Kenya's plan to put 16% VAT on M-Pesa is a tax on the people who can least afford it

The Finance Bill 2026 would add 16% VAT to the fees charged for moving money on M-Pesa, Airtel Money and every other payment platform. The government calls it closing a loophole. For the Kenyans who run their entire lives through their phones, it makes paying rent, fare and school fees more expensive every single time. And it would be the fourth time in three years that the cost of using mobile money in Kenya has gone up.

For almost twenty years, Kenya has had something most countries only talk about: a payment system that works for everyone, not just the banked. M-Pesa turned a basic phone into a bank account for the millions of Kenyans the formal banks never wanted. Now the Treasury wants to tax it. The Finance Bill 2026, currently before Parliament, removes the VAT exemption on payment, transfer and settlement services and applies the standard 16% rate from 1 July. To be precise about what is taxed: the VAT lands on the fees and commissions the platforms charge, not on the principal a customer sends. But those fees are exactly what a Kenyan pays to move a shilling, so a tax on the fee is a tax on the act of paying. The state expects the wider Bill to raise an extra 120 billion Kenyan shillings, and a meaningful share of that will be collected from the smallest transactions in the country.

Consider Mary, a vegetable seller in Nairobi's Gikomba market. She pays her suppliers on M-Pesa, receives payment from customers on M-Pesa, sends her mother's upkeep on M-Pesa and pays her child's school fees the same way. Mary is not a tax loophole. She is the entire point of mobile money. Under the new rule, every one of those transfers carries an extra 16% VAT on the fee the platform charges, stacked on top of that fee and the excise duty she already pays. On a small transfer where the fee is KSh 20, the VAT adds another KSh 3.20. That looks tiny on a Treasury spreadsheet. Repeated many times a day, every day, by someone living on thin margins, it becomes a real and unavoidable cost for the person who can least absorb it.

A pattern, not a one-off

The new VAT is not a single decision. It is the fourth increase in the cost of using mobile money in Kenya since 2023. In January 2023, the Central Bank of Kenya reinstated bank-to-mobile money transfer charges that had been waived during the pandemic. In July 2023, the Finance Act raised the excise duty on mobile money transfer fees from 12% to 15%. In 2024, that same excise was raised again, from 15% to 20%, where it sits today. Now the Treasury wants to lay 16% VAT on top of all of that. The fee a Kenyan pays to send money on M-Pesa in 2026 is not the fee a Kenyan paid in 2022. It has been quietly climbing for years, one Finance Bill at a time, and the people on the wrong end of the curve are the same people every time. They are the ones who have no other way to pay.

Who actually pays this tax

The government frames the VAT extension as fairness, a way to make digital finance carry its weight. Strip away the language and look at who holds the bill. A wealthier Kenyan usually has alternatives: a bank account, payment cards, employer-linked services. The boda boda rider, the mama mboga and the domestic worker sending money home to Kisumu live transaction by transaction on their phones, with far fewer untaxed options. Mobile money is used across every income group, but the people who depend on it most for daily survival are the ones a percentage increase in fees hits hardest. Taxing the rails of mobile money is one of the most regressive moves a government can make, because it falls heaviest on the citizens with the least room to pay. This is not closing a loophole. It is taxing financial inclusion itself.

"This is not closing a loophole. It is taxing financial inclusion itself."

Uganda already ran this experiment

Kenya does not need to guess what happens next. It can look across the border. In July 2018, Uganda introduced a 1% tax on the value of all mobile money transactions. The result was immediate and measurable: the value of mobile money transactions fell by close to a quarter within a single month. Ugandans did not become richer or poorer overnight. They simply went back to cash, because cash had suddenly become cheaper than their phones. The backlash was so severe that the government was forced to retreat, cutting the rate and limiting it to withdrawals. Uganda spent political capital and lost ground on financial inclusion, all to chase revenue that partly evaporated the moment people changed their behaviour.

Kenya built the very system Uganda was trying to copy. It would be a strange achievement to dismantle that advantage from the inside. Push the cost of using mobile money high enough and people use it less. The revenue projection effectively treats Kenyans as if they will keep transacting as before once the new tax lands on every fee. They will not. They will withdraw less, send less and keep more cash at home, which is worse for personal safety, worse for the tax base and worse for the formal economy the Treasury says it wants to grow.

The committee still has time to fix this

The Finance Bill 2026 is not law yet. Parliament's Departmental Committee on Finance and National Planning has been gathering public views, and the Bill returns to the House for consideration when it resumes. That is the window, and it is closing fast. The committee should strike the VAT extension on payment, transfer and settlement services from the Bill before it advances any further.

Kenyans are not asking for a favour. They are asking their government to stop returning to the same well. Every year since 2023, a Kenyan has been told that this small new charge on M-Pesa, this slightly higher excise, this newly reinstated bank fee, this one extra VAT line, is reasonable. Stacked together they are not. The country that gave the world a model for mobile money should not become the country that proves how quickly a series of small tax increases can break it. The committee should listen to the consumer on the other end of every transaction, and leave M-Pesa alone.