Mobile money users spared 16 percent VAT in Finance Bill changes

Mobile money users across the country are set to avoid extra charges on transfer fees after Parliament moved to block a proposed 16 percent VAT on services offered through platforms such as M-Pesa and Airtel Money in fresh changes to the Finance Bill, 2026.

The decision comes after concerns that taxing transaction costs would make digital payments more expensive for millions who rely on mobile money for daily transactions.

The Departmental Committee on Finance and National Planning has recommended adjustments to the first Schedule of the Value Added Tax Act to clearly separate mobile money transfers from other related financial services.

Under the proposal, core transfer services will be exempt from VAT, while services such as cash handling, payment processing, settlement, merchant acquiring, gateway and aggregation services will still attract the tax.

Lawmakers said the move is aimed at cleaning up how digital financial services are taxed, especially as mobile money continues to expand across the country.

The committee also called for clearer legal definitions to guide how payment services are treated, saying this would improve consistency and reduce disputes in tax application.

“The committee recommended the amendment of the clause to adopt a broader, technology-neutral framework covering money transfer services and related transactions, while clearly distinguishing taxable transactions such as cash handling and payment processing,” the Finance Committee said in its report on the consideration of the Finance Bill.

The committee further stated: “the committee further noted the need for a clear definition of ‘payment service provider’ to ensure certainty, consistency, and effective application of the law as contained in the Bill.”

The proposed tax changes follow pushback from payment service providers, including major operators such as Safaricom through its M-Pesa platform and Airtel Africa through Airtel Money, who warned that VAT on transfer fees would raise the cost of sending money and slow down digital transactions. Other firms like Pesapal and Kenswitch, alongside about 42 licensed payment service providers under the Central Bank of Kenya, also raised objections.

The National Treasury had maintained that the tax was intended for platform operators and not customers, but industry players argued that the cost would ultimately be passed on to users, affecting affordability and usage of mobile money services.