Kenya Wants A 16% Tax On Every M-Pesa Fee. Here Is What It Could Cost Your Shop.

Kenya's Finance Bill 2026 wants to put a 16% VAT on the fees that M-Pesa, Airtel Money, and 40 other payment companies charge. The tax is set to start on July 1. Shop owners, kiosks, and mama mbogas would feel it on almost every customer payment they take.

What The Bill Actually Says

The Finance Bill 2026 was tabled in Kenya's National Assembly on May 5, 2026. One section adds a 16% value-added tax to fees charged by all 42 licensed payment service providers in the country. That list includes M-Pesa, Airtel Money, Pesapal, Cellulant, Kenswitch, and Craft Silicon.

Treasury argues the tax sits on the platforms, not the customer. But VAT is a consumption tax. The fees come from people sending, receiving, or accepting money. So the cost will be passed on.

The bill also keeps the proposed 25% excise duty on mobile phones and adds a withholding tax on card payments. Most of the new measures take effect on July 1, 2026, if Parliament passes them.

How The Fees Stack Up

M-Pesa fees already carry a 20% excise duty. The 16% VAT would sit on top of that. The two taxes do not cancel out. They stack.

Tech-ish, a Kenyan tech outlet, worked out a quick example. If you pay a KES 108 fee today, the new VAT adds about KES 17. A mama mboga who pays a KES 7 fee on a KES 500 send becomes a KES 8 fee. Small numbers on one transaction. Big numbers across 46.4 billion transactions a year, which is what M-Pesa processed in the financial year ending March 2026.

Safaricom said its customers moved KES 41.7 trillion through M-Pesa in that period, a 25% jump from the year before. M-Pesa now brings in 45.6% of Safaricom's Kenya service revenue. Any tax change on its fees will ripple through every till that takes mobile money.

The "Mattress Banking" Warning

The Kenya Bankers Association is one of the loudest voices against the bill. At a public hearing organised by the Kenya Private Sector Alliance, KBA chief executive Raimond Molenje said the tax would push people back to cash.

"If the Government proceeds to tax digital payments, it will drive consumers to mattress banking and back to the informal economy, where the Government will not be able to collect revenue effectively." - Raimond Molenje, CEO, Kenya Bankers Association

Mentoria Economics CEO Ken Gichinga told Semafor the higher costs "would likely disincentivise the use of M-Pesa." Former Central Bank chairman Mbui Wagacha warned that low-income households "will become even poorer."

KEPSA chairperson Jas Bedi said only 16.2% of Kenyan jobs are in the formal sector. The other 18 million workers are in the informal economy, where digital payments are how the tax authority sees activity at all. Tax the rails, lose the visibility, lose the revenue.

What This Looks Like At The Kiosk

A kiosk owner in Eastleigh takes 80 small M-Pesa payments a day. Average fee per transaction is around KES 12. That is roughly KES 960 a day in fees right now. Add 16% VAT and the same volume costs about KES 1,113 in fees. Over a month, that is an extra KES 4,500 the shop pays just to keep accepting mobile money.

The shop owner has three choices. Eat the cost. Pass it to customers as a small price hike. Or quietly ask buyers to pay cash. Many will do the third.

And once cash comes back, the records that helped you access credit, prove turnover for a loan, or even file taxes start to fade. Kenya spent a decade building one of the most-watched mobile money systems in the world. The bill puts that on the line.

What Is Not Taxed

Two M-Pesa products would stay VAT-free. Fuliza, the overdraft service, and M-Shwari, the savings and loan product, both run through bank partnerships. Bank-led financial services are already exempt from VAT. So a KES 200 person-to-person transfer would be taxed, but a KES 200 Fuliza overdraft on that same transfer would not.

Tax experts told Capital FM the carve-out tilts the rules toward banks and against pure mobile money platforms. KPMG East Africa associate director Kiema Onesmus said the bill "will set us back way more" if it passes as written.

Why Treasury Wants The Money

The National Treasury wants to raise an extra KES 120 billion in the next financial year, pushing total tax collection from KES 2.7 trillion to KES 2.9 trillion. Over 80% of Kenya's tax revenue currently goes to debt servicing, according to Treasury figures cited by Semafor.

The 2024 Finance Bill triggered deadly youth protests when it tried to raise taxes on bread, fuel, and mobile money transfers. The government dropped most of those proposals. This year's bill drops the bread tax but brings back the mobile money tax in a new shape, on the providers instead of the senders.

What Happens Next

Public participation closed on May 25, 2026. Memoranda from industry groups, banks, and consumer associations all went to Parliament's Departmental Committee on Finance and National Planning. Parliamentary consideration started on May 26.

If MPs pass the bill in its current shape, the VAT begins on July 1, 2026. Shop owners with elections coming next year may want to follow the debate. You can read the full bill text on the Kenyan Parliament website and track committee proceedings there as well.

Why This Matters

For African small business owners, this story is bigger than Kenya. M-Pesa is the model that mobile money copies across the continent. Tanzania, Ghana, Nigeria, Senegal, and Ivory Coast all have mobile money systems built on the same idea: low fees, mass adoption, formal record of small transactions.

If Kenya proves that governments can stack VAT on top of excise on those rails without driving people back to cash, other treasuries will copy it. If the experiment fails and Kenyans really do go back to cash, that is a warning every African finance ministry will read carefully.

For a shop owner in Nairobi, Mombasa, or Kisumu the question is simple. Will your customers still tap their M-Pesa to pay you on July 2? Or will they start handing you crumpled notes again?

Conclusion

Kenya's 16% VAT proposal would be the biggest single change to mobile money pricing since M-Pesa launched in 2007. It is not a done deal. Parliament is debating it now and industry pressure is intense. But shop owners should plan for both outcomes. Have a cash float ready. Watch what your customers do. And keep an eye on June, when committee amendments come in.

Sources

• Semafor - Kenya's new tax proposals: mobile money taxes put M-Pesa growth at risk (May 25, 2026)
• Tech-ish - Why your M-Pesa fees could rise on 1 July: The 16% VAT Proposal Explained
• TechTrends KE - Kenya's Mobile Money VAT Plan Draws Industry Pushback (May 26, 2026)
• Capital FM - Finance Bill 2026 digital tax proposals could slow financial inclusion, expert warns
• Capital Business - Bankers Warn Proposed Mobile Money VAT Could Shrink Tax Base
• Citizen Digital - Explainer: How banking transaction charges will increase if Finance Bill passes
• The Star - Finance Bill 2026 could hurt jobs, push investors away, KEPSA warns (May 25, 2026)
• Tuko - Finance Bill 2026: Treasury to Impose 16% VAT on M-Pesa, Airtel Money and Other Payment Platforms