Kenyan High Court Rules in Favor of Pesapal in Landmark VAT Case
In a significant legal victory, the High Court of Kenya has ruled in favor of Pesapal, a licensed payment service provider (PSP), exempting the company from paying value-added tax (VAT). This decision overturns a previous tax demand of Sh76.8 million ($526,000) issued by the Kenya Revenue Authority (KRA).
The ruling, delivered by Justice Rhoda Rutto on September 2, 2025, clarifies that licensed digital payment providers, like Pesapal, offer financial services and should be exempt from VAT, regardless of their technological delivery method. This decision sets a precedent for how fintech services will be taxed in Kenya going forward.
This legal battle began over a year ago when Pesapal lost its initial case at the Tax Appeals Tribunal, which ruled in favor of KRA and ordered the company to pay taxes, penalties, and interest totaling over Sh233 million ($1.6 million). However, Justice Rutto’s recent ruling emphasized that the nature of the service provided, rather than the regulatory classification, determines VAT exemption.
As a licensed PSP under the National Payment System Act, Pesapal offers services such as payment processing, bill payments, and balance storage, which are deemed equivalent to those of traditional financial institutions. This exemption from VAT not only relieves Pesapal of a significant financial burden but also positions the company competitively in pricing, especially for services targeting underbanked populations.
The court’s decision is expected to benefit Kenya’s fintech industry by providing clarity on tax regulations. By aligning taxation with service function rather than delivery method, the ruling reduces regulatory obstacles for tech-enabled financial services and strengthens the position of fintechs advocating for tax parity with traditional institutions.
While KRA retains the right to appeal the decision, the High Court’s ruling marks a significant milestone in the taxation of fintech services in Kenya and sets a positive precedent for the industry’s future growth and development.
