What Has Changed?
The Finance Act, 2026 amended Paragraph 1 of Part II of the First Schedule to the VAT Act, narrowing the VAT exemption for financial services.
Previously, services dealing with money, including money transfer services and over-the-counter bill payments, were broadly exempt from VAT.
Which Digital Payment Services Are Affected?
The amendment specifically excludes the following services from the exemption where they are supplied through software or platforms for a fee or commission by a payment service provider:
- Payment processing.
- Settlement.
- Merchant acquiring.
- Gateway services.
- Aggregation services.
What Remains Exempt?
Core money transfer services remain exempt.
The change is therefore focused on specified digital payment infrastructure and intermediary services rather than every money-related service.
What Does This Mean for Fintechs and Payment Intermediaries?
Fintechs and payment intermediaries providing the specified digital payment services may now have additional VAT costs.
Depending on their commercial arrangements, these costs could potentially be passed on to merchants and consumers through higher transaction charges.
Practical Implication
Businesses should review their service agreements, invoices, VAT classifications and pricing models to determine whether their digital payment activities fall within the services excluded from the exemption.
Key Takeaway
The amendment expands the VAT net within the digital payments ecosystem while retaining the exemption for core money transfer services.
Source: Finance Act, 2026 — Paragraph 1 of Part II of the First Schedule to the VAT Act.
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