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Kenya Revenue Authority

KENYA REVENUE AUTHORITY

REVENUE ADMINISTRATION REPORT

JUL-DEC 2004

M. G. WAWERUCOMMISSIONER GENERAL

27 JANUARY 2005


IntroductionIntroduction

• It is my pleasure to present to you the Half Year Revenue It is my pleasure to present to you the Half Year Revenue Performance and Administration Report of Kenya Revenue Performance and Administration Report of Kenya Revenue Authority for the period July to December 2004.Authority for the period July to December 2004.

• As is our practice, we shall report on not only the status of revenue As is our practice, we shall report on not only the status of revenue performance but also on the implementation of the various performance but also on the implementation of the various initiatives that are contained in our balanced scorecard which is our initiatives that are contained in our balanced scorecard which is our performance contract with government and stakeholders. performance contract with government and stakeholders.

• These initiatives are viewed from four perspectives that form the These initiatives are viewed from four perspectives that form the theme of our Plan; Enhanced Revenue Collection through theme of our Plan; Enhanced Revenue Collection through Enhanced Quality Service to Stakeholders, Modernisation of our Enhanced Quality Service to Stakeholders, Modernisation of our Internal Processes and Revitalisation of our Workforce.Internal Processes and Revitalisation of our Workforce.


OUR VISIONOUR VISIONTo be the leading Revenue Authority in the world

respected for professionalism, integrity and fairness.

OBJECTIVESOBJECTIVES

1. Enhance Revenue Collection - ‘‘Our aim is to surpass the set revenue targets at lowest cost”

2. Enhance Quality of Service to our Stakeholders - “Our aim is to provide quality service at least cost with maximum satisfaction to our stakeholders”

3. Modernise our Internal Processes - “Our aim is to develop effective and efficient processes that take a single view of the taxpayer”

4. Revitalisation of our Workforce - “Our aim is to develop a workforce respected for technical competence, professionalism and courtesy”


Amber – Represents Fair Progress

Red – Represents Little/ No Progress

Green – Represents Good Progress/ Results

The rating has been done using a traffic light system as follows:The rating has been done using a traffic light system as follows:


OPERATING ENVIRONMENT

During the year 2004, real GDP grew by 2.4% and it is expected to accelerate to 3% in 2005. The average growth rate for the FY 2004/05 is therefore expected to be at around 2.7%.

During six month period of Jul – Dec 2004, inflation and 91 day T-Bill rates increased significantly and the Kenya Shilling depreciated marginally against the US$ Dollar.

Overall, the macroeconomic environment during this period was relatively favourable to revenue collection.


REVENUE PERFORMANCE DURING THE FY 2004/05REVENUE PERFORMANCE DURING THE FY 2004/05

For the six months period ended 31st December 2004, KRA exceeded the targets set by Treasury by 18.1%. Compared to the period Jul-Dec 2003, revenue grew by 28.3%

Under our Corporate Plan, our target was to exceed the Treasury target by 2%. In exceeding the Treasury target by 18.1%, we exceeded our own corporate target by over 15%.


DEPTDEPT ACTUALACTUAL TARGETTARGET VARVAR PERF. PERF. RATE (%)RATE (%)

ACTUAL ACTUAL 2003/042003/04

GROWTHGROWTH(%)(%)

C&EDC&ED 31,866 27,805 4,061 114.6 25,418 +25.4

DTDDTD 32,017 27,304 4,713 117.3 24,862 +28.8

RTD RTD 680 615 65 110.6 482 +41.1

TOTAL 64,563 55,724 8,839 115.9 50,762 +27.2

11stst Quarter: July Quarter: July - September 2004 - September 2004 (Kshs Million)(Kshs Million)




GROWTHGROWTH(%)(%)

C&EDC&ED 32,002 28,524 3,478 112.2 27,100 +18.1

DTDDTD 38,724 30,230 8,494 128.1 27,594 +40.3

RTD RTD 675 595 80 113.4 449 +50.3

TOTALTOTAL 71,401 59,349 12,052 120.3 55,143 +29.5

22ndnd Quarter: October Quarter: October - - DecemberDecember 2004 2004 (Kshs Million)(Kshs Million)


Cumulative Half Year: JulyCumulative Half Year: July - - DecemberDecember 2004 2004 (Kshs Million)(Kshs Million)



GROWTHGROWTH(%)(%)

C&EDC&ED 63,868 56,329 7,539 113.4 52,517 +21.6

DTDDTD 70,700 57,534 13,166 122.9 52,484 +34.7

RTD RTD 1,360 1,210 150 112.4 925 +47.0

TOTAL 135,928 115,073 20,855 118.1 105,926 +28.3


This good revenue performance was as a result of:• Aggressive implementation of tax administrative reform measures as

articulated in the second Corporate Plan,• the overwhelming response to the tax amnesty 2004,• and the generally favourable economic environment.

The factors above, positively impacted on revenue as follows:• Administrative reforms - Kshs 8.45 billion; • Economic fundamentals - Kshs 8 billion; and• Tax amnesty – Kshs 4.4 billion.

What follows next is an assessment of the various revenue administration reforms undertaken that contributed to this performance.


1.1. INITIATIVES TO ENHANCE REVENUE COLLECTIONINITIATIVES TO ENHANCE REVENUE COLLECTION

Broaden the tax base Taxpayer Recruitment – A total of 10,791 new taxpayers for Income Tax and

5,177 for VAT were recruited realising Kshs. 283 million in additional revenue. Take over of stamp duty collection is complete. Work is underway to take over collection of land rates. A memorandum of understanding has already been signed with Mombasa City Council while Nairobi and Kisumu will follow soon.

Revenue Leakage – Implementation of the withholding VAT system continued with great success netting an additional 2,180 taxpayers and realising Kshs 1.0 billion in revenue per month. Controls in the petroleum, cigarettes and wines and spirits sub-sectors were tightened increasing revenue by over 10%.


Improve compliance

ComputerisedComputerised risk management systems risk management systems - KRA - KRA hashas installed a fixed and installed a fixed and mobile X-ray scanner with risk profiling capabilities at the port of Kilindinimobile X-ray scanner with risk profiling capabilities at the port of Kilindini. Implementation of VAT Electronic Tax Registers is also in finalisation stages.

Effectiveness of taxpayer education programmes - Numerous taxpayer sensitisation activities were organised for business communities, interest groups, educational institutions etc. Most notable was the ‘Taxpayers’ Week’, TV/Radio shows and for the first time KRA diversified into bill board campaigns for Tax Amnesty 2004.

Enhance and Improve assessment/audit

1,159 audit cases were completed against a target of 2,583. Several LTO officers were trained to improve their skills in the use of modern auditing tools. Implementation of joint audits in domestic taxes is at pilot implementation stages.


Improve debt and arrears management

Debt Management - Overall a total of Kshs 7.2 billion was collected which accounts for 5.3% of total cumulative revenue collected. A full review of all the outstanding debts was completed and identification of bad debts and the write offs is in progress.

Improve exemptions management

Exemption/Remission Framework– KRA is in the processing of developing regulations for issuance of exemptions/remissions. This is a high priority area for the organization.


Effective Enforcement

The Investigation and Enforcement function has been fully integrated. All technical officers in the department have undergone training on prosecution and other related areas such as evidence gathering. The formation of a component intelligence unit is underway. A policy on prosecution by KRA has also been developed and is currently under review.

Budgeting system

Several initiatives were undertaken to enhance expenditure controls: The KRA financial procedures manual is being finalised; Guidelines for activity based costing were implemented for the preparation

of the 2005/06 budgets; Several modules in the Scala financial system were activated.


2.2. INITIATIVES TO ENHANCE QUALITY OF SERVICEINITIATIVES TO ENHANCE QUALITY OF SERVICE DELIVERY DELIVERY

Implement Quality Assurance Programme There was limited progress over the last six months after

sensitisation programmes were implemented. However the recruitment of a QAP consultant is in early stages.

Develop and implement simplified compliance procedures Some of our documentation was modified and simplified. The

Income Tax Act is now updated and uploaded on the KRA website. We however recognise that more needs to be done in this area.


Develop and implement an effective queue management frameworkTo reduce queues in our premises various initiatives were implemented. The most notable was the introduction of direct banking with respect to C&E and VAT payments and opening up of more computerised cash receipting and corporate counters in RTD. We also recognise the need to do more under this initiative.

Actively pursue the enactment of the law on electronic documents This remains a major impediment to development as it requires

legislative changes.


3.3. INITIATIVES TO MODERNISE INTERNAL PROCESSESINITIATIVES TO MODERNISE INTERNAL PROCESSES

Business Process Improvement and Integration KRA has initiated the move towards a truly ‘one-stop facility’ for tax administration and the Office of Commissioner VAT & Income Tax and Excise have been integrated. However the integration process will be intensified across KRA to truly integrate functions in departments.

Enhance the Effectiveness of LTO The LTO has been significantly strengthened through equipment and training. However more still needs to be done and this will remain a high priority area.

Enhance the effectiveness of the preventive serviceOur Customs Preventive Service has been active in detection of and taking action on cases of drug trafficking, counterfeits and other prohibited goods.


Computerisation

Implementation of “Quick Wins”Computer to staff ratio improved to 1:4 an improvement from previous 1:5; LAN and WAN coverage expanded; The electronic mail system rolled out to head office and most regions nationally.

Implementation of a replacement IT system for Customs began and piloting commenced in January 2005. Receiving and recording of income tax returns has been automated. Management of Oil installations has also been automated and the development of a waiver management module is now completed. However, work is yet to commence on implementing an Enterprise Resource Planning system.

Implementation of KREISAA framework for an ICT strategy has been prepared and infrastructure acquired. Donor support has also been received for feasibility studies.


4.4. INITIATIVES TO REVITALISE HUMAN RESOURCEINITIATIVES TO REVITALISE HUMAN RESOURCESS

RevitalisationRevitalisation of Human Resources of Human ResourcesNumerous training and capacity building initiatives were undertaken, with special emphasis on integration, computerised audits, take over of PSI functions, and post release audit. Staff welfare initiatives were also undertaken most notable being introduction of improved scheme of service for support staff, implementation of final phase of salary harmonisation and review of medical policy.

Integrity Assurance

Provisions of the Public Sector Integrity Programme were implemented in full. Awareness on anti-corruption and promotion of integrity is now a mandatory component in all KRA courses. Corruption Prevention Committees have been formed and the Public Complaints and Information Centre continues to receive and act on intelligence information on corruption and fraud.


Expand corporate social responsibilityKRA participated visibly in various community initiatives. Notable was in areas of HIV and AIDs, National Disaster Fund, Hunger campaigns, Student Associations, etc.

OVERVIEW OF BSC IMPLEMENTATION STATUSOVERVIEW OF BSC IMPLEMENTATION STATUS

Overall, there was significant progress as shown by the number of Greens and Amber colour ratings.

However, we recognise the need for immediate action to address the areas of weakness (Reds) that will be focused on.

The next slide summarises the global overview of our performance generally.


A Performance Overview

- To Pay Your Taxes is to Set our Country Free -- To Pay Your Taxes is to Set our Country Free -


TAX AMNESTY 2004 PERFORMANCETAX AMNESTY 2004 PERFORMANCE

I am also pleased to present the performance of tax amnesty 2004 I am also pleased to present the performance of tax amnesty 2004 which was introduced by the Minister for Finance on the 10th of which was introduced by the Minister for Finance on the 10th of June 2004.June 2004.

It was very successful and we received an overwhelming response It was very successful and we received an overwhelming response from all quarters of taxpayers in Kenya.from all quarters of taxpayers in Kenya.

As earlier mentioned a sum of As earlier mentioned a sum of Kshs 4.41 billionKshs 4.41 billion was realised in the was realised in the six-month period from 11 June to 31 December 2004. This was six-month period from 11 June to 31 December 2004. This was collected from a total number of collected from a total number of 4,483 4,483 applications.applications.

Domestic Taxes DepartmentDomestic Taxes Department, which comprises of Income Tax and , which comprises of Income Tax and VAT accounted for the bulk of the amnesty collections.VAT accounted for the bulk of the amnesty collections.



A total of A total of Kshs. 2.72 billionKshs. 2.72 billion was realised in income tax from was realised in income tax from 2,617 2,617 applicationsapplications while while Kshs. 1.52 billionKshs. 1.52 billion was realised in VAT from was realised in VAT from 872 872 applicationsapplications. .

Customs and Excise DepartmentCustoms and Excise Department collected a total of collected a total of Kshs. 163.49 Kshs. 163.49 millionmillion from from 803 applications.803 applications.

Road Transport DepartmentRoad Transport Department realised a sum of realised a sum of Kshs. 3.57 millionKshs. 3.57 million in in traffic revenue as a result of amnesty granted under Customs & traffic revenue as a result of amnesty granted under Customs & Excise on Motor vehicles.Excise on Motor vehicles.

We applaud all those who took advantage of the amnesty. We applaud all those who took advantage of the amnesty.



A preliminary review of the results indicates that some firms in certain A preliminary review of the results indicates that some firms in certain sectors, generally known to be non compliant ignored the Tax Amnesty.sectors, generally known to be non compliant ignored the Tax Amnesty.

This is unfortunate as it is an indication of a resolve to remain non-This is unfortunate as it is an indication of a resolve to remain non-compliant. compliant.

We have therefore extended a one month special offer of waiver of We have therefore extended a one month special offer of waiver of penalties, interest, additional tax and fines for such taxpayers until 31st of penalties, interest, additional tax and fines for such taxpayers until 31st of January 2005.January 2005.

I call upon them to take advantage of this final opportunity.I call upon them to take advantage of this final opportunity.

We are putting together a fool proof machinery to detect and prosecute We are putting together a fool proof machinery to detect and prosecute tax evaders and we will deal very firmly with any cases of tax malpractice.tax evaders and we will deal very firmly with any cases of tax malpractice.


CONCLUDING REMARKSCONCLUDING REMARKS

In conclusion, KRA has indeed registered impressive results in revenue collections and service delivery to stakeholders. This is as a result of implementation of bold initiatives contained in the Second Corporate Plan.

The revenue target for the remaining six months of the FY 2004/05 is Kshs. 125.23 billion. We are confident that we shall surpass this target as we intensify implementation of more initiatives under the reform and modernisation programme.

I wish to express special thanks to the Press for their support during the publicity campaign, our staff for their exemplary hard work, and our parent ministry (Ministry of Finance) for their continued support.

- THANK YOU -