PRESENTATION CONTENTS

Overview of KRA KRA Reform Programme o Status Before Reforms o Reforms Implementation Framework o Major Reforms Undertaken Key Outcomes Critical Success Factors Reforms Implementation Challenges Lessons Learnt Conclusion

OVERVIEW OF KRA

Formation & Functions of KRA

KRA was established by an Act of Parliament on 1st July 1995 Functions To assess, collect and account for all revenues in accordance with the relevant laws.

To advise on matters relating to the administration of, and collection of revenue under the written laws.
To perform such other functions in relation to revenue as the Minister may direct

LAWS ADMINISTERED

KRA administers a total of 17 laws relating to revenue. These are divided into 2 broad categories: a) Exchequer revenues (Treasury) & b) Agency revenues (revenue collected on behalf of other Government Agencies)

LAWS ADMINISTERED Contd

Under Exchequer Revenue, the laws are: 1. Income Tax Act 2. East African Community Customs Management Act 3. Customs & Excise Act 4. Value Added Tax Act 5. Traffic Act 6. Entertainment Tax Act 7. Stamp Duty Act

LAWS ADMINISTERED Contd

Other Exchequer related Acts include: 8. Second Hand Motor Vehicle Purchase Tax Act

9. Widows & Childrens Pensions Act

10.Parliamentary Pensions Act 11.Government Lands Act Land rent 12.Transport Licensing Act

LAWS ADMINISTERED Contd

Laws relating to revenue collected on an agency basis include: 1. Road Maintenance Levy Fund Act 2. Kenya Airports Authority Act

3. Civil Aviation Act

4. Standards Act 5. Air Passenger Service Charge Act 6. Sugar Act

KRA ORGANIZATION STRUCTURE

The following are the KRA Departments: Revenue departments: Customs Service Domestic Taxes : o Large Taxpayers Office o Domestic Revenue (small & medium taxpayers) Road Transport Investigation & Enforcement

KRA ORGANIZATION STRUCTURE

Support departments: Support Services Oversight of RTD on behalf of the Authority, Research & Corporate Planning, Integrity Divisions Finance Human Resources Information Communication & Technology (ICT) Board, Corporate Services & Administration Internal Audit & Risk Management Marketing & Communication

KRA REVENUE PERFORMANCE 1995 - 2011 Financial Year

1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02

Amount in Kshs. Billion

122.1 133.1 154.0 164.9 168.6 182.6 183.4

Percent Growth
9.1 15.7
7.1 2.2 8.3 0.4 10.0 13.7 19.6 8.5 21.0 16.3

2002/03
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

201.7
229.3 274.3 297.7 360.2 418.9 480.6 534.4 634.9

14.7
11.2 18.8

KRA REVENUE PERFORMANCE (Kshs. Billion)

700.0

600.0

500.0 Amount in Kshs. Billion

400.0

300.0

200.0

100.0

Financial Year

KRAs Revenue Performance 1995/96-2010/11

Revenue Collection 1995/96 - 2010/11
700,000

600,000

500,000 Amount in Kshs Bn

400,000

300,000

200,000

100,000

Financial Year
Revenue in Kshs Bn

KRA REFORM PROGRAMME

Adopting Strategic Planning Approach. All our reform initiatives are based on the Corporate Plan: Aligned with Vision 2030. Use balanced score card approach Forms the basis for our performance contract (PC) with MOF KRA Board signs PC with the CG and CG signs with all those who report directly to him. Contracting process cascaded to cover all technical officers

Tax Administration Reform Drivers

Challenges faced by revenue authorities in developing countries due to: the changing global environment, growing informal sectors, and capacity constraints, among others. These challenges led to the emergence of Semi Autonomous Revenue Authorities (SARAs) an option adopted by Kenya when it established the KRA in 1995.

Tax Administration Reform Drivers Contd..

Specifically, the key drivers of reform are: Enhance revenue Modernize administration/improve service Reduce compliance burden Reduce administration costs Facilitate trade and investment Improve integrity

A modern tax administration is characterized by

An integrated organization with a functionbased structure A strong headquarters function Effective businesses processes, based on self assessment Risk-based compliance programs Skilled and professional staff acting with fairness, honesty, and transparency

Status before KRA Reforms

Manual business processes leading to service delays, incorrect data, frustration, etc Duplication of functions and resources Lack of information sharing platform Lack of coordination in key business operations across the departments especially in field audit/compliance visits High administrative and compliance costs (KRA & customers) High level of corruption Low tax compliance and revenue levels Frequent customer complaints

Reforms Implementation Framework

A key element in explaining the strong revenue performance in KRA since 2002/03 has been the implementation of the Revenue Administration Reforms & Modernization Programme (RARMP) which comprises of 7 key projects: 1. Customs Reforms and Modernization Project 2. Domestic Taxes Reform and Modernization Project 3. Road Transport Reform and Modernization Project 4. Investigation and Enforcement Reform and Modernization Project 5. KRA Infrastructure Development Project 6. KRA Business Automation Project 7. Human Resource Revitalization Project

Reforms Contd........

To share our experiences, all reforms undertaken since KRA was formed in 1995 documented in a book entitled Revenue Administration Reforms in Kenya: Experience & Lessons

RARMP Contd

Implementation of KRA reform & modernization projects is coordinated thro the Programme Management & Business Analysis Office (PMBO) PMBO is a service unit under the office of Commissioner General It was created in 2006 for the purpose of coordinating & supporting RARMP It ensures delivery of successful projects timeliness, cost efficiency, completion rate, etc

RARMP contd..

Overall, the RARMP seeks to: 1. Promote effectiveness by modernizing the management & operational structures 2. Improve revenue collection 3. Enhance efficient utilization of resources through integration of functions 4. Improve service delivery 5. Improve staff skills, competency & productivity

RARMP Governance Structure Steering Committee provides overall guidance & direction to the reform programme,
Programme Sponsor the Commissioner General is the programme sponsor Project Owners These are the relevant Commissioners or Heads of Dept. Programme Management & Business Analysis Office (PMBO) - coordinates the reform programme & undertake a comprehensive monitoring & evaluation function

RARMP Governance Structure Contd.. Programme Coordination Committee Composed of project managers. Reviews progress of projects on monthly basis and identifies issues to be cascaded to higher levels
Project Manager responsible for coordinating execution of departmental projects and are in charge of project teams who are responsible for day to day implementation of various aspects of project implementation.

RARMP Governance Structure Contd..

COMMISSIONER GENERAL

RTD REFORM PROJECT

CSD REFORM PROJECT

DTD REFORM PROJECT

I&E REFORM PROJECT

BUSINESS AUTOMATION

HUMAN RESOURCES AND REVITILISATION PROJECT

INFRASTRUCTURE DEV.

PMBO

PROJECT MANAGER

PROJECT MANAGER

PROJECT MANAGER

PROGRAMME SUPPORT

PROJECT MANAGER

PROJECT MANAGER

PROJECT MANAGER

PROJECT MANAGER

PROGRAMME ADMINISTRATION

PROGRAMME MONITORING

PMBO HQ TEAM PROGRAMME COORDINATION TEAM

PROJECT TEAM

PROJECT TEAM

PROJECT TEAM

PROJECT TEAM

PROJECT TEAM

PROJECT TEAM

PROJECT TEAM

MAJOR REFORMS IMPLEMENTED

Evolution of KRA Tax Administration Structure From Tax Type to Functional Structure KRA structure has been transformed from tax type to functional structure to support the reforms, and respond to the environmental realities and international best practices, In tax-type structure, revenue departments were organized on the basis of the taxes. In the functional type structure, departments are organized along functions e.g. registration, compliance, audit, taxpayer services, etc This has led to better utilization and deployment of resources

Evolution of Structure contd.. Led to creation of: Domestic Taxes Department (DTD) o Large Taxpayers Office (LTO) o DTD DR Customs Services Dept. (CSD) Investigation & Enforcement Support Services Regional Offices

Evolution of Structure - Adoption Taxpayer Segmentation Approach

Segmentation in order to respond to taxpayer needs and risks. KRA has improved the organization structure by adopting taxpayer segmentation approach for administering domestic taxes. A Large Taxpayer Office (LTO) has been created to cater for large taxpayers and Medium Taxpayer Office (MTO) for medium sized taxpayers This initiative has boosted taxpayer compliance and by extension, enhanced revenue

Evolution of the Domestic Taxes Structure.

Income Tax Department VAT Department Customs & Excise Dept

Domestic Excise

Domestic Tax Department (DTD)

Customs Services Dept

DTD LTO (Large Taxpayers

DTD DR (Small & Medium Taxpayers)

Reforms on Improvement of Service Delivery

To enhance service delivery and promote voluntary tax compliance to our customers, KRA has automated many functions, including:
a)

Implemented a web based customs IT system (i.e. Simba) in 2005

The

system allows customers to lodge their import/export documents online from the comfort of their offices.
are served 24/7 thro the Document Processing Centre.

Customers

Improvement of Service Delivery Reforms .

b)

Developed and implemented a web based Integrated Tax Management System (ITMS) to provide online tax services
Through

ITMS, customers can now register for various tax obligations (including PIN) & file tax returns online at their own convenience KRA also provides an online facility for authentication of Tax Clearance Certificates and PIN to eliminate possibility of fake documents in the market

Improvement of Service Delivery Reforms .

c)

To enhance service delivery, KRA has linked the Vehicle Management System (VMS) to Customs Simba System to communicate seamlessly o This has allowed for tax payment and registration of imported vehicles at the point of entry. o It has also removed duplication of functions and enhanced revenue payment compliance

Improvement of Service Delivery Reforms .

c)

KRA has implemented a Call Centre as a central point for customer enquiries The Centre receives over 16,000 voice calls and over 9,000 emails from customers on a monthly basis.

Improvement of Service Delivery Reforms .

d)

To offer services closer to the customers, KRA has acquired and commissioned a Mobile Taxpayer Services Bus Some of the services offered include; issuance of various licenses, online services, etc

Reforms to Enforce Taxpayer Compliance

a)

To improve the process of detecting undervaluation of import declarations and by extension tax evasion, KRA has implemented a goods valuation database system. o The system provides uniform commodity prices o Currently a monthly average of 2,700 cases of undervaluation are detected and flashed out by the system

Reforms to Enforce Taxpayer Compliance

b)

To eliminate physical escorts of transit/export cargo to reduce diversion into the local market, KRA has implemented an Electronic Cargo System (ECTS) The system allows electronic monitoring of trucks from Kilindini Port/factories to final destination on real time basis from KRA Offices So far about 2,000 trucks have installed the devices

Reforms to Enforce Taxpayer Compliance Contd.

c) To eliminate the physical cargo clearance processes and to facilitate trade within the region, KRA has acquired 9 X-ray cargo scanners Through this initiative, the cargo is electronically scanned. In 2010/11, 2,150 cases of mis-declarations were detected with an additional revenue of Kshs. 265 million being realized

Reforms to Enforce Taxpayer Compliance Contd.

e)

To enhance efficiency and coverage of sea and lake patrols to deter smuggling activities and by extension loss of revenue, KRA has acquired six Patrol Boats

Facilitation of Regional Trade.

To

facilitate regional trade, KRA in conjunction with Uganda Revenue Authority (URA) has developed a Digital Data Exchange (RADDex). The aim is facilitate seamless exchange of trade information within the region data exchange taking place between KRA & URA of initiative among other regional Revenue Authorities on-going

Currently,

Implementation

Protection of Society
of the objectives of KRA thro the operations of Customs Services Dept. is to protect the society from entry of prohibited items into the country. To achieve this, KRA has acquired & deployed detector dogs The aim is enhance detection of harmful drugs and other prohibited imports and exports
One

Business Intelligence Gathering ..

To enhance gathering of business intelligence information (to detect tax evasion), KRA has implemented the following:
oEstablishment

of the Business Intelligence

Office
oAcquisition

of intelligence gathering tools

Business Automation Reforms .. Developed a corporate KRA ICT strategy to articulate the roadmap to integrated business architecture.
Establishment

of an Online Portal as a means to access the KRA Online services by taxpayers and the public. of ICT Infrastructure - local/wide area network coverage of KRA stations has increased from 70% to 95% over the last 5 years

Improvement

Adopting Corporate Wide Risk Management. To address the challenges emanating from the ever changing operating environment, KRA has formulated an integrated corporate wide Enterprise Risk Management (ERM) framework. Currently, in the process of approval and implementation.

Harmonization of KRA Tax Payment Procedures KRA has implemented a Common Cash Receipting System (CCRS) to harmonize tax payment procedures across the revenue departments Previously, each department had its own tax payment procedures and systems By harmonizing tax payment procedures, KRA intends to achieve a single view of the taxpayer and make payment of taxes less burdensome on the taxpayer

Reward & Recognition of Taxpayers .. To appreciate taxpayers and public support in our
activities, KRA introduced a National Taxpayer

Week that has been celebrated annually for the

last 8 years.

During the week, KRA engages in targeted corporate social responsibilities. H.E The President hosts Taxpayers to a

Luncheon and presents awards to compliant

customers.

Automation of Support Services .. To enhance efficiency in our internal support services, KRA has implemented an Enterprise Resource Planning (ERP) system. Currently, all procurement related transactions and application for annual leave are provided online through this system Once completed, all Finance, Procurement and Human Resource functions will be automated and fully integrated

Adopting Quality Management.. In a commitment to perform within universally acceptable standards, KRA has adopted Quality Management System (QMS). This involves documentation of processes, procedures and practices to meet the requirements and expectations of our customers. This led to achievement of ISO 9001:2000 in 2007 and ISO 9001:2008 in Dec. 2010. KRA is among the first Revenue Administration in the World to attain ISO Certification for all its operations.

Embracing Performance Management To enhance staff performance, KRA has successfully introduced the Balanced Score Card (BSc) and performance appraisal as performance management tools.
The BSC approach uses four perspectives in evaluating performance i.e. people, internal processes, customer, and financial. KRA has also adopted performance contracting which is tied to the BSC approach.

Staff Development Reforms. Implementation of e-learning initiatives and partnering with various institutions of higher learning for staff to build capacity in technical fields.
Institutionalizing

coaching and mentoring in KRA.

In the process of setting up a Psychometric and Assessment Centre (PAC) to provide a centralized base for competency, skills and personality assessment services within the Authority.

Knowledge Management (KM)..

To preserve information gathered over time, KRA has implemented various knowledge management initiatives including: oDevelopment of Rulings Database to preserve all rulings made in various operational areas oPublished and launched a book on reforms implemented oAn initiative to create a knowledge repository for all KRA documented and other information is on-going

Inculcating Integrity Culture in KRA. Integrity for Revenue Authorities is key and if not well tackled can result to: A reduction in public trust and confidence undermining voluntary compliance and thus increasing cost of collection, Significant revenue leakage,
Low staff morale, Maintenance of unnecessary barriers to trade Increased costs of doing business (later passed on to consumers)

Inculcating Integrity Culture in KRA. KRA has undertaken a number of reforms to address these challenge, including: o Establishment of structures to tackle various integrity aspects. Created an Integrity Office to inculcate the culture of integrity within KRA. Formation of Internal Affairs Unit to deal with staff integrity matters. Its linked to I&E. o Development and implementaion of KRA Corruption Prevention Plan.

Inculcating Integrity Culture in KRA.

Increasing the probability of detection through institutional reforms (CPCs, integrity testing, etc)
.

Reviewing tax laws and procedures to reduce monopoly power and discretion of officers,
Focus on changing attitudes through an education programme, including training and deploying integrity assurance officers (IAOs) in all departments

Establishment of the Complaints & Information Centre (CIC).

KEY OUTCOMES

KEY OUTCOMES

Rapid revenue collection growth

Tax collections by KRA finances over 90% of the National Recurrent Expenditures Budget
90% of KRA operations are now automated, The cost of collection has remained below 2% Customer satisfaction has improved to 65% Provision of various online services

REFORMS IMPLEMENTATION - CRITICAL SUCCESS FACTORS

Critical Success Factors in Implementation of Reforms

Senior Management Support
Funding & Resources

Strategic Plan

Government Support

Committed Team

Stakeholder Consultation

REFORMS IMPLEMENTATION CHALLENGES

IMPLEMENTATION CHALLENGES
Challenges/Risks 1 Resistance to change from internal & external stakeholders Mitigating Factors a) Undertaking change management programmes b) Sensitization c) Use of change agents/champions a) Adequate budgeting b) Seek additional sources of funding to fill gaps

2 Inadequate resources (funds & human resources)

3 Systems performance a) Fibre optic technology by system instability/downtimes government due to inadequate/ poor b) Acquisition of relevant telecommunication facilities ICT infrastructures

IMPLEMENTATION CHALLENGES CONTD.......

Challenges/Risks Mitigating Factors/ Corrective Actions

4. Inadequate skills 5. Lengthy procurement processes

Training a)Undertake project procurements planning b)Timely monitoring of project procurements a)Seamless integration of relevant IT systems b)Data cleaning

6. Data integrity (especially for 3rd party data)

LESSONS LEARNT

LESSONS LEARNT.

a) Project sponsor/owner must have power, authority, strong will & influence b) Involvement of key stakeholders (internal & external) in all stages of the project is critical c) Need to undertake change management among the stakeholders to minimize resistance d) Need for change agents to mobilize stakeholders on the reform process e) Business process re-engineering should precede development of IT systems, to avoid automation of inefficient processes

LESSONS LEARNT CONTD.....................

f) Regular communication with all stakeholders on progress being made g) Phased implementation of reforms will facilitate achievement of the desired objectives h) Avoid external donor financing for critical projects (why? lack of flexibility) i) Political goodwill is crucial in implementing reforms j) There will always be a few rotten apples during the reform process. These need to be resolved.

CONCLUSION

Conclusions

Since the implementation of the comprehensive reform programme, revenue collection has increased, service delivery has improved & KRA has positioned itself as a best practice institution for other public institutions & Revenue Authorities to learn from as attested by the many delegations received on benchmarking Some of experiences learnt from the reforms implementation are the following: o Importance of being able to make your own decisions,

o Importance of managerial leadership and willingness to lead the reform effort,

Conclusion Contd o Importance of working with your customers in improving services delivery, o Importance of understanding the challenges of information technology in supporting institutional change, o Importance of change management.

Conclusion Contd
We remain confident that we are well on track to being the leading revenue authority in the world respected for integrity and fairness

Thank You