Professional bodies oppose controversial tax proposals

Finance and National Planning Committee Chairperson Molo MP Kimani Kuria during public participation on the Finance Bill, 2026 in Nairobi on May 22,2026. [Elvis Ogina, Standard

Professional bodies are now calling for an overhaul of the controversial clauses in the Finance Bill 2026, which they argue will further burden Kenyans financially.

The Institute of Certified Public Accountants of Kenya (ICPAK) and the Kenya Bankers Association (KBA) want proposals such as taxing money transfers through platforms such as M-Pesa and PayPal, and the introduction of a withholding tax on bank card transactions, such as VISA cards, to be removed from the bill.

Appearing before the National Assembly’s Finance and Planning Committee for the public Finance Bill participation exercise on Thursday, the bodies also called for a five per cent reduction in Pay As You Earn (PAYE) across all bands, arguing that the move would help generate Sh210 billion annually and create an additional 3,600 jobs.

They also proposed reducing the Value Added Tax (VAT) from 16 per cent to 15 per cent in the first year and then gradually to 14 per cent.

This, they said, would not only cushion ordinary citizens against the tax burden but also align the VAT Act with the government’s policy objectives under the Medium-Term Revenue Strategy (MTRS).

The Finance Bill, as currently drafted, proposes to tax digital payment services, including money transfers; payment processing; settlement; merchant acquiring; and gateway or aggregation services, supplied over a software or platform for a fee or commission by a Payment Service Provider (PSP).

KBA Chief Executive Raymond Molenje, however, opposed the proposal and called for its deletion.

“Financial services are not subject to VAT because they are fundamentally intermediation services that facilitate the efficient flow of capital. VAT on these services undermines the core principle of VAT as a tax on final consumption,” said Molenje.

And in its submissions, ICPAK argued that the proposal to include VAT on digital payments would increase the cost of financial services, particularly those related to payments or transfers, and worsen the country’s position as a financial hub within the region.

“If you look at what M-Pesa has done in this country, it would really be sad to impose a value-added tax on M-Pesa. Imposing a tax on Kenyans using the platform will see the population revert to the use of cash, and that will negatively impact revenue collection,” read the submissions in part.

The lobbies also opposed a proposal to introduce an excise duty on telephones, payable by the user at the point of device activation, noting that this may create significant uncertainty regarding reconciliation processes, reporting obligations, downstream data verification and the treatment of non-standard device events across the supply chain.

“The proposed activation-based framework introduces a materially different excise administration and compliance model requiring operational coordination across telecom operators, importers, manufacturers, distributors and device financing platforms,” said ICPAK.

On the proposal to introduce a withholding tax on card transactions, as contained in the bill, the two bodies called for its deletion on the basis that it would be impractical to implement, given the multi-party nature of Merchant Discount Rate (MDR) flows and the challenges of identifying a single payer and a tax point.

They further argued that if the Finance Bill were implemented as is, it would reverse the settled judicial decision rendered by the Supreme Court in the ABSA Bank case on December 5, 2025, create uncertainty, increase the cost of digital payments, and risk double taxation.

“The proposed amendment (in the Finance Bill) 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. The matter was admitted to the Supreme Court as a matter of public interest after protracted legal arguments,” observed KBA CEO Molenje.

“The imposition of withholding tax on card-related transactions will increase the cost of electronic payment systems. This outcome appears inconsistent with broader government objectives of promoting cashless transactions and expanding digital financing infrastructure,” added ICPAK.

Both bodies also concurred that a five per cent reduction across all bands would cushion employees against further financial strain, given that Kenyans are already burdened by multiple higher deductions, such as the National Social Security Fund (NSSF), the affordable housing levy and the Social Health Insurance Fund (SHIF).

They subsequently proposed increasing the lowest tax band to Sh30,000 from the current Sh24,000 to ensure that higher PAYE rates apply to higher-income earners.

“A more progressive tax rate would help increase disposable income among individuals, which would in turn enhance their purchasing power, savings and investment capacity; and consequently, spur economic growth,” the ICPAK submissions further read.

Committee Chairperson Kimani Kuria, however, pointed out that their proposal to review the tax bands had been shot down by the National Treasury, as it would lead to a Sh35 billion dip in revenue, but urged the parties to come up with a solution for how the revenue would be recovered.

In response, CEO Molenje explained that a five per cent reduction across all tax bands would free up disposable income and release Sh28.1 billion into the economy annually.

At the same time, Chairperson Kuria criticised the National Treasury for resubmitting some of the controversial proposals that had been rejected by the House team in previous Finance Bills. He further clarified that, contrary to online claims, there was no provision in the Finance Bill to introduce a Mitumba goods tax.