Kenya’s Finance Bill 2026 seeks to tax Visa, Mastercard and bank card payment fees after a Supreme Court ruling limited KRA’s withholding tax powers.
Kenya’s Finance Bill 2026 is set to reshape the country’s digital payments taxation framework by closing a legal loophole exposed by a landmark Supreme Court ruling that limited the Kenya Revenue Authority’s (KRA) ability to impose withholding tax on card payment transactions.
The proposed amendments seek to expand the scope of taxable income within Kenya’s fast-growing digital payments ecosystem, particularly targeting interchange fees between banks and charges paid to global card networks such as Visa and Mastercard.
Finance Bill 2026 Seeks to Expand Tax Net on Digital Payments
The legislative changes come after the Supreme Court ruled in favour of banks in a long-running dispute with the KRA over the classification of card payment fees under the Income Tax Act.
At the centre of the dispute were interchange fees exchanged between issuing and acquiring banks, as well as payment network fees paid to international card schemes. The KRA argued these payments should attract withholding tax because they constituted either royalties or management and professional fees.
However, banks maintained that the charges were part of a multilateral payment infrastructure system and not payments for intellectual property rights or identifiable professional services.
Absa Bank Kenya Wins Landmark Tax Case Against KRA
The case originated from a tax audit involving transactions conducted between 2007 and 2011 involving Absa Bank Kenya, formerly known as Barclays Bank of Kenya.
Initially, the High Court quashed the KRA’s tax demand, but the Court of Appeal later reversed that decision and sided with the tax authority. The matter eventually reached the Supreme Court, which narrowed the interpretation of taxable payments and ruled in favour of the banks.
The Supreme Court held that payments made to global card networks did not qualify as royalties because they were not payments for the legal use of intellectual property. The court also ruled that interchange fees could not be classified as management or professional fees since they were structural settlement flows within the payment ecosystem rather than payments for specific services.
The judges emphasized that taxation must be clearly grounded in legislation and cannot be expanded through broad administrative interpretation where the law is ambiguous.
Finance Bill 2026 Redefines Taxable Card Payment Fees
In response to the ruling, the Finance Bill 2026 proposes sweeping amendments to Kenya’s tax laws by broadening the definitions of both “management or professional fees” and “royalty.”
Under the proposed changes:
Interchange fees and merchant service fees arising from card transactions would explicitly fall under taxable management or professional fees.
Payments for access to payment infrastructure systems — including card schemes, switching systems, clearing systems, and settlement platforms — would now qualify as royalties.
The revised rules would also cover recurring payments linked to proprietary digital platforms and software distribution arrangements, regardless of how such payments are described in contracts.
The amendments are designed to provide the KRA with explicit statutory authority to impose withholding tax on digital payment flows that were previously excluded under the Supreme Court interpretation.
Impact on Banks, Visa, Mastercard and Kenya’s Digital Economy
If passed, the Finance Bill 2026 will significantly affect banks, payment processors, fintech firms, and international card companies operating in Kenya’s digital payments sector.
For financial institutions, the proposed law could increase operational tax obligations across card payment systems. For the KRA, the changes would restore a key revenue stream that had been constrained by the Supreme Court ruling.
The move also reflects a broader global trend where tax authorities are revising legislation to keep pace with rapidly evolving digital payment infrastructure and cross-border financial systems.
As Kenya continues expanding its cashless economy, the Finance Bill 2026 signals a major shift in how digital financial transactions will be taxed moving forward.