KBA further cautioned against a proposed 16 per cent Value Added Tax (VAT) on digital payment processing and money transfers, warning that the compounding tax burden would inflate total digital financial transaction costs from 15 per cent to 58.4 per cent.

📻 Breaking It Down

NAIROBI, Kenya May 21 – Kenya Bankers Association (KBA) has registered strong opposition to the Finance Bill’s attempt to introduce Withholding Tax (WHT) on card transaction fees (such as interchange and merchant fees paid to network giants like VISA).

The lobby pointed out that the proposal directly contradicts a December 2025 Supreme Court ruling involving ABSA Bank, which firmly established that these are operational service fees, not royalties.

They called on the Departmental Committee on Finance and National Planning which commenced week-long stakeholder engagements on the Bill this morning, that the enactment of the proposal would reverse settled judicial authority, create uncertainty, increase costs of digital payments and risk double taxation.

📌 What You Need to Know

“We propose the deletion of the proposed amendment. This move seeks to overturn the Supreme Court’s decision, raising concerns that such legislative reversals undermine legal certainty, predictability, and confidence in the rule of law”, the Chief Executive Officer of the Kenya Bankers Association (KBA) Raimond Molenje submitted.

KBA further cautioned against a proposed 16 per cent Value Added Tax (VAT) on digital payment processing and money transfers, warning that the compounding tax burden would inflate total digital financial transaction costs from 15 per cent to 58.4 per cent.

“Subjecting critical financial infrastructure to VAT and Withholding Tax treats vital capital flows as final consumption, which breaks basic taxation principles. If these clauses pass, they will reverse settled judicial precedents, create massive compliance confusion for everyday merchants”, KBA argued.

The Finance Bill, 2026 proposes to tax digital payment services including money transfers, payment processing, settlement, merchant acquiring, gateway or aggregation services supplied over a software or platform for a fee or a commission by a payment service provider (PSP). KBA observed that Financial Services are not subject to VAT because they are fundamentally intermediation services that facilitate the efficient flow of capital.

“VAT on these services undermines the core principles of VAT as a tax on final consumption”, they noted.

They further observed that imposing VAT on financial services would stifle innovation as the increased would make the services unaffordable to the final consumers.

📰 Source: Capital FM Kenya