Tax on M-Pesa and card fees after Finance Act 2026
How the Finance Act 2026 changes VAT on payment service fees and withholding tax on card interchange and merchant fees for a Kenyan business.
By Achekam · · 4 min read · For Running a business businesses in Kenya
Every business that takes payments electronically pays for the privilege. There are charges on Business Till collections, fees from the online gateway, and a merchant service fee on every card transaction. Most owners see these only as a deduction between what the customer paid and what reached the bank.
The Finance Act 2026 changed how two taxes treat those fees. One change is about VAT on the fees themselves; the other is about withholding tax on card fees. Neither is complicated, but both affect what you should expect to see on your providers' invoices and how you record them.
Payment service fees are no longer exempt from VAT
KRA's summary of the Finance Act 2026 says fees charged by payment service providers for digital payment services are not exempt from VAT. It lists the services covered: payment processing, settlement, merchant acquiring, gateway and aggregation services.
A supply that is not exempt is a taxable supply. KRA describes the general VAT rate as 16% on taxable goods and services other than zero-rated supplies. In practical terms, a business should expect VAT to appear on fees from its payment providers where it did not before.
For a VAT-registered business, the VAT on those fees can be input tax, but only if the usual conditions are met. KRA says an input tax claim requires a valid electronic tax invoice or customs entry that shows the buyer's PIN, was transmitted to KRA, and whose sale the seller has declared. A fee deducted silently from a settlement, with no invoice, gives you nothing to claim against. Ask each provider how and when it will issue tax invoices for its fees.
Interchange and merchant service fees as management fees
The second change concerns cards. KRA says that under the Finance Act 2026, interchange fees and merchant service fees from card payment transactions are classified as management or professional fees for withholding tax purposes.
That classification brings these fees into the withholding tax rules for that category. How it works in practice, who withholds, at what rate and how the tax is accounted for when the fee is netted off a settlement, depends on the arrangement between the business, its acquirer and the card schemes. KRA's summary does not spell that out, so take it up with your acquiring bank and your tax adviser rather than guessing. The Finance Act 2026 for Kenyan businesses covers the Act's wider changes.
When the changes took effect
KRA says most Finance Act 2026 amendments take effect on 1 July 2026, with a new import documentation requirement from 1 September 2026 and new income tax return filing timelines from 1 January 2027.
Check KRA's summary page for the start date that applies to each of these two changes, and then look at your providers' fee invoices and statements from that date onward. A provider that has not yet changed its invoices is a question to raise, not a reason to assume nothing has changed.
Business Till charges as an example
Safaricom's Business Till page says the business owner is charged a maximum of 0.55%, and not more than KSh. 200 per transaction, on money collected on a Business Till, and that collections of KSh. 200 and below are free. It also says customers pay no charge to pay a Business Till, except at fuel stations.
That page was last updated on July 22, 2025, before the Finance Act 2026. Use it as a guide to how the charge is calculated, but confirm with Safaricom how VAT is now presented on Business Till charges, and check your M-PESA statements to see what is actually deducted. Business Till charges explains the charges in more depth.
Recording gateway fees against clearing accounts in Achekam
In Achekam, a verified gateway payment is recorded as a receipt against the invoice, debiting that gateway's clearing account and crediting trade receivables, and the invoice shows as paid or part-paid. The customer's payment reaches the books in full.
Fees come out at the next step. Payouts from each payment gateway, including M-Pesa, are recorded against that gateway's clearing account with their fees, by hand or from Paystack's and Flutterwave's own payout lists. The fee then sits in an expense account and the clearing account returns to what is still held by the provider.
Where a provider's fee now carries VAT, the payout alone does not tell the whole story. Keep the provider's tax invoice for its fees with the payout records, and agree with your accountant how the VAT element is recorded and, if it qualifies, claimed. The monthly routine for following M-Pesa money through to the bank is in reconciling M-Pesa takings.
Checking your providers' invoices
A short checklist for each provider, starting with the first month after the change:
- Obtain the provider's fee invoice or statement for the month, not just the settlement report.
- Check whether VAT is shown on the fees, and from which date.
- Check that the invoice is an electronic tax invoice showing your PIN, if you intend to claim the VAT.
- For card acquirers, ask how interchange and merchant service fees are described and whether withholding tax affects how they are settled.
- Record each payout against the right clearing account, with its fees.
- File the invoices where your VAT preparer can find them.
KRA's summary of the Finance Act 2026 sets out the changes to income tax, VAT, excise and tax procedures, with their effective dates and what taxpayers need to do.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
