In December 2025, Kenya’s highest court handed banks a win they had chased for over a decade. The Supreme Court ruled that the fees banks pay to Visa, Mastercard and each other to process card payments are not taxable as royalties or as management fees. The judgment wiped out withholding tax demands that had been hanging over the banking sector since 2011.
Five months later, the Finance Bill 2026 proposes to undo that ruling. Not by appealing it, but by changing the words in the law that the court relied on. If Parliament passes the Bill as drafted, the tax the Supreme Court struck down comes back, and it reaches further than card fees alone. The same clause pulls payment networks, switching systems, clearing and settlement platforms, and certain software payments into the tax net.
This is the most consequential tech-economy provision in the whole Bill, and it is the one fewest people are explaining clearly. So here is the plain version.
What the Supreme Court actually decided
The case is Barclays Bank of Kenya (now Absa Bank Kenya) v Commissioner for Domestic Taxes. It ran for fourteen years. The Kenya Revenue Authority had audited the bank back in 2011 and tried to tax two different things.
The first was the fees banks pay to international card networks like Visa and Mastercard for access to their systems. KRA called these “royalties.” The second was interchange fees, which are payments that move between banks when a card is used. KRA called these “management or professional fees.” Both labels matter, because both royalties and management fees attract withholding tax in Kenya. The royalty rate is 20% for non-residents and 5% for residents.
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On 5 December 2025, a bench led by Chief Justice Martha Koome rejected both labels. The court found that fees paid for access to a card network are ordinary operational business costs, not royalties. It found that interchange fees are cost-sharing arrangements between independent banks, not payment for any managerial or professional service. Crucially, the judges said a tax cannot be imposed on guesswork. Under Article 210 of the Constitution, a tax has to be grounded in clear statutory language, and KRA had not pointed to any.
That last point is the hinge. The court did not say these fees can never be taxed. It said the law as written did not tax them. That left Treasury an opening: change the law.
What the Bill changes
The Finance Bill 2026, published on 30 April 2026 and tabled in Parliament on 5 May, does exactly that, in two moves.
The first move rewrites the definition of “management or professional fee” in the Income Tax Act to expressly include “interchange fees and merchant service fees arising from transactions that use a card as a means of payment.” Merchant service fees are the charges a business pays its bank to accept card payments at a till or online. By naming these fees directly in the statute, the Bill removes the ambiguity the Supreme Court relied on, and brings them back within withholding tax.
The second move is bigger. The Bill replaces the definition of “royalty” entirely. The new version covers payments for “a proprietary digital platform, payment network, payment card scheme, payment processing system, switching system, clearing system or settlement system,” including access or usage rights through a card. The drafting is deliberately wide. It says the tax applies whether the payment is periodic or per-transaction, and whether it is called a service fee, transaction fee, network fee, assessment fee, processing fee “or similar charge.” In other words, renaming the fee will not help you escape it.
The royalty definition also reaches software, through a limb covering “the distribution of software where regular payments are made for the use of the software through the distributor.”
The law firm Cliffe Dekker Hofmeyr, in its detailed analysis of the Bill, put it directly: the expansion is “an attempt by the KRA to cure the statutory gap identified by the Supreme Court.” The court asked for clear language and Treasury is supplying it.
Why this is a legislative override, and why that matters
It is worth pausing on what is happening here, because it is unusual and it is the strongest angle in this story.
Courts and Parliament have different jobs. A court interprets the law as it is. Parliament writes the law as it wants it to be. When a court rules against the government, the government can appeal to a higher court, or it can change the law for the future. Treasury is choosing the second path. It is amending the underlying statute so that the same fees become taxable going forward.
This is the second time in this single Bill that Treasury has reversed a court. We already explained how the same Bill rewrites the law a High Court used to exempt M-Pesa and other payment providers from VAT, after Justice Rhoda Rutto ruled in the Pesapal case that their fees were tax-exempt financial services. So what is happening in Kenya now is this: a court reads the law in the taxpayer’s favour, Treasury changes the words the court read.
There is nothing unconstitutional about Parliament changing a law a court has interpreted. That is Parliament’s prerogative. The concern raised by tax advisers is narrower: a pattern of using legislation to reverse specific lost cases turns the Finance Bill into a tool for settling tax disputes after the fact, which makes the tax environment harder to predict for anyone planning long-term investment.
Who pays, and how the cost reaches you
The fees in question are paid by banks and fintechs, not by consumers directly. But withholding tax on those fees is a cost, and costs in payments tend to travel downhill.
When a bank pays withholding tax on the fees it sends to Visa or Mastercard, or on interchange it pays another bank, that tax becomes part of the cost of running its card business. Banks recover those costs the way they always have, through the merchant service fees they charge businesses to accept cards. Merchants, in turn, build card-acceptance costs into their prices. The accounting firm PwC warned that the proposals risk raising the cost of cashless transactions for both businesses and consumers.
The scale is not trivial. Card payments at point-of-sale terminals reached about KES 297 billion across 61.7 million transactions in 2025, according to Central Bank of Kenya data, and the number of POS machines grew to more than 54,000. Cards are a smaller channel than M-Pesa, but they are the formal, record-keeping layer of the economy, used in supermarkets, fuel stations, pharmacies and online. Adding a tax to the plumbing underneath every swipe touches all of it.
There is a structural irony here. Kenya has spent years pushing a cashless agenda, and the law firm Oraro & Company noted that taxing card fees “directly undermin[es] Kenya’s cashless economy agenda.” Making card acceptance more expensive nudges merchants back toward cash, which is the one payment method the government cannot easily see or tax.
The software question, where the scope is genuinely unclear
The royalty expansion is where the story gets murkiest, and honesty matters more than a clean headline.
Several outlets, including TechCabal, have reported that the new royalty definition could raise costs for Kenyan firms paying overseas vendors like Microsoft, Oracle and Amazon Web Services. That reading is plausible, because the definition is broad and cross-border payments to such providers would attract the 20% non-resident rate if they fall within it.
But the precise software limb in the Bill is narrower than “all cloud and SaaS bills.” It targets the distribution of software where regular payments are made for its use through a distributor. Whether a standard cloud subscription or an enterprise software licence falls inside that wording is exactly the kind of question that will be argued between KRA and taxpayers, and possibly back in court. The lesson of the Barclays case is that the wording decides everything. Until the final text is settled and tested, the safest statement is this: the door has been opened to taxing more cross-border software and infrastructure payments, but how wide it swings will depend on drafting that is still being finalised.
One more point on international alignment. Oraro flagged that the proposal sits awkwardly against the OECD Model Tax Convention, which generally limits “royalties” to payments for intellectual property rights, not operational access to a network. Uganda and Tanzania exclude these kinds of payments from royalties. If Kenya proceeds, it diverges from its East African neighbours, which can matter for cross-border businesses deciding where to base regional operations.
What to watch
The Bill has cleared public participation. The Departmental Committee on Finance and National Planning closed its window for memoranda on 25 May 2026, and parliamentary consideration follows. Most measures are set to take effect on 1 July 2026.
Three things will determine whether these provisions survive in their current form. First, whether the committee narrows the royalty definition during public participation, particularly the software limb, which is where the strongest objections are likely. Second, whether MPs amend the management-fee clause to soften the impact on card transactions. Third, whether the banking sector mounts a fresh legal challenge, this time arguing not about the old law but about a new one written specifically to reverse a binding Supreme Court judgment.
The plain takeaway is this. A court told banks they did not owe this tax. The Finance Bill is being used to change the answer. If it passes as drafted, the cost of card payments, payment-network access and possibly some cross-border software will go up, and those costs reach merchants and consumers in the end. Read the final committee report when it lands, because the exact wording of these two definitions will decide how much you end up paying at the till.
The Finance Bill 2026 is still before Parliament and may be amended before assent. This article explains the proposals as drafted and does not constitute tax or legal advice.
