For years, Kenya's digital economy existed in a tax grey zone. Crypto traders made gains that never appeared on tax returns. Card networks collected billions in processing fees without withholding tax. Fintech payment processors operated under a broad financial services VAT exemption even when they were clearly running software platforms, not banks.
The Finance Bill 2026 closes all three of those gaps at once.
This post explains every digital money change in the bill — what it means for your crypto holdings, what it means if you run a business that accepts card payments, and what it means for the broader fintech and digital payments ecosystem.
1. Crypto finally has a legal identity in Kenya
What changed: The Finance Bill 2026 formally inserts the definitions of "virtual asset" and "virtual asset service provider" into the Tax Procedures Act — Kenya's primary tax compliance law.
Both terms take their meaning from the Virtual Asset Service Providers Act, 2025, which was passed earlier this year as Kenya's foundational crypto regulation law.
What does "virtual asset" mean? Under the VASPA 2025, a virtual asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. Bitcoin, Ethereum, and most cryptocurrencies qualify. It does not include digital representations of fiat currencies (like M-Pesa balances or bank deposits).
What was the rule before? Until the VASPA 2025 and now this Finance Bill, crypto existed as an unregulated asset class in Kenya. KRA had published guidance suggesting crypto gains were taxable, but there was no statutory framework. The Finance Bill 2026 changes that — virtual assets are now formally part of the tax compliance infrastructure.
What does this mean for you if you hold crypto? It means the legal framework for taxing your crypto activity is now in place. The obligation to declare crypto gains as income is not new — but the mechanisms to enforce that obligation are becoming real.
2. Crypto exchanges must hand KRA your data every year
What changed: The Finance Bill 2026 inserts a brand new Section 6C into the Tax Procedures Act. Under this section, every virtual asset service provider operating in Kenya — meaning every crypto exchange or trading platform — is legally required to file an annual information return with the Commissioner of Domestic Taxes.
This return must cover every user they maintain a relationship with who is identified as a "reportable user" or has a "controlling person that is a reportable person."
Who triggers the reporting obligation? A VASP must file if it:
- Facilitates exchange transactions on behalf of customers
- Makes a trading platform available to customers
- Acts as a counterparty to crypto trades
- Acts as an intermediary in exchange transactions
In plain terms: if you use any licensed crypto exchange in Kenya — or any foreign exchange that has Kenyan users and is subject to Kenyan law — that exchange must now report your account and transaction data to KRA.
What are the penalties for non-compliance?
The bill sets out serious consequences for VASPs that fail to comply:
- Filing a false statement in the information return: a fine of Ksh 100,000 per false statement, or imprisonment of up to three years, or both
- Omitting information that should have been included: Ksh 100,000 per omission
- Failing to file at all: Ksh 1,000,000 per failure
These penalties fall on the exchange, not the user — but the data that exchange reports flows directly to KRA and can be used to audit your tax position.
3. Kenya will share your crypto data internationally
What changed: A new Section 6D gives Kenya the ability to enter into agreements with other countries for the automatic exchange of information on virtual asset transactions. Under such agreements, Kenya can both send and receive data about crypto users.
What this means practically: If you are a Kenyan resident who uses an international crypto exchange — say, a platform based in the EU, UK, or US — and Kenya signs a data exchange agreement with that jurisdiction, that foreign exchange's data about your account can flow to KRA. You cannot avoid this by choosing a foreign platform.
This aligns Kenya with the OECD's Crypto-Asset Reporting Framework (CARF), which is the global standard for automatic crypto tax reporting. Several countries have already signed up. Kenya joining this framework through bilateral agreements puts Kenyan crypto holders on the same footing as those in the most regulated crypto jurisdictions in the world.
What should crypto holders do right now? If you have made gains from crypto trading and have not declared them, this is a serious signal to get your tax affairs in order before July 2026. The data trail is being built. The question is no longer if KRA will know — it is when.
4. Digital platforms and payment networks: now subject to withholding tax as "royalties"
What changed: The Finance Bill 2026 completely rewrites the definition of "royalty" in the Income Tax Act. The old definition covered the usual intellectual property — patents, trademarks, software licences. The new definition adds a significant new category:
A royalty now includes payments for the use of, or right to use, a proprietary digital platform, payment network, payment-card scheme, payment processing system, switching system, clearing system, or settlement system — including access, participation, or usage rights through a card.
This covers fees described as service fees, transaction fees, network fees, assessment fees, processing fees, or any similar charge — whether periodic or transaction-based.
What does this mean in practice? When a Kenyan bank or business pays fees to Visa, Mastercard, or any other international payment network for access to their card scheme or payment rails, those fees are now legally classified as royalties. Royalties paid to non-residents are subject to withholding tax at 20% under Kenya's Income Tax Act.
This is a significant expansion with real cost implications for any Kenyan financial institution or business that relies on international payment networks. Those costs are likely to be passed on, at least in part, to businesses and eventually consumers.
5. Your business's card processing fees now attract withholding tax
What changed: The Finance Bill 2026 also amends the definition of "management or professional fee" in the Income Tax Act to now include interchange fees and merchant service fees arising from transactions that use a card as a means of payment.
What are interchange fees and merchant service fees? Every time a customer pays you by card, your bank or payment processor deducts a percentage of the transaction. This fee has two components: the interchange fee (which goes to the card-issuing bank) and the merchant service fee (which goes to your payment processor or acquirer). Together these typically range from 1.5% to 3.5% of each transaction.
What was the rule before? These fees were treated as a cost of doing business — deductible but not subject to withholding tax. The distinction between a "professional fee" and a "payment processing fee" was a recognised gap in the law.
What changes now: By including these fees in the management/professional fee definition, they become subject to withholding tax at 5% (for resident payment processors) or higher rates for non-residents. The obligation to withhold and remit sits with the merchant — meaning you, the business owner paying the fee.
Who is most affected? Medium and large businesses processing significant card volumes: supermarkets, petrol stations, hotels, restaurants, e-commerce platforms. If your annual card transaction fees run into millions of shillings, the withholding obligation is material.
If you run a small business with low card volumes, the administrative burden may outweigh the amounts involved — but the obligation technically applies regardless of size. Talk to your accountant about how this applies to your specific situation.
See Part 2: Income Tax — What Changes in Your Pay and Pocket for more on withholding tax changes in the 2026 bill.
6. Payment processors lose their VAT exemption
What changed: The Finance Bill 2026 updates the VAT Act's definition of "dealing with money" — which determines what counts as an exempt financial service. The new definition explicitly excludes the following from the financial services VAT exemption:
- Money transfers
- Payment processing
- Settlement
- Merchant acquiring
- Gateway services
- Aggregation services
...when these are supplied over a software or platform for a fee or commission by a payment service provider.
What was the rule before? Under the broad VAT exemption for financial services, many fintech payment processors argued their services were exempt from VAT because they were facilitating money transfers. The 2026 bill ends that argument.
What does this mean? Payment processors — including local fintechs and digital payment platforms — that charge fees for payment processing, gateway services, and merchant acquiring can no longer claim the financial services VAT exemption on those fees. Their services become taxable at the standard 16% VAT rate.
For businesses using these platforms, this means the fees you pay for digital payment processing may go up by 16% — unless the processors absorb the cost, which is unlikely given their thin margins.
This affects: Online businesses using local payment gateways, merchants using third-party payment aggregators, and any business that routes card or mobile money transactions through a technology platform rather than a traditional bank.
7. A new anti-avoidance weapon for KRA
What changed: The Finance Bill 2026 inserts a new Section 18A into the Tax Procedures Act. This is a general anti-avoidance provision — it allows KRA to disregard any scheme or arrangement whose main purpose was to obtain a tax benefit, and to assess tax as if that scheme had never existed.
What triggers it? Three conditions must all be true:
- A person entered into or carried out a tax avoidance scheme
- They obtained a tax benefit from it
- Obtaining that benefit was the sole or dominant purpose of the scheme
What information can KRA use? The section gives KRA a wide evidence base — income tax returns, withholding tax accounts, information submitted through the electronic tax system, inspection records, audit records, and data management systems.
The time limit: KRA has five years from the end of the relevant tax period to make a determination under this section.
Who should pay attention? Businesses that use complex ownership structures or arrangements primarily to minimise tax — particularly in the digital economy where cross-border structuring is common. Section 18A gives KRA a clear statutory tool to challenge those arrangements, with a five-year lookback window.
Quick summary: the digital economy changes at a glance
|
Change |
Who is affected |
Effective date |
|
Crypto exchanges must report users to KRA |
All crypto traders on licensed platforms |
1 July 2026 |
|
Kenya can share crypto data internationally |
Kenyans using foreign exchanges |
1 July 2026 |
|
Digital platforms and payment networks defined as royalties |
Banks, large businesses paying network fees |
1 July 2026 |
|
Card interchange and merchant fees → withholding tax |
All businesses accepting card payments |
1 July 2026 |
|
Payment processors lose VAT exemption |
Businesses using digital payment platforms |
1 July 2026 |
|
Anti-avoidance provision (Section 18A) |
Tax structuring arrangements |
1 July 2026 |
What should you do before 1st July 2026?
If you hold or trade crypto: Compile a record of your transactions — every purchase, sale, swap, and conversion going back as far as you can. Calculate your gains and losses. If you have undeclared crypto income, consider voluntary disclosure before the reporting machinery is fully operational. KRA's voluntary disclosure programme typically results in reduced penalties.
If you run a business that accepts card payments: Speak to your accountant or tax adviser about the new withholding obligation on interchange and merchant service fees. You will need to understand how this applies to your payment processor agreements and whether you need to adjust your compliance processes.
If you use digital payment platforms: Budget for a possible 16% increase in payment processing fees from July, depending on how your platform prices its services post-exemption removal.
If you are a fintech or payment company: The loss of the financial services VAT exemption on processing fees is a material change to your cost structure. Pricing reviews and client communications should be underway before July.
Continue reading the Finance Bill 2026 series:
- Part 1: The Big Picture - What Is the Finance Bill 2026?
- Part 2: Income Tax - What Changes in Your Pay and Pocket
- Part 3: What's Getting Cheaper - VAT and Import Fee Changes
- Part 5: Sin Taxes - Alcohol, Tobacco, and Excise Changes
- Part 6: Foreigners and Diaspora - The New Rental Tax
- Part 7: Filing and Compliance - New KRA Deadlines
