Banks start charging 16% VAT on digital payment fees in Kenya from November 1

Updated 29 October 2026

Banks and payment companies in Kenya have started adding 16% VAT to the fees they charge businesses for processing digital payments. That covers card machine (POS) fees, merchant settlement charges and payment gateway fees. The change comes from the Finance Act 2026, and at least one leading commercial bank has told customers by SMS that the VAT applies from November 1, 2026, Business Daily reports.

What the 16% VAT on digital payment fees covers

The tax falls on fees that companies earn for helping businesses receive, process and settle electronic payments. Payment gateways such as Pesapal and the networks that connect merchants, banks and card companies fall into this category.

• Taxed: card and POS transaction fees, merchant settlement charges and payment gateway fees.
• Not taxed: ordinary person-to-person money transfers, including M-Pesa and Airtel Money transfer services.

The VAT is charged on the fee, not on the payment itself. If a gateway charges a shop KSh 350 to process a KSh 10,000 card sale, VAT of KSh 56 is added to that KSh 350 fee.

What it means for businesses

Shops, online stores and service providers that take card or gateway payments will pay more per transaction. Many will either absorb the cost or pass it on through higher prices. Merchants who use tills and commercial Paybills should check their next statement to see how their provider applies the charge.

The move comes earlier this month after the High Court struck out a petition by the Consumer Federation of Kenya (Cofek) against the Finance Bill 2026. The judge ruled that the case was premature because the bill was not yet law, and did not decide whether the tax is constitutional. It also cuts against the Central Bank of Kenya’s financial inclusion goal of lowering the average cost of sending money from KSh 23 in 2024 to KSh 10 by 2028.

If you run an online store, see our guide on how to accept M-Pesa payments on your website to compare gateway, till and Daraja costs. For the wider tax picture, read turnover tax vs income tax vs VAT in Kenya.

FAQ

Does the 16% VAT apply to sending money on M-Pesa?

No. Person-to-person transfers on M-Pesa and Airtel Money are exempt. The VAT applies to fees businesses pay to receive and process payments.

When does the VAT on digital payment fees start?

The measure is in the Finance Act 2026, and one leading bank has told customers it will charge it from November 1, 2026.

Who pays the VAT, the customer or the merchant?

It is added to the fees charged to merchants and businesses, though many may pass the cost on to customers through prices.