The Treasury is seeking to impose a 16 percent value-added tax (VAT) on Kenya’s 42 payment platforms, such as Pesapal, Kenswitch, Airtel Money and M-Pesa, which could trigger an increase in user fees for money transfer services.
A Treasury official said that fees earned by the owners of platforms would attract VAT, arguing that the tax will not apply to consumers’ mobile money transfer services and other money transfer services.
“The person who supplies ICT to enable payments, including paybills or tills, is the one subject to VAT,” Albert Mwenda, the 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.”
But the payment service providers look set to transfer the burden to consumers in the form of higher money transfer fees.
Safaricom has previously opposed a tax increase on mobile phone-based transfers, saying that it would likely mostly hurt the poor, most of whom do not have bank accounts and rely on mobile transfer services such as M-Pesa.
VAT, however, is deemed a consumption tax, payable by the end user, as revenues earned by payment service providers (PSPs) are generated from user fees.
M-Pesa, which Safaricom pioneered in 2007, now has around 37.91 million users in Kenya, handling billions of shillings in daily transfer volumes—a low-hanging fruit with the capacity to generate outsized profits.
Its double-digit growth in the year to March made the Kenyan unit of Safaricom the first to cross the Sh100 billion mark in earnings, underlining its cash-generation capacity.
Tax experts have argued against the proposal, seeing it as detrimental to the growth of digital payments and expect providers like Safaricom, Airtel and Pesapal to resist the amendment.
Michael Mburugu, a partner at PKF Kenya tax advisory service division, expects Safaricom to lobby hard against the proposal, noting that the levying of VAT on payment service providers will largely translate into higher user charges.
“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.”
VAT charges are widely passed on to consumers, as they are seen as an end-user charge, implying that mobile-money wallet operators like Safaricom and Airtel would be unlikely to absorb the costs.
The Treasury clarified that M-Pesa was licensed by the Central Bank of Kenya (CBK) as a pay service provider (PSP), rendering charges on transfers subject to VAT under current proposals.
Some M-Pesa service charges like Fuliza and M-Shwari would, however, remain VAT-exempt as they involve partnerships between the operator and 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,” Mr Mwenda said.
The proposal in the Finance Bill is seen as biased towards traditional banking institutions and a discouragement for investments in fintech solutions.
Automated teller machine (ATM) transactions, telegraphic money transfer services, foreign exchange transactions, cheque handling and loan underwriting are all deemed financial services and thereby exempt from VAT.
The issuance of securities for money, provision of guarantees and the issue, transfer and receipt of dealings with bonds or stocks are also exempt from VAT.
A senior tax advisor at corporate law firm Bowmans Law, David King’ori, warned that the application of VAT on money transfers via platforms like M-Pesa could amount to double taxation.
“M-Pesa user charges are already expensive and this would only be a step in the wrong direction. This could ultimately sideline some users from using formal financial services,” he said.
M-Pesa charges Sh7 for transfers between Sh101 and Sh500 and a maximum Sh108 for transfers above Sh50,000, while low-value transactions below Sh100 are zero-rated.
The proposal to apply VAT on money transfer platforms follows a High Court ruling that saw judges bar the Kenya Revenue Authority (KRA) from collecting tax from PSPs, including Pesapal and Kenswitch.
The High Court suit pitted Limited and the Commissioner of Domestic Taxes, with the judge ruling that the services of receiving, transferring and processing payments on behalf of third parties or merchants were exempt from VAT.
The VAT Act currently exempts financial services from VAT, including money transfer services and the acceptance of over-the-counter payments of household bills.
Kenya has 42 PSPs, including Kenya Airports Parking Services (KAPS), Craft Silicon Limited and Cellulant Kenya Limited.
M-Pesa payment volumes rose by 25.1 percent in the year to March 2026, hitting 46.4 billion unique transactions in the period from 37.1 billion transactions previously.
The value of the 46.4 billion combined transactions, meanwhile, jumped 8.9 percent to hit Sh41.7 trillion from Sh38.3 trillion previously.
Safaricom was able to charge 42.2 percent of the transactions or 19.6 billion deals, helping it earn a record Sh182.7 billion for the period as M-Pesa revenues, a rise of 13.4 percent from Sh161.1 billion in the previous period to March 2025.
M-Pesa revenues made up 44.2 percent of Safaricom’s earnings for the year ended March 2026.
The number of monthly active M-Pesa customers in Kenya rose by 13.3 percent to 37.91 million from 33.46 million, while the average number of chargeable transactions per customer jumped to 38.6 from 37.3.
