Kenya's banking and business sectors have pushed back against Treasury proposals to apply value-added tax to fees charged by mobile money providers, warning the measure could reverse years of progress in drawing economic activity into formal, traceable financial systems.
The Finance Bill 2026 proposes extending 16% VAT to transaction fees levied by payment service providers including M-Pesa and Airtel Money. Treasury says this move is intended to broaden revenue collection as digital payments account for a growing share of commercial activity across the economy.
But industry groups appearing before the National Assembly Finance Committee on Tuesday say the policy would achieve the opposite effect.
Kenya Bankers Association chief executive Raimond Molenje, speaking at public hearings convened by the Kenya Private Sector Alliance (KEPSA), warned that taxing digital payment platforms risks pushing consumers toward what he described as ‘mattress banking’ and informal cash trade. "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," he said.
The stakes are significant. According to the Kenya National Bureau of Statistics, person-to-person mobile money transfers reached $67.1 billion (KSh 8.66 trillion) in 2025. Consumers rely on digital transfers daily for transport fares, supplier payments, salaries and retail transactions, giving authorities far greater visibility into commercial flows which previously moved largely through untraceable cash networks.
Industry groups also warned that the proposed VAT would layer costs across the transaction chain, particularly under proposals affecting merchant payment systems, where the combined tax burden on some digital transaction charges could rise sharply.
That pressure arrives as mobile money pricing is already a competitive flashpoint. Safaricom's M-Pesa dominates the market, but rivals including Airtel Money have been competing aggressively on lower fees as consumers grow more cost-sensitive. Analysts say additional levies could slow digital financial services adoption most severely among low-income households and small businesses that conduct frequent, low-value transactions.
Dr. Jas Bedi, chair, KEPSA, said excessive taxation on digital payments risks reversing financial inclusion gains and pushing businesses back into informal cash systems. KEPSA also noted that formal employment accounts for just 16.2% of total jobs in Kenya, with the informal sector supporting more than 18 million workers, making policymakers heavily dependent on digital channels that keep businesses and consumers within traceable financial systems.
The proposals have exposed competing priorities within government. While Treasury is seeking revenue to support fiscal consolidation, the Central Bank of Kenya has, in recent years, backed efforts to lower digital transaction costs in order to deepen financial inclusion and reduce cash dependence.
Treasury has clarified that the Bill does not grant the Kenya Revenue Authority access to personal mobile money transaction records, following public concern over digital privacy.
Parliament's Finance Committee is continuing to collect industry submissions before debate on the legislation proceeds later in the year.
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