Treasury Hits M-Pesa and Pesapal in Crushing Blow With 16% VAT

Kenya’s digital economy is about to experience another major shake up following proposals by the National Treasury to impose 16% Value Added Tax (VAT) on payment platforms such as Safaricom’s M-Pesa, Pesapal, Airtel Money and other payment service providers. The proposal in the Finance Bill 2026 has elicited fears from consumers, businesses, fintech companies and tax experts, who fear that the move will increase the cost of sending and receiving money in Kenya.

The proposed tax comes at a time when millions of Kenyans heavily rely on mobile money platforms for daily survival. From paying school fees and utility bills to purchasing goods and receiving salaries, M-Pesa and other digital payment services have become deeply embedded in the country’s financial ecosystem. Analysts now warn that imposing VAT on these services risks undermining Kenya’s global reputation as a leader in mobile money innovation.

Treasury VAT on M-Pesa Sparks Public Anxiety

According to Treasury officials, the proposed VAT will target fees earned by payment service providers rather than the money being transferred itself. Treasury Director-General for Budget Albert Mwenda stated that the tax would apply to ICT systems enabling digital payments, including paybills and till numbers. However, many experts argue that such taxes are almost always passed down to consumers through increased transaction charges.

This means ordinary Kenyans could ultimately shoulder the burden despite government assurances that consumers are not directly being taxed. The proposal has already sparked fears that sending money, paying merchants, or conducting business transactions through mobile wallets could become more expensive in the coming months.

For many low-income households, even a slight increase in transaction fees can have painful consequences. Kenya’s mobile money ecosystem thrives because of convenience and affordability. Once transaction costs rise, users may begin avoiding digital payments or revert to cash transactions, a move that could slow the country’s progress toward a cashless economy.

M-Pesa VAT Will Increase the Cost of Everyday Life

The timing of the proposal has also raised eyebrows because Kenyans are already struggling with a high cost of living, rising fuel prices, and increasing taxation across multiple sectors. Adding VAT to digital payment systems will worsen financial pressure on households already stretched thin.

Currently, M-Pesa charges range from KSh 7 for smaller transactions to over KSh 100 for large transfers, while transactions below KSh 100 remain free. If payment providers pass the VAT cost to users, the charges could climb even higher.

This would have a ripple effect across the entire economy. Small traders, boda boda operators, online businesses, and informal workers who depend on mobile money will be forced to absorb higher operating costs. In turn, many businesses will increase prices for goods and services to offset transaction expenses.

Kenya’s digital payment revolution succeeded largely because M-Pesa made financial services accessible to people who lacked traditional bank accounts. A rise in costs could reverse years of financial inclusion gains and disproportionately hurt low-income earners living in rural and underserved areas.

Pesapal Tax Proposal Raises Concerns in the Fintech Industry

The proposed VAT does not only affect M-Pesa. Payment platforms such as Pesapal, Kenswitch, Airtel Money, and other fintech players are also expected to fall under the new tax framework. This has intensified fears that Kenya’s growing fintech sector could face slower growth and reduced investment.

Fintech companies have played a critical role in modernizing Kenya’s economy by simplifying payments for businesses, schools, hospitals, transport providers, and online merchants. Many startups depend on affordable digital transactions to remain competitive.

Industry stakeholders argue that taxing payment infrastructure sends the wrong signal to investors at a time when Kenya is trying to position itself as Africa’s technology and innovation hub. Critics say the policy appears to favor traditional banking systems while placing additional pressure on mobile and fintech-based services.

Tax experts have also warned that the proposal could amount to double taxation because many mobile money services already attract various transaction fees and levies. Additional VAT layers may discourage consumers from using formal financial systems.

Finance Bill 2026 and the Government’s Revenue Push

The Treasury’s push for additional taxes reflects the government’s growing pressure to increase revenue collection amid mounting public debt obligations and budget deficits. Over the past few years, the government has repeatedly expanded the tax net through new levies, increased VAT rates, and tighter compliance measures.

The Finance Bill 2026 contains several tax proposals aimed at raising government revenue. However, critics argue that targeting mobile money platforms is risky because digital payments have become essential public infrastructure rather than luxury services.

Kenya’s mobile money sector processes trillions of shillings annually. M-Pesa alone reportedly handled transaction volumes exceeding Sh41 trillion in the year ending March 2026, highlighting the enormous scale of the country’s digital economy.

The Treasury likely sees the sector as a lucrative source of tax revenue because of its massive transaction volumes and strong profitability. Yet economists warn that overtaxing digital finance may ultimately reduce transaction activity and weaken long-term tax collection potential.

Safaricom and Fintech Firms Likely to Resist

The proposal is expected to trigger strong lobbying from telecom companies and fintech firms. Safaricom has previously opposed attempts to increase taxes on mobile money services, arguing that such measures disproportionately hurt poor households and threaten financial inclusion.

Experts believe fintech firms will intensify pressure on lawmakers before Parliament debates the Finance Bill. Some industry leaders are already warning that the tax could reduce the competitiveness of Kenya’s fintech ecosystem.

There are also concerns that investors may begin viewing Kenya as a less attractive destination for financial technology innovation if digital payment services become heavily taxed. Kenya has long been celebrated globally for pioneering mobile money adoption, and policymakers now risk damaging one of the country’s strongest technological success stories.

The proposal follows previous legal disputes involving the Kenya Revenue Authority and payment service providers over VAT obligations. A High Court ruling had previously barred the collection of VAT from some payment service providers after determining that certain financial services were exempt under existing law.

Impact on Small Businesses and Informal Traders

One of the biggest concerns surrounding the M-Pesa VAT proposal is its potential impact on small businesses and informal traders. Kenya’s SME sector heavily relies on mobile money because it offers fast, secure, and convenient payment options.

Market vendors, freelancers, transport operators, and online sellers often use mobile payment systems as their primary business infrastructure. Higher transaction costs may eat into already thin profit margins.

For small businesses handling dozens of daily transactions, even marginal fee increases can significantly affect monthly operating costs. Some traders may begin encouraging customers to pay in cash to avoid charges, potentially increasing security risks associated with cash handling.

The proposal could also slow the growth of e-commerce in Kenya. Digital payments have been instrumental in expanding online shopping, digital subscriptions, and app-based services. Increased transaction fees could discourage consumers from embracing digital commerce fully.

Financial Inclusion Could Suffer

Perhaps the biggest long-term concern is the threat to financial inclusion. Kenya’s mobile money revolution transformed access to financial services for millions who were previously excluded from formal banking systems.

Mobile wallets enabled rural populations, low-income earners, and small entrepreneurs to save, borrow, transact, and receive payments with unprecedented convenience. Increased taxation risks are making these services less accessible.

Financial inclusion experts warn that higher transaction costs could push vulnerable groups away from digital financial systems. This would undermine years of progress made through mobile money adoption and could widen economic inequalities.

The government has consistently promoted digitization as part of its economic transformation agenda. However, critics argue that imposing additional taxes on digital payments contradicts those objectives.

Will Parliament Approve the VAT Proposal?

The fate of the proposal now lies with Parliament, where lawmakers are expected to debate the Finance Bill 2026 in the coming weeks. Public opposition could intensify if Kenyans perceive the tax as another burden on struggling households.

Lawmakers may face pressure from consumers, fintech companies, and civil society groups to either reject or amend the proposal before it becomes law. Kenya has witnessed growing public frustration over rising taxation in recent years, and any policy affecting everyday financial transactions is likely to attract strong reactions.

If approved, the VAT could reshape how millions of Kenyans use mobile money services. Consumers may need to prepare for potentially higher transaction charges, while businesses may need to rethink pricing and payment strategies.

For now, uncertainty continues to dominate discussions around the Treasury’s proposal. But one thing is already clear: the planned 16% VAT on M-Pesa, Pesapal, and other payment platforms could become one of the most controversial economic policies in Kenya’s recent history.