On Wednesday, the Senior Economic Advisor to the President Moses Kuria, announced that the government will soon define all electronic payment methods as virtual electronic tax registers (ETRs). In some quarters, Kuria’s comments at the Kenya Revenue Authority (KRA) summit, were interpreted as only payment services offered by M-Pesa will be affected. Last night he doubled down to state that all payment service providers (PSP) will be affected by the new policy that comes into effect on Christmas day.
Kuria wrote, “My attention has been drawn to media reports that my comments on Virtual ETRs at the KRA Summit yesterday were directed at MPESA only. This is erroneous as I meant all Payment Service Providers including Telcos and Banks. It’s an industry issue.”
The government’s directive has however, raised debate especially in regards to implementation. For instance, a lot of fundraising, donations and tithe are channeled via the digital payment platforms.
Part of funds consider charitable, as per the Income Tax act, are funds raised for relief of the poverty, the relief of distress of the public, the advancement of religion or the advancement of education. Organizations channeling these kinds of funds qualify for tax exemption in Kenya.
READ: Mobile Money: Kenyan Regulations and Fees Cause Decline in Transaction Values
In most instances, these funds are raised by individuals not registered organizations. M-Pesa for example, has a Short-Term PayBill option that enables individuals to raise funds for diverse needs, such as medical bills, funerals, weddings, education, and humanitarian causes. How the government will approach this remains a grey area.
Types of Payment Service Providers (PSP) in Kenya
The Fintech sector has grown greatly in Kenya leading to emergence of many PSPS. The PSP license is provided by the Central Bank of Kenya (CBK) and is defined by the services a company intends to offer. Service providers like Data Integrated Ltd, Pesapal, Africa’s Talking, Jenga, Sapama Cash, and Jambo Pay are some PSP examples. Today the country has over 35 licensed PSPs.
- Electronic Retail Transfer License: This license authorizes you to process retail payments. It enables companies to execute payment instructions between payer and payee accounts, with a transfer limit of up to 250,000 Kenyan shillings for certain providers. Airtel Money is an example of an electronic retail transfer product.
- Payment System License: This license permits you to own, manage, and control the infrastructure for payment services. It is the highest-level license, enabling you to both facilitate transfers and own the payment system. Pesalink is a prominent example of a payment system operator, facilitating transfers between banks and other networks.
- Payment Institution License (e-Money): This license grants you the authority to issue electronic money, which is stored digitally and backed by fiat currency. “e-money” is electronic monetary value that is accepted as payment. Kenya Airports Parking Services (KAPS) Limited is an example of a payment institution that issues e-money, offering prepaid cards and mobile money for airport parking payments.
- Limited-Purpose e-Money Issuer License: This license permits you to issue electronic money for small-value transactions. It allows you to offer accounts with a transaction limit of 10,000 shillings and requires a lower capital requirement. This is ideal for businesses serving a specific customer segment
- Payment Instrument License: This license authorizes you to operate a payment instrument or system that enables transactions between payers and beneficiaries. It covers instruments and procedures related to money circulation. PesaPal is an example of a payment instrument.
