Experts: Finance Bill proposal on nascent sectors hurts growth

National Treasury CS, John Mbadi, during a media engagement on the 2026 finance bill. [Benard Orwongo, Standard]

Some of the proposals in the Finance Bill 2026 have been criticised for not mirroring the current economic situation, which is largely informal, hence targeting sections of the economy, such as digital payments, that are still in the infancy stage.

Experts yesterday poked holes in some of the proposals, saying the proposed taxes are being levied on nascent sectors, which will likely impede growth.

One such proposal is the proposal on income tax, which the Finance Bill 2026 proposes to expand the definition of management fee to include merchant service fees arising from transactions that use cards as a means of payment. There is also the plan to impose a value-added tax on payment service providers.

This proposal has been defended by the National Treasury Cabinet Secretary John Mbadi as the government’s strategy to expand the tax base, dismissing claims that its passing would increase the cost of digital payments.

At a discussion organised by KCA University in Nairobi, which attracted finance and economy experts, it was argued that some of the tax proposals, as foreshadowing as they may be, could hinder the growth of businesses in those areas.

Dr Patrick Muinde, an economist and public finance expert, said the Finance Bill 2026 has fallen short of mirroring the kind of economy Kenya leads.

“We are speaking about the digital economy, and the question is, do you tax the economy before it grows, or do you grow it, then tax?” he posed.

He said data already speaks of Kenya being a largely informal market, represented by 3.3 million formal workers and 18.1 million informal workers. He said the Bill should house proposals that help to transform the informal sections of the economy into formal ones.

“The data tells us we are dealing with a very informal economic ecosystem. So, are they helping us to move from informal to formal?” he quizzed.

Nairobi International Financial Centre Chief Executive Daniel Mainda, who was the chief guest, said that the fact that the Finance Bill 2026 has touched on digital payment systems, virtual assets, and platform services speaks to the direction the country’s economy is taking.

“Kenya is trying to move from an informal economy potential to an economy of organised scale,” he said.

He said governments globally are trying to understand how to tax and regulate the digital economy fairly without slowing innovation. “This is part of what we are beginning to see in this Finance Bill,” he said.

National Treasury Cabinet Secretary John Mbadi was recently forced to explain why the government opted to introduce a withholding tax on card transactions such as Visa cards.

He said interchange fees and fees paid by banks to card companies are not considered management, professional or royalties under the current law. 

He based this on a recent court ruling that said these payments do not attract withholding tax, which created a gap in how this income can be taxed.

“To address this gap, the Finance Bill has defined management, professional and royalty fees to include these fees. This, therefore, provides clarity following judicial interpretation as well as enhances revenue collection through expansion of the tax base,” said the CS.

The discussions, said KCA University Vice Chancellor Prof Isaiah Wakindiki, are part of the institution’s plan to bridge the gap between academia and industry.

“KCA University remains committed to creating platforms that connect academia, policy and industry while equipping students with practical perspectives on national development and fiscal governance,” he said.