As a CFO or Finance Director, you’ve likely seen the headlines and felt the quiet concern in your boardroom.

The Finance Bill 2026 has significantly expanded the definition of “royalty” under the Income Tax Act. What used to be treated as routine service or transaction fees for using global payment infrastructure is now officially classified as a royalty – triggering a 20% Withholding Tax on payments to non-residents.

This is not a minor technical adjustment. It directly impacts every corporate that accepts Visa, Mastercard, uses international payment gateways or relies on foreign switching and settlement systems.

What Has Changed?

The new definition now explicitly includes:

• Proprietary digital platforms
• Payment networks and card schemes
• Payment processing, switching, clearing and settlement systems
• Access, participation or usage rights – whether charged as transaction fees, network fees, merchant service fees or interchange fees

In practical terms: Every time your company pays a foreign payment provider, you may now need to withhold 20% and remit it to KRA.

The management fee definition was also broadened to capture interchange and merchant service fees – creating potential double exposure on the same transaction.

A Real Corporate Scenario

Picture this: Your procurement team just renewed the contract with your primary card acquirer. The monthly invoice shows KSh 18 million in combined network, interchange and processing fees. Under the new rules, you could be required to withhold and pay KSh 3.6 million (20%) to KRA every month.

That’s not pocket change – especially when margins are already under pressure from weak consumer demand and rising operational costs.

We’ve sat with several CFOs in the last two weeks who were caught off guard. One from a leading retail chain told me: “We budgeted for 2–3% payment costs. This change could push us close to 5%. We’ll either absorb it or pass it on – and neither option is attractive right now.”

Who Is Most Exposed?

• Large retailers and supermarkets with high card volumes
• Banks and fintech companies offering payment solutions
• Hospitality groups (hotels, restaurants, travel agencies)
• E-commerce and logistics platforms
• Any corporate making regular payments to Visa, Mastercard or foreign processors

Comparison: Before vs After Finance Bill 2026

Fee Type	Previous Treatment	New Treatment	Additional Cost Pressure
Payment Network Fees	Often treated as service fee	Royalty – 20% WHT	High
Interchange & Merchant Fees	Variable	Now caught under both royalty and management fee definitions	Very High (Double risk)
Switching & Settlement Fees	Lower withholding	Explicitly included as royalty	Significant

What Smart Corporate Finance Teams Should Do Immediately

1. Map Your Exposure Conduct a full review of all payment-related contracts and monthly invoices. Identify every payment going to non-resident providers.
2. Quantify the Impact Run scenarios: What will the additional 20% WHT mean for your monthly cash flow and profitability?
3. Engage Your Providers Early Open discussions with your acquirers and processors about possible restructuring or local alternatives.
4. Review Pricing and Margin Models Consider whether some of this cost needs to be passed on to customers through adjusted MDR (Merchant Discount Rates) or service fees.
5. Strengthen Governance Update your tax withholding procedures and ensure your finance and procurement teams are aligned.
6. Seek Specialist Advice Work with a tax advisor who understands both corporate structuring and international tax treaties. Some relief may be available through Double Tax Agreements.

The Bigger Corporate Picture

This move is part of Kenya’s broader strategy to assert taxing rights over the digital economy. While understandable from a revenue perspective, many corporate leaders feel the change is aggressive and poorly timed, especially as businesses are still navigating weak demand and tight liquidity.

The real test will be in implementation. If KRA applies this broadly without practical transition support, it could slow down digital payment adoption – something Kenya has proudly championed in recent years.

Final Thoughts

The expanded royalty definition in the Finance Bill 2026 is a significant shift that will increase costs for any corporate relying on international payment infrastructure. Forward-thinking finance teams are already modelling the impact and exploring mitigation strategies rather than waiting for the final law to take effect.

At Seal Associates, we are currently supporting several corporates in reviewing their payment ecosystems, quantifying exposure and developing practical compliance and cost-management plans. Our experience shows that early action can reduce the financial impact substantially.

If your organisation uses international card networks or payment platforms, we strongly recommend a quick review.

The numbers can add up faster than most finance teams initially expect.

Prepared by Seal Associates Corporate Tax Advisory Team