Your Kenyan customers pay you through credit cards and MPesa. Now, Kenya’s National Treasury has officially closed the statutory loopholes that previously shielded card networks and processing fees from paying a local withholding tax. 

The Finance Act 2026 was officially signed into law on June 26, 2026, with most provisions taking effect on July 1, 2026. While the loud public and industry pushback successfully killed the highly controversial proposals for a 16% VAT on mobile money service providers (like M-Pesa) and the 25% phone excise duty, the sweeping changes to card payments crossed the finish line intact.

If you sell digital products, subscriptions, or services in Kenya, the final Act brings immediate compliance and pricing shifts to your radar. Here is what survived the bill, who it hits, and what you need to do about it.

Table of content

• What made it into the final Kenya Finance Act 2026

• Why does this Act matter to global merchants?

• What should you do now?

• How Startbutton Africa helps you navigate the new tax laws

What made it into the final Kenya Finance Act 2026

Instead of targeting consumers' mobile wallets through VAT, the final Act goes after the backend of card transactions by broadening the scope of Income Tax definitions. Two major changes now target payment processing:

1. Interchange and Merchant Fees are now "Professional Fees": 

The Act explicitly expands the definition of "management or professional fees" to include interchange fees and merchant service fees arising from card-based transactions. This moves these transaction fees squarely into the withholding tax (WHT) net, taxed at 20% for non-residents and 5% for residents.

2. Card Network Charges are now "Royalties": 

Any fees paid for the use of or access to proprietary digital payment card networks or platforms (such as service, network, or processing fees) are now legally classified as royalties. If these fees are remitted to a non-resident platform, they trigger a heavy 20% withholding tax.

These amendments are the government's direct statutory countermove to recent Supreme Court rulings (like the Absa/Barclays case), in which the Kenya Revenue Authority (KRA) lost its bid to levy withholding tax on card interchange fees under the old definitions. That loop is now legally closed.

Why does this Act matter to global merchants?

You might look at "withholding tax on card networks and processors" and think this is only a problem for Visa, Mastercard, or local acquiring banks. It isn't. In cross-border B2B payments, taxes rarely stay with the infrastructure. For an international business selling into Kenya, this usually plays out across three critical points:

1. Gross-up clauses are introduced: Most international payment gateways and platforms protect their margins by including "gross-up" clauses in their contracts. When a PSP’s costs go up 20% due to a withholding tax levy, three things typically happen in this order: the PSP passes the cost into its transaction fees, merchants absorb the higher fees or reprice, and customers feel it at checkout.

2. Remittance headaches for your finance team: Card payments are natively processed and settled on a net basis (fees are deducted automatically before the payout hits your bank account). Someone in the chain has to calculate it, deduct it and remit a 20% or 5% withholding tax to the KRA across high transaction volumes. If you’re selling directly into Kenya, that someone is you.

3. Your conversion rate is at risk: Kenyan consumers are extremely price-sensitive to transaction costs. When mobile money fees rose in past tax cycles, usage patterns shifted within weeks. If completing a payment gets more expensive, some customers simply won’t complete it.

What should you do now?

The era of speculation is over; the Act is active law. To avoid compliance friction or sudden margin erosion, here’s what you should do:

1. Audit your payment infrastructure: Review your merchant contracts for Kenya. Identify exactly which entities handle your card processing and check for gross-up tax provisions.

2. Model the fee adjustment: Calculate your current acceptance cost for Kenyan card transactions. Factor in a worst-case 20% tax overlay on the processor's service/interchange fee layer to determine if your product pricing needs to be adjusted.

3. Shift to localized tax management: Ensure your accounting workflows are configured to track, separate, and remit withholding tax on card fees if you act as your own Merchant of Record (MoR) in East Africa.

| Read also: How to register a business in Kenya — and why using an MoR might be a smarter first move

How Startbutton Africa helps you navigate the new tax laws

This specific regulatory shift demonstrates the advantage of using a Merchant of Record model perfectly. With one, reconfiguring your payment networks to comply with new tax codes becomes someone else's engineering project.

When Startbutton acts as the legal merchant of record for your transactions in Kenya, the handling of the newly expanded withholding obligations, the management of card network royalty fees, and the direct remittance to the KRA happen entirely on our side.

Your customer-facing checkout does not change. Your finance team does not need to build a bespoke tax workflow to satisfy the KRA's updated definitions, nor do you have to worry about net-settlement compliance audits. You view the regulatory adjustments as a clean-line item in your reporting dashboard rather than a quarter’s worth of compliance work.

Kenya's digital commerce landscape will continue to evolve its tax frameworks. The real question is whether every change has to be your problem.

Startbutton is a leading Merchant of Record for African markets. Join over 200 global businesses using Startbutton to power their expansion. Get started here.