PRESENTATION CONTENTSOverview of KRA KRA Reform Programme

o Status Before Reformso Reforms Implementation Frameworko Major Reforms Undertaken

Key OutcomesCritical Success FactorsReforms Implementation ChallengesLessons LearntConclusion

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

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

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 Cont’d…

Other Exchequer related Acts include:

8. Second Hand Motor Vehicle Purchase Tax Act

9. Widows & Children’s Pensions Act

10.Parliamentary Pensions Act

11.Government Lands Act – Land rent

12.Transport Licensing Act

LAWS ADMINISTERED Cont’d…

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

LAWS ADMINISTERED Cont’d…

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 Amount in Kshs. BillionPercent Growth

1995/96 122.1

1996/97 133.1 9.1

1997/98 154.0 15.7

1998/99 164.9 7.1

1999/00 168.6 2.2

2000/01 182.6 8.3

2001/02 183.4 0.4

2002/03 201.7 10.0

2003/04 229.3 13.7

2004/05 274.3 19.6

2005/06 297.7 8.5

2006/07 360.2 21.0

2007/08 418.9 16.3

2008/09 480.6 14.7

2009/10 534.4 11.2

2010/11 634.9 18.8

KRA’s Revenue Performance 1995/96-2010/11

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 (SARA’s) an option adopted by Kenya when it established the KRA in 1995.

Tax Administration Reform Drivers Cont’d….. 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 function-based 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 Cont’d........

• 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 Cont’d

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 Cont’d…..• 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 Cont’d…..

COMMISSIONER GENERAL

PMBO

I&E REFORM PROJECT

DTD REFORM PROJECT

BUSINESS AUTOMATION

CSD REFORM PROJECT

HUMAN RESOURCES AND REVITILISATION

PROJECT

RTD REFORM PROJECT

INFRASTRUCTURE DEV.

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……….

VAT

Department

Income Tax

Department

Domestic Tax

Department (DTD)

Customs

& Excise Dept

Customs

Services Dept

Domestic Excise

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 2005The system allows customers to lodge their import/export documents online from the comfort of their offices.

Customers are served 24/7 thro’ the Document Processing Centre.

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 seamlesslyo 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 Cont’d….

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 Cont’d….

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

Currently, data exchange taking place between KRA & URA

Implementation of initiative among other regional Revenue Authorities on-going

Protection of Society…… One 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

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.

Improvement of ICT Infrastructure - local/wide area network coverage of KRA stations has increased from 70% to 95% over the last 5 years

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 systemsBy 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.

.• 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 (IAO’s) in all departments

• Establishment of the Complaints & Information Centre (CIC).

Inculcating Integrity Culture in KRA…….

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 SupportSenior Management Support

Strategic PlanStrategic Plan

Committed TeamCommitted Team

Funding & ResourcesFunding & Resources

Government SupportGovernment Support

Stakeholder ConsultationStakeholder Consultation

REFORMS IMPLEMENTATION CHALLENGES

IMPLEMENTATION CHALLENGESChallenges/Risks Mitigating Factors

1 Resistance to change from internal & external stakeholders

a) Undertaking change management programmes

b) Sensitizationc) Use of change

agents/champions

2 Inadequate resources (funds & human resources)

a) Adequate budgetingb) Seek additional sources of

funding to fill gaps

3 Systems performance - system instability/downtimes - due to inadequate/ poor telecommunication facilities

a) Fibre optic technology by government

b) Acquisition of relevant ICT infrastructures

IMPLEMENTATION CHALLENGES CONT’D.......Challenges/Risks Mitigating Factors/ Corrective Actions

4. Inadequate skills Training

5. Lengthy procurement processes

a)Undertake project procurements planning

b)Timely monitoring of project procurements

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

a)Seamless integration of relevant IT systems

b)Data cleaning

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 CONT’D.....................

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 Cont’d ……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 Cont’d ……

• 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