding tax, increasing compliance costs for banks and payment processors.
Card issuers and payment gateways would also be required to treat participation or usage fees in their systems as royalties.
Wider net
The proposals could also affect software-as-a-service (SaaS) providers and international technology firms such as Microsoft, Sage and Cellulant, which offer subscription-based software products in Kenya.
The proposed law states that software distribution arrangements involving recurring payments through local distributors would be subject to withholding tax.
Kenya is one of Africa’s leading fintech and mobile money markets, driven by widespread smartphone penetration and the dominance of digital payment platforms.
The local digital payments ecosystem supports billions of shillings in daily transactions across banking apps, card systems, mobile money networks and e-commerce platforms.
Thousands of local firms relying on payment rails and enterprise software from foreign providers could face higher operating costs if suppliers pass on the tax burden.
The proposals are part of a broader push to widen Kenya’s tax base amid rising public debt pressures and a weaker economic outlook by tapping into the growing digitisation of commerce and financial services.
KRA is required to collect Sh2.985 trillion in tax revenue in the year starting July, up from Sh2.784 trillion, according to Treasury documents tabled in Parliament, reflecting a 7.21 percent increase.
This year’s Finance Bill is expected to deliver most of the additional revenue, with the Treasury projecting new tax measures to generate Sh120 billion, up from Sh30 billion targeted in last year’s bill.
