Kenya Court exempts payment service providers from VAT, boosting online gambling sector
High Court ruling on Pesapal cuts costs for betting and igaming operators and streamlines player payments.
Kenya.- Kenya’s fintech sector and the country’s fast-growing gaming and igaming industry received a major boost after the High Court ruled that Payment Service Providers (PSPs) such as Pesapal are exempt from value-added tax (VAT) on payment services.
PSPs are widely used by sports betting and online gaming operators to process player deposits, withdrawals and other transactions. Analysts say the ruling could reduce operating costs for gaming platforms, improve payment efficiency and make the Kenyan market more attractive for new entrants.
The decision overturned a Tax Appeals Tribunal ruling that allowed the Kenya Revenue Authority (KRA) to pursue a KES76.8m (€412,000) VAT claim against Pesapal.
Kenya High Court Judge Rhoda Rutto found that companies licensed as PSPs under the National Payment System Act are entitled to the same VAT exemptions granted to commercial banks.
“The VAT Act neither restricts eligibility for exemption based on the technology used, nor does it tie exemption to registration under the Banking Act. The Appellant’s (Pesapal’s) activities-facilitating merchant payments, processing client funds, storing balances and executing payment instructions-are functionally equivalent to and mirror those of financial institutions, albeit in a digital environment”, said Rutto, according to TechCabal.
Court affirms PSPs as financial services
The ruling effectively classifies licensed fintech operators as providers of financial services rather than technology firms. For the gaming sector, this could mean lower transaction costs and fewer tax disputes over deposits and payouts.
The KRA had argued that Pesapal’s licence only authorised it to offer a payment system, not financial services, and that VAT exemptions should be strictly limited to traditional financial institutions.
Justice Rutto countered that the VAT Act was “clearly intended to capture a wide array of monetary operations, particularly those that facilitate the movement of funds”.
Industry experts say the decision could encourage greater investment into Kenya’s gaming and igaming markets by giving operators more predictable costs and aligning fintech services with banks and mobile money providers. Lower taxes on PSP transactions may translate into more efficient deposits and withdrawals for players, improving overall platform operations.
