Kenya Bankers Association (KBA) has cautioned against new tax measures proposed in the Finance Bill 2026, warning that levies on card transactions and digital payment services could sharply raise the cost of financial services and drive more Kenyans away from formal cashless systems.
Appearing before the National Assembly Departmental Committee on Finance and National Planning, KBA Chief Executive Officer Raimond Molenje opposed the introduction of withholding tax on card transaction fees, including interchange and merchant charges paid to payment networks such as VISA.
Molenje argued that the proposal contradicts a December 2025 Supreme Court ruling in an ABSA Bank case, which established that such charges are operational service fees rather than royalties. Molenje told MPs that reversing the ruling through legislation would undermine legal certainty, create regulatory confusion, and increase compliance costs for merchants and financial service providers.
“Members, we propose the deletion of the proposed amendment. This move seeks to overturn the Supreme Court’s decision, raising concerns that such legislative reversals undermine legal certainty, predictability, and confidence in the rule of law,” he said.
The bankers also raised alarm over a proposed 16 per cent VAT on digital payment processing and money transfers, warning that the combined tax burden could push the effective cost of digital transactions from about 15 per cent to as high as 58.4 per cent. They argued that treating payment services as final consumption contradicts VAT principles and risks stifling innovation in Kenya’s fast‑growing fintech sector.
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KBA noted that digital payments play a critical role in improving transaction traceability, expanding financial inclusion, and strengthening tax compliance by bringing more economic activity into the formal sector. The Association warned that the measures would increase compliance costs and disrupt the operations of mobile money, card payments, and online merchant platforms that underpin Kenya’s cashless economy.
In addition, KBA opposed a clause granting the Kenya Revenue Authority Commissioner powers to deem at least 60 per cent of undistributed corporate income as dividends for taxation.
The Association said the measure could weaken banks’ capital buffers, reduce lending capacity, and limit economic resilience, since retained earnings are used to support growth and absorb shocks.
By Masaki Enock
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