Finance Bill 2026: Why Your M-Pesa and Card Transactions Are About to Get Costlier

Nairobi, Kenya — The National Treasury has officially unveiled the Finance Bill 2026, a document that promises to fundamentally alter the cost of living for every Kenyan with a smartphone or a bank card. In a bold and controversial move, the government is proposing to transition digital transaction fees from the current excise duty regime to a standard 16% Value Added Tax (VAT). This shift, coupled with new, aggressive enforcement powers for the Kenya Revenue Authority (KRA), signals a 'no-holds-barred' approach to domestic revenue mobilization.

The 16% VAT Shock: M-Pesa and Digital Payments

For nearly two decades, M-Pesa has been the heartbeat of Kenya’s economy, recently celebrating 19 years of dominance. However, the Finance Bill 2026 aims to reclassify financial services, specifically targeting mobile money transfer fees and card payment processing charges. Currently, these services attract an excise duty of 15%. By shifting this to a 16% VAT, the Treasury is not just increasing the rate by 1%, but fundamentally changing how the tax is calculated and claimed by businesses. For the ordinary consumer, this means the cost of sending money or paying for goods via Pesapal or M-Pesa 'Lipa na M-Pesa' will likely see a visible uptick. This move comes even as Safaricom records massive success with products like Ziidi, which has recently smashed records on the Nairobi Securities Exchange.

KRA’s New 'Freeze First' Enforcement Powers

Beyond the transaction costs, the most chilling aspect of the Finance Bill 2026 is the expansion of the KRA’s enforcement toolkit. The taxman is seeking sweeping powers to freeze the bank accounts and mobile money wallets of suspected tax defaulters instantly. Under the current law, the KRA usually requires a court process or a long-drawn agency notice system to stop transactions. The new proposal would allow for immediate freezing if the KRA believes there is a risk of the taxpayer transferring funds to avoid obligations.

The Bankers' Pushback: A Call for 5% PAYE Relief

As the government tightens the noose on consumption and transaction taxes, the Kenya Bankers Association (KBA) has entered the fray with a significant proposal. The bankers are calling for a 5% reduction in the Pay As You Earn (PAYE) tax for all formally employed Kenyans. This proposal is framed as a necessary cushion against the rising tide of deductions, including the Housing Levy and the Social Health Insurance Fund (SHIF). Bankers argue that the current tax burden is stifling the middle class and reducing the disposable income necessary to drive economic growth.

"The Kenyan taxpayer is at a breaking point. A 5% PAYE cut is not just a request for relief; it is a strategic necessity to prevent a total collapse in consumer spending."
— Habil Olaka, Former CEO, Kenya Bankers Association

Card Payment Fees and the e-Commerce Impact

The Finance Bill 2026 doesn't stop at mobile money. It also rewrites the tax rules governing card payment fees, affecting every merchant who uses a Point of Sale (POS) machine. By subjecting card processing fees to the standard VAT rate, the government is effectively increasing the operational costs for small and medium enterprises (SMEs). Merchants who are already struggling with high electricity costs and the recent 16% VAT on internet services provided by players like Safaricom and Huawei will find their margins squeezed further. Many analysts fear that these costs will be passed directly to the consumer. This could lead to a 'cash is king' resurgence, potentially reversing the gains Kenya has made in becoming a leading cashless economy in Africa.

NCBA and the Banking Sector Performance

Despite the looming tax changes, the banking sector continues to show resilience. NCBA Group recently posted a staggering Sh31.2 billion Profit Before Tax, highlighting the profitability of the financial sector even in a high-tax environment. This profitability is part of what the Treasury is targeting. However, experts warn that over-taxing the financial plumbing of the country—the transactions themselves—could eventually slow down the velocity of money and hurt the very profits the government seeks to tax.

How to Prepare for the 2026 Tax Shift

Kenyans must start rethinking their financial movements ahead of these changes. If the Bill passes in its current form, every 'Send Money' click will carry a heavier fiscal weight. First, audit your monthly transaction volumes. Moving larger sums in fewer installments might help reduce the cumulative impact of the new VAT-inclusive transaction fees. Second, ensure your tax records are impeccable. With the KRA’s new powers to freeze accounts, any red flag in your tax filing—even a genuine error—could lead to your funds being locked away during a lengthy reconciliation process. Finally, keep an eye on the parliamentary debates. The proposal for a 5% PAYE cut is still a long way from becoming law, and public participation will be the last line of defense for the Kenyan taxpayer. As we approach the implementation date, staying informed and using tools to calculate your new tax obligations will be the only way to navigate the turbulent financial waters of 2026.