Kenya is positioning itself to extract significantly more revenue from its digital economy by fundamentally redefining how software and payment infrastructures are taxed. Under the proposed Finance Bill 2026, the government aims to broaden the definition of “royalty” within the Income Tax Act, a move designed to pull major global technology players like Visa, Mastercard, and Microsoft deeper into the national tax net.
Expanding the Scope of Royalties
The core of this proposal lies in a sweeping expansion of what constitutes a royalty payment. Currently, the Income Tax Act limits royalties primarily to the use of copyrights, patents, trademarks, and certain scientific equipment. The new bill seeks to encompass the very architecture that facilitates digital commerce. Specifically, the definition would expand to include payments made for proprietary digital platforms, payment networks, card schemes, and various processing, switching, clearing, or settlement systems.
This shift isn’t limited to the infrastructure of money movement; it also targets software-related expenditures that have historically been treated differently. The proposed amendments seek to capture fees associated with software development, training, maintenance, and support services. By reclassifying these essential operational costs as royalties, the government gains a broader mechanism for withholding taxes and increases the compliance burden for Kenyan firms interacting with overseas vendors.
Implications for the Tech Ecosystem
The practical consequences of this shift will be felt most acutely by the financial and technology sectors. Banks that rely on Visa and Mastercard networks for card processing may face heightened tax scrutiny over settlement fees. Similarly, the enterprise landscape—comprising both large corporations and the nation’s growing startup ecosystem—stands to see increased costs. Companies heavily dependent on cloud infrastructure from providers like Amazon Web Services (AWS), Oracle, or Microsoft may face higher service prices if these tech giants decide to pass the new tax burden onto their customers.
This creates a delicate balancing act for Kenyan policymakers. While the government is aggressively pursuing revenue through taxes on virtual assets, online creators, and digital services, this latest move risks inflating the cost of doing business in one of Africa’s most vibrant tech hubs. There is a significant risk that increasing the cost of cross-border technical services could slow the momentum of the country’s innovation sector.
Legal Risks and Public Debate
Beyond domestic economic concerns, the proposal opens the door to international legal disputes. Multinational corporations may argue that many of these platform and processing fees do not qualify as royalties under existing double taxation agreements between Kenya and other nations. Such disputes could lead to protracted litigation and create an uncertain environment for foreign direct investment in the digital sector.
As parliament begins its phase of public participation, the government faces a mounting challenge: how to fund its fiscal requirements without dismantling the digital infrastructure that is driving the country’s economic transformation.