2009/10 - 2011/12 - kra.go.ke · FOURTH CORPORATE PLAN 2009/10 - 2011/12. ii ... ETR Electronic Tax...

FOURTH CORPORATE PLAN

2009/10 - 2011/12

ii

Contents

LIST OF TABLES ..............................................................................ivACRONYMS AND ABBREVIATIONS ............................................... vFOREWORD BY THE COMMISSIONER GENERAL .......................viiEXECUTIVE SUMMARY .................................................................... xREVIEW OF THE THIRD CORPORATE PLAN .................................xiOUR VISION .................................................................................. xviiiCORE VALUES ................................................................................xixOUR MISSION ..................................................................................xxQUALITY POLICY STATEMENT .....................................................xxiOUR STRATEGIC GOALS ............................................................ xxiiSTRATEGIC THEME .................................................................... xxiiiOVERVIEW OF FOURTH CORPORATE PLAN ............................ xxiv

CHAPTER 1 Introduction ............................................................................. 1

1.1 Introduction ............................................................................ 11.2 Establishment of the Kenya Revenue Authority ...................... 11.3 The Revenue Acts administered by the Authority ................... 21.4 The organisational governance structure and management ... 2

CHAPTER 2 EVALUATION OF THE THIRD CORPORATE PLAN ........... 8

2.1. Introduction ............................................................................. 82.2. Evaluation of the Third Corporate Plan .................................. 8

2.3 Shortcomings ........................................................................ 21 People Issues ..................................................................... 21 Internal Processes ............................................................... 22 Customer Processes ........................................................... 23 Enhanced Revenue Issues ................................................ 23 Monitoring and Evaluation ................................................... 242.4 Lessons Learnt From The Third Corporate Plan ................... 24

CHAPTER 3 OPERATING ENVIRONMENT ............................................. 26

3.1 Introduction ............................................................................26 Political Environment .............................................................. 26 Economic Environment .......................................................... 27 Kenya’s National Development Agenda ................................. 28 Challenges from Vision 2030 and MTP (2008-2012) ............. 29 Fiscal Challenges Over 2009/10 to 2011/12 ......................... 29

iii

Key elements of the BSP: ...................................................... 29 Global Environment ................................................................ 30 Social Environment ................................................................ 34 Technological Environment .................................................... 353.2 SITUATIONAL ANALYSIS: THE SWOT ............................... 36 Strengths ................................................................................ 36 Weaknesses ........................................................................... 37 Opportunities .......................................................................... 37 Threats ................................................................................... 383.3 SWOT ANALYSIS SUMMARY FOR KRA ............................. 39

CHAPTER 4 STRATEGIC GOALS ........................................................... 40

4.1 Introduction ........................................................................... 404.2 Strategic Goals ...................................................................... 40 People Perspective .............................................................. 41

INTERNAL PROCESSES ..................................................... 47 REVENUE ............................................................................ 58 4.3 CAPACITY FOR CHANGE .................................................. 64

Current Staff Establishment ................................................. 64 Staff complement and strategic plan implementation ........... 65

CHAPTER 5 COORDINATION MONITORING AND EVALUATION .... 66

5.1 Introduction .............................................................................. 66

5.2 Monitoring and Evaluation requirements as per the guidelines 66

5.3 Monitoring and Evaluation of the Fourth Corporate Plan ........ 67

5.4 MONITORING AND EVALUATION FRAMEWORK ................ 68

CHAPTER 6 BUDGET AND RESOURCE ALLOCATION ....................... 72

6.1 Introduction ............................................................................ 726.2 Revenue Projections ............................................................. 72

6.3 EXPENDITURE .................................................................... 74 Development Budget ............................................................ 75

6.4 WAY FORWARD .................................................................. 77

iv

LIST OF TABLES

Table 1: Revenue Collection by Department: FY 2005/06 to 2007/08 ...... 17Table 2: Cost of collection by departments FY 2005/06 to 2008/09 .......... 19Table 3: Behaviour of key indicators affected by the global crisis ............. 33Table 4: KRA staff establishment in 2008/09 ............................................ 64Table 5: Government Revenue Estimates: 2009/10 to 2011/12 ............... 73Table 6: KRA revenue forecasts 2009/10 to 2011/12 ............................... 74Table 7: Total estimated recurrent expenditures ....................................... 75Table 8: Total estimated development expenditures ................................. 76

v

ACRONYMS AND ABBREVIATIONS ACL Audit Command Language AEO Authorised Economic Operator AKI Association of Kenya Insurers APSC Air Passenger Services ChargeAPTC Administrative Police Training

CollegeBOD Board of DirectorsBPI Business Process Improvement BSC Balanced ScorecardBSC&A Board Secretary Corporate And

AdministrationBSP Budget Strategy PaperCAATs Computer Aided Audit

TechniquesCAMIS Cargo Management Information

SystemCBK Central Bank Of KenyaCBS Community Based SystemCC Call CentreCCRS Common Cash Receipting

System CCTV Closed Circuit TelevisionCET Common External Tariff CIC Complaints and Information

CentreCMMI Capability Maturity Model

IntegratedCMA Capital Market AuthoryCOBIT Control Objectives for

Information and Related Technology

COMESA Common Market for Eastern and Southern Africa

COSIS Customs Oil Stocks Information System

CPC Corruption Prevention Committee

CPP Corruption Prevention PlanCPS Customs Preventive ServicesCRA Corruption Risk ManagementCSD Customs Services DepartmentCSR Corporate Social ResponsibilityDBP Departmental Business PlansDFID Department for International

Development DISC Disciplinary CommitteeDPP Director of Public ProsecutionDR Domestic RevenueDTD Domestic Taxes Department EAC East African Community EACCMA East Africa Community Customs

Management Act

EACU East African Customs Union ECK Electoral Commission of KenyaECTS Electronic Cargo Tracking

System EFT Electronic Funds TransferEPAs Economic Partnership

Agreements EPZ Export Processing ZoneERP Enterprise Resource PlanningETR Electronic Tax RegisterEU European UnionEU-ACP European Union and African

Caribbean PacificFAQ’s Frequently Asked QuestionsFDI Foreign Direct InvestmentFGDs Focused Group DiscussionsFiRe Financial Reporting FOREX Foreign ExchangeFOSS Free Open Source SoftwareFY Financial YearGDP Gross Domestic ProductGTS Graduate TraineesHR Human Resource(s)I&E Investigation and EnforcementIA&RM Internal Audit and Risk

ManagementIAD Internal Affairs DepartmentIAO Integrity Assurance OfficerIAP Implementation Action PlanICD Internal Container Depot ICPAK Institute of Certified Public

Accountants of KenyaICT Information and Communication

TechnologyIIEC Interim Independent Electoral

CommissionINTS Integrated National Transport

SystemIS Information SystemsISO International Organisation for

Standardization IT Information TechnologyITIL Information Technology

Infrastructure LibraryITMS Integrated Tax Management

SystemIVR Interactive Voice ResponseJICA Japan International Corporation

AgencyJKIA Jomo Kenyatta International

AirportKAM Kenya Association of

Manufacturers

vi

KIFWA Kenya International Freight and Warehousing Association

KPA Kenya Ports AuthorityKPIs Key Performance IndicatorsKRA Kenya Revenue AuthorityKRATI Kenya Revenue Authority

Training InstituteKREISA Kenya Revenue Authority

Enterprise-wide Integrated Systems

KWATOS Kilindini Water Front Operating System

LAN Local Area NetworkLATF Local Authority Transfer FundLIMS Laboratory Information

Management SystemsLTO Large Taxpayer OfficeM&C Marketing and CommunicationM&E Monitoring & EvaluationMDGs Millennium Development GoalsMOU Memorandum of Understanding MTEF Medium Term Expenditure

Framework MTP Medium Term PlanMVOA Motor Vehicles Owners

AssociationNEMA National environmental

management AuthorityNEPAD New Partnership for Africa’s

DevelopmentNIMES National Integrated Monitoring

and Evaluation System NMESMP National Monitoring and

Evaluation System Master PlanNSE Nairobi Stock ExchangeODA Overseas Development

AssistancePAYE Pay As You EarnPCA Post Clearance AuditPCC Project Coordination CommitteePEST Political, Economic, Social,

TechnologicalPICARDP Partnership in Customs

Academic Research & Development Programme

PIN Personal Identification NumberPMBO Project Management and

Business Analysis OfficePMBOK Project Management Body of

KnowledgePMU Petroleum Monitoring UnitPOC Project Owners CommitteePRINCE Projects in Controlled

Environment

PSV Public Service VehicleQ&A Questions and Answers QMS Quality Management ServicesRADDEx Revenue Authority Digital Data

ExchangeRARMP Revenue Administration Reform

and Modernisation ProgrammeRBM Result Based Management RFID Radio Frequency IdentityROCB Regional Office for Capacity

BuildingRPS Revenue Protection ServicesRRA Rwanda Revenue AuthorityRTD Road Transport DepartmentS2005S SIMBA 2005 SystemSAGA Semi Autonomous Government

AgencySARA Semi Autonomous Revenue

AuthoritySLAs Service Level AgreementsSOA Service Oriented ArchitectureSSD Support Services DepartmentSWOT Strengths, Weakness,

Opportunities & ThreatsTEAMS The East African Marine SystemTEP Taxpayer Education

ProgrammesTLB Transport Licensing BoardTOT Turnover Tax TPC Tax Procedure CodeTRA Tanzania Revenue AuthorityTRS Time Release Study USTDA United States Trade

Development AgencyURA Uganda Revenue AuthorityVAT Value Added TaxVMS Vehicle Management SystemVoIP Voice Over Internet ProtocolWAN Wide Area NetworkWCO World Customs OrganisationWTO World Trade Organisation

vii

FOREWORD BY THE COMMISSIONER GENERAL

The Fourth Corporate Plan presents the Kenya Revenue Authority’s strategic direction for the 2009/10 to 2011/12 period as it implements the critical revenue administration components of the first phase of the Vision 2030. KRA’s vision, “To be the leading Revenue Authority in the World respected for Professionalism, Integrity and Fairness” emphasises our continued drive towards international best practice in revenue administration.

In this regard, our theme for this plan, “Attaining international best practice in revenue administration by investing in a professional team, deepening reforms and quality service delivery to

enhance compliance” brings out the core elements of our strategy, focusing on meeting international standards by relying on our staff to implement customer focused reforms and deliver services of the highest quality. The customer, adequately facilitated, is expected to voluntarily comply with existing tax legislation and thus enable the government to mobilise resources at minimal cost.

As has been the practice in KRA’s corporate planning, the Fourth Corporate Plan is built around the four perspectives of the Balanced Score Card (BSC): the People, Internal Processes, Customer and Revenue Perspectives. During the plan period KRA has set for itself six strategic goals. These are:

Developing a professional team that is well remunerated,◊

Creation of an enabling work environment, ◊

Full automation of the Authority and ensuring that KRA Information ◊ Technology (IT) is fully integrated allowing for a single view of the taxpayer and full utilisation of IT to promote compliance,

Completion of the transition to a fully functional organisation,◊

Minimising customer compliance costs and enhancing customer service,◊

Achieving revenue targets by rolling over uncompleted revenue mobilisation ◊ initiatives, whilst pursuing new revenue and compliance initiatives to maturity.

Achieving these strategic goals will allow KRA accelerate its reform and modernisation agenda which underpinned its Revenue Administration Reform and Modernization Programme (RARMP). The RARMP envisioned a fully automated Authority, organised along functional lines, responsive to the needs

viii

of our customers, efficient and effective and thus achieving revenue mobilisation targets at least cost. The achievements of the Second and Third Corporate Plans (2003/04-2005/06 and 2006/07 -2008/09) have made it possible for KRA this time round to target bringing these reform efforts to maturity.

The Third Corporate Plan period witnessed successful implementation of a very ambitious reform agenda. Our theme during the Third plan period was to develop a dedicated professional team, embracing modern processes and technology to deliver customer focused services that enhance compliance and revenue collection. KRA has substantially achieved the objectives of the Third Plan.

• People Perspective: initiatives included successful implementation of KRA’s capacity building initiatives, continuous recruitment of management trainees, up-scaling the facilities in KRATI and enhancing our institutional capacity to meet integrity challenges. We were also able to cascade performance contracting to all levels of management.

• Internal processes perspective: KRA has been successful in modernising its IT systems, allowing the Customs and Road Transport systems to communicate seamlessly and implementing the Integrated Tax Management System (ITMS) for Domestic Taxes, thus ensuring that all revenue departments are fully automated. KRA was also able to modernise its business processes, review the functional structure of several departments and achieve ISO 9001:2000 certification.

• Customer Perspective: KRA was able to increase service options to the taxpayers by enhancing IT services, implementing a call centre; revising and implementing the Taxpayers Charter as well as carrying out taxpayer education initiatives. KRA has also been able to further facilitate compliant taxpayers through the introduction of risk profiling and the Authorised Economic Operator (AEO) scheme.

• Revenue Perspective: KRA achieved an average revenue growth of 17.2 per cent over 2006/07 to 2008/09 exceeding the forecast rate of 12 per cent contained in the Budget Strategy Paper 2006/07 to 2008/09 by a considerable margin. This robust revenue performance, which has become a hallmark of KRA, was due to successful initiatives to broaden the tax base, implementing taxpayer segmentation and the Turnover Tax (TOT) programme, reviewing audit processes, development of an enforcement strategy and deploying of additional non-intrusive enforcement tools.

The Fourth Corporate Plan follows in the ambitious footsteps of the Second and Third Corporate plans. This time round, it is even more important that KRA performs and indeed exceeds its targets to support the Government’s implementation of Phase 1 of its Vision 2030 through its first Medium Term Plan 2008 to 2012. This ambitious plan and in particular the revenue targets that underpin its macroeconomic framework will have to be achieved against a backdrop of poor economic performance in 2008, the ongoing global financial crisis and the effects of both the drought and post-election violence of January 2008. In this regard,

ix

KRA will be operating in an environment with substantial risks, including the critical risk of under-funding, the re-emergence of integrity challenges within the Authority and the yet to be demonstrated commitment of politicians to paying tax. With respect to the latter, it should be noted that historically, a country’s revenue mobilisation effort is intrinsically linked to the commitment shown by politicians to the payment of taxes and their willingness to devote political capital to this end. I would therefore urge Kenyan politicians to demonstrate through word and deed their support to the Authority and the taxpaying effort in general.

We expect to continue with KRA’s hard earned tradition of achieving revenue targets and successfully implementing reform initiatives during this plan period. We will continue to count on the support of all segments of the public, especially the tax paying public, the Treasury and the political establishment. The bottom line however, will be the commitment of KRA staff to the objectives of this plan and to meeting the targets set therein. It is the dedication and commitment of our management and staff that has enabled us to achieve our objectives up to this point, a commitment that has enabled us to overcome hurdles that would have crippled lesser organisations.

As we begin implementation of this plan, I urge all our staff to rededicate themselves to the core values of the Authority: Integrity, Professionalism, Fairness, Equity, Commitment and teamwork and Corporate Social Responsibility and to ensure that we continue to improve our service levels in line with our quality policy. The Authority will continue to emphasise on people issues throughout the plan period and staff must reciprocate by increased dedication to the objectives of the Authority.

With commitment and dedication to service, I am fully confident that the KRA of 2012 will fully reflect the outcomes expected from the Fourth Corporate Plan.

M.G. Waweru, EBS

COMMISSIONER GENERAL

x

EXECUTIVE SUMMARY

1. IntroductionOver the past 14 years since its formation, KRA has achieved an exemplary record of successfully mobilising the bulk of Government revenue at minimal cost. It has also performed its non-revenue functions with a high degree of professionalism and efficiency as evidenced by having the lowest collection cost in the region as well as winning several performance-related awards. This is the record that KRA will endeavour to build on during this plan period.

KRA is responsible for assessing, collecting and accounting for all revenues in accordance with specific laws, advising the Minister for Finance on matters relating to revenue administration and performing such other functions in relation to revenue as the Minister may direct. In fulfilling its mandate, KRA administers 17 revenue Acts, with the key ones (in terms of revenue importance) being the Value Added Tax (VAT) Act (Cap. 476), the East African Community Customs Management Act (EACCMA), the Income Tax Act (Cap. 470), the Customs and Excise Act (excise provisions) (Cap. 472) and the Traffic Act (Cap. 403).

KRA is a Semi Autonomous Government Agency (SAGA) established by a statute (Cap. 469), a body corporate with its own Board of Directors, the power to sue and be sued and to hold property on its own accord. The Board is responsible for approval and review of policies and monitoring the functions of KRA, while day-to-day operations are the responsibility of the Commissioner General. The Commissioner General is assisted by six commissioners, six departmental heads and five regional heads. By the end of 2008/09 financial year, KRA had 4,305 staff, 30 per cent who were holders of a first university degree while 21, 36 and 11 per cent had secondary education, diplomas and certificate, and postgraduate qualifications respectively. The Authority is therefore well placed to implement its ambitious policy agenda.

This Fourth plan has been developed through a consultative process which includes a review of past and current information about the Authority, seeking the views of stakeholders including taxpayers, ministries and other government agencies, reviewing performance and strategic direction of other revenue authorities in the region as well as those of developed countries revenue bodies. The information gathered through this process has then undergone comprehensive technical review before further review and analysis by the Top Management and the Board of Directors. The plan is also aligned to the Guidelines for the Preparation of Strategic Plans 2008/2012 as well as the requirements of other key policy documents and directives.

xi

2. REVIEW OF THE THIRD CORPORATE PLAN

KRA’s strategic theme during the Third plan period was to develop a dedicated professional team embracing modern processes and technology to deliver customer focused services that enhance compliance and revenue collection. This theme was translated into four strategic goals which formed the basis of the interventions. These were:

Developing a dedicated and professional team: the goal was to be achieved through implementing best Human Resource (HR) practice, improving integrity and developing KRATI as a regional centre for excellence. During the plan period, KRA was able to implement two out of the three phases of a revised remuneration package, recruit 120 management trainees annually, introduce performance contracting and cascade it throughout the management, and enhance integrity through the implementation of the Corruption Prevention Plans and the setting up of an internal affairs office. With respect to KRATI, offices and accommodation facilities were renovated, facilities for e-learning were installed and KRATI entered into an MOU with the University of Canberra (Australia) and the JKUAT to offer management courses.

Re-engineering business processes and modernising technology: the goal was to be achieved by modernising IT systems, improving IT security and modernising business processes and infrastructure. During the plan period, IT initiatives included the modernisation of the Customs (CSD) SIMBA 2005 system and its rollout to the stations, introducing additional CSD systems including the COSIS and the Valuation data base, acquisition of cargo X-ray scanners to assist in verification and detection, the development and implementation of the Domestic Taxes (DTD), Integrated Tax Management System (ITMS) and modernising the Road Transport Department’s (RTD) Vehicle Management System (VMS) to allow it to communicate seamlessly with the SIMBA 2005 system. Business processes were improved by implementing the RADDEX which allows for sharing of customs information with Kenya’s regional partners, introducing self assessment declarations in customs management and initiating implementation of the one stop border post as part of the East African Trade and Transport initiative. During this period, KRA was also able to review the functional structure of several departments as well as achieve ISO 9001: 2000 certification.

Improving and expanding taxpayer services: the goal was to be achieved by improving service delivery options to taxpayers, facilitating participation by all sectors and simplifying tax processes. KRA enhanced its IT systems to facilitate increased taxpayer participation. Taxpayer awareness initiatives were undertaken including education seminars and sector-based stakeholder lectures. The Taxpayers Charter was revised and uploaded on the KRA website. A Time Release Study (TRS) was carried out in 2007 to gauge the level of reduction in release time for imports following implementation of SIMBA. With respect to facilitating participation, KRA established partnerships with key stakeholder organisations such as KIFWA, AKI, MVOA. To further facilitate compliant

xii

taxpayers, the Authorised Economic Operator (AEO) scheme, which gives preferential treatment to compliant traders, was launched in 2007/08. Taxpayer segmentation was implemented in DTD while capacity building was enhanced through partnership with international organisations such as JICA, USAID, IMF and World Bank. Initiatives to simplify the tax process included KRA re-branding to enhance its corporate image, the establishment of the Customs Valuation and Excise Tribunal and enhanced Corporate Social Responsibility (CSR) programmes.

Enhancing revenue collection and strengthening enforcement: the goal was to be achieved by broadening the tax base, improving compliance and enforcement, deterring abusive tax behaviour, improving debt and refund management, encouraging professional ethics and standards among stakeholders and improving programme funding and expenditure. The overall revenue targets for the 2006/07 to 2008/09 period were exceeded with revenues growing by 18.2, 20.4 and 14.7 per cent in 2006/07, 2007/08 and 2008/09 respectively, compared to targeted growth of 14.6, 10.1 and 11.5 per cent, respectively. KRA broadened the tax base by segmenting taxpayers and introducing the turnover tax (TOT) to target the small taxpayers. Over 200,000 new taxpayers were recruited over the plan period. Compliance was enhanced through implementing the audit manual for Post Clearance Audit (PCA), introducing excise stamps on wines and spirits, enhanced use of risk profiling and stringent monitoring of district treasuries. Enforcement was improved through the development of an enforcement strategy, upgrading the Investigations and Enforcement (I&E) department, deploying additional enforcement tools such as scanners, electronic cargo tracking equipment and radiation detection equipment among others. A framework for risk profiling was implemented for management of tax refunds to accelerate refunds to compliant taxpayers.

KRA has also been able to incorporate several lessons learnt during the Third plan period. The importance of preparing adequately for reform projects to ensure they are operationalised as planned is recognised. The need for continuous efforts to retain the ISO certification is now well understood. Some critical activities lagged as they were considered less priority, including the disaster recovery and business continuity plan, an ERP system using the Free Open Source Software (FOSS) for support departments’ automation and critical components of the work environment. These delays in implementing what may at first seem less important initiatives constrain overall performance in future hence the need to ensure all aspects of the Authority’s operations move in tandem. These lessons will be incorporated during the Fourth plan period.

3. OPERATING ENVIRONMENT

The operating environment to be faced over the Fourth plan period is likely to be more challenging than that faced over the Third plan period where robust economic growth underpinned strong revenue performance. Instead, poor economic performance in 2008, where GDP growth was barely 1.7 per cent and the modest

xiii

recovery forecast in 2009, the adverse effects of the global financial crisis and the lingering effects of the post-election violence of January 2008 characterise the economy as we move into the Fourth plan period. Despite this, the Authority will have to meet ambitious revenue targets to enable the government implement the first phase of its Vision 2030.

The PEST (Political, Economic, Social and Technological) framework is ideal for analysing the operating environment in which KRA expects to operate. The key elements are:

◊ Political environment likely to be characterised by change, as Kenya goes through a constitutional review process and with several EAC countries scheduled to hold elections during this period.

◊ Economic environment will be dominated by an ambitious government policy framework, the Vision 2030 and its First Medium Term Plan 2008-2012 (MTP) which will however have to be implemented with the backdrop of poor economic performance in 2008 and 2009.

◊ Social environment where Kenya, despite being one of the strongest regional performers in tax collection and KRA one of the most respected public entities, still shows inadequate commitment to the principle that those who qualify to pay taxes should do so. Kenya’s legal environment still has shortcomings, but the general thrust is positive with several Acts of Parliament and proposed Bills being favourable to tax administration. Corruption is still considered excessively high in Kenya despite the enactment of the Economic Crimes Act in 2003 and the Public Officers Ethics Act. Corruption will be a major challenge.

◊ Technological advances, especially in information technology, will work to the advantage of KRA. With Kenya being an implementing party to the TEAMS undersea cable and the laying of fibre optic cables, and with other advances in ICT, communications costs are expected to decline and with increased use of this medium, KRA scope for its operations increases.

KRA has also conducted a SWOT (strengths, weaknesses, opportunities and threats) analysis. Key strengths include the high regard the public has of KRA, the proven capacity to adapt to changes, the fact that the core business has been fully computerised and the regional distribution of the Authority allowing it to react to local changes rapidly. Key weaknesses include inadequate staff in key professional areas, inadequate facilities, a weak performance management appraisal system and a failure of significant number of staff to adhere to the organisation’s core values. Opportunities include those offered by technological advancement, the new tax initiatives such as the turnover tax (TOT) which will broaden the tax base and the opportunity provided by the global crisis for KRA to prove its worth to the country at large. Some threats for the Authority include some exit of high calibre staff to the private sector organisations, influx of counterfeit goods and vulnerability of political and social changes.

xiv

4. MAJOR STRATEGIC INITIATIVES The major strategic initiatives over the plan period are the following:People issues: The strategic objective is to develop a professional team that is well remunerated. This will require ensuring competitive remuneration of staff, career development and progression, enhancing training opportunities and staff integrity, and implementing a mentoring and coaching programme in the organisation. The draft KRATI Strategic plan will be reviewed, approved and implemented.

Work environment issues: The strategic objective is creation of an enabling work environment. KRA has completed its work environment policy and identified the required initiatives to implement the policy. During the Fourth plan period, the policy will be implemented with additional initiatives to ensure KRA also meets the requirements of ISO standards with respect to work environment. Of critical importance will be the rehabilitation and upgrading of facilities in the out stations which are below par.

Automation: The strategic objective is full automation of the Authority and ensuring that KRA IT is fully integrated allowing for a single view of the taxpayer and full utilisation of IT to promote compliance. KRA will complete the automation of the support departments using the Free Open Source Software (FOSS) systems. The ITMS system and integrated RTD systems will be implemented while KRA systems will be integrated. A disaster recovery and business continuity plan, contingency plans and other measures to ensure business continuity will be developed and implemented. IT systems will be modernised to strengthen enforcement and collection efforts. ICT services, information and security systems will also be enhanced.

Functional structure: KRA has been implementing the shift from a tax based structure to a functional structure. The strategic objective in this regard is completion of the transition to a fully functional organisation. During the plan period, KRA will implement an integrated audit function and a wide risk management system, ensure it retains ISO certification for quality purposes and complete the functional re-organisation of regional offices.

Customer focus: During the Third plan period KRA operationalised its Taxpayer Charter and aligned service delivery to this charter through its internal standards. However, it has emerged through various customer satisfaction surveys and the National Business Agenda released by the private sector that despite improved services, taxpayers still face problems relating to refunds management, customs clearance time, excessive time spent in queues, complexity of forms and procedures and understanding of statutory procedures such as valuation, classification, etc. In this regard the strategic objective is minimising customer compliance costs and enhancing customer service.

The focus of the plan will be improving service options to taxpayers, delivering

xv

focused education outreach and alternative services, strict adherence to the provisions of the Taxpayers Charter, revamping the customer care desks and the call centre programme and enhancing participation by simplifying return filing, reducing record keeping requirements and operationalisation of the Tax Tribunal once the appropriate legal framework is in place.

Revenue: the principal revenue challenge will be to maintain revenue growth above nominal GDP growth in line with resource requirements. In this regard, the strategic objective is achieving revenue targets by rolling over uncompleted revenue mobilisation initiatives, whilst pursuing new revenue and compliance initiatives to maturity. KRA will focus its efforts on ensuring the new revenue initiatives introduced during the Third plan period deliver. These include the Turnover tax (TOT) regime, the Electronic Tax Register (ETR), the various non intrusive systems for monitoring transit goods and mis-declarations such as Electronic Cargo Tracking and Scanners among others. The Authority will also implement its enforcement strategy, vigorously prosecute offenders and promote professionalism and ethical practice among stakeholders.

KRA will continue to use the Balanced Score Card approach to manage the implementation of initiatives to achieve these goals. The Corporate BSC will continue adhering to the four perspectives of the Second and Third plans; the people perspective, internal processes, customer and revenue.

5. MONITORING AND EVALUATION Monitoring and evaluation is geared towards identifying and measuring the gains made from specific instituted programmes and projects. The overarching goal of having monitoring and evaluation system in place is to assist in:

• Evaluating and adjusting strategies and activities;

• Reporting on progress on the key issues being implemented;

• Identifying lessons learned; and

• Improving the programming of new interventions and strategies.

During the Fourth Corporate Plan period, KRA will need to ensure its M&E systems adhere to the National Monitoring and Evaluation (NIMES) system, whose objective is to provide a consistent framework for ensuring the efficiency and effectiveness of Government policies and programmes as well as track and provide feedback on Government policies and programmes. The guidelines require the identification of input and process indicators, output indicators, outcome and impact indicators. They also require the identification of three to four indicators for national monitoring and, 12-15 indicators for ongoing ministerial monitoring, identification of annual targets for inclusion in the authority’s performance contracts and the generation of a target results matrix.

xvi

The Fourth Corporate Plan identifies a set of 15 outcome and output indicators in line with the provisions of the strategic planning guidelines. Out of these 15 indicators, a set of four outcome indicators have been identified for national monitoring and evaluation under the NIMES framework. The indicators will replace the Key Performance Indicators (KPIs) used in past corporate plans.

6. FINANCING THE CORPORATE PLAN As is the practice and in line with the guidelines, KRA’s resource framework is based on the Authority’s Medium Term Expenditure Framework (MTEF) budget with a view to ensuring a realistic resource envelope is generated and this forms the basis for resource allocation to priority areas. The resource framework has also taken account of the tradition of Ministry of Finance funding key development activities directly as well as potential for development partner funding.

Achievement of the key strategic objectives highlighted in the corporate plan will be dependent on the resources availed to KRA. Section 16 of the Kenya Revenue Authority Act (Cap. 469) provides for the funding of the Authority to consist of not more than two per cent of the revenue estimated in the financial estimates for each financial year to be collected by the Authority under this Act; and three per cent of the revenue collected in each successive three-month period in the financial year in excess of the amount estimated to be collected in respect to that period. The Authority may also receive loans and grants with the approval of the Minister; and any other monies as may, with the approval of the Minister, be received by or made available to the Authority for the purpose of performing its functions.

Revenue forecasts are based on the Budget forecasts contained in the Printed Estimates 2009/10 and the Budget Strategy Paper 2009/10 to 2011/12. If KRA maximises the revenue allowable under the Act, i.e. is provided with a two per cent agency fee for all years of the plan, and is paid all its arrears, it can expect revenues to rise from Kshs. 10.3 billion in 2008/2009 to 12.53 billion in 2009/10 and Kshs. 14.8 billion in 2011/12. In addition, development funding is expected from the Ministry and development partners.

Total recurrent expenditures (before depreciation) are expected to total Kshs. 12.1 billion in 2009/10 and rising to Kshs. 14.8 billion in 2011/12. In 2009/10, staff costs are expected to account for 67 per cent of recurrent expenditures before declining to 64.8 per cent in 2011/12 due to a full review of staff remuneration scheduled for 2009/10. The growth then evens out in year two of the plan period.

The KRA development agenda outlined in Chapter 4 will require considerable outlays. It is estimated that total capital expenditures of Kshs. 10.2 billion will be required to implement the plan. This level of resources will not be available under the forecast agency revenues and will therefore require development financing from the Treasury.

KRA will need to put into place measures to ensure it receives the necessary

xvii

funding. The Authority will continue lobbying vigorously at the Treasury and sensitising the Ministry staff on KRA’s requirements. In this regard it is imperative that KRA manage the relationship with the Treasury better. Secondly, KRA will recommend for the amendment of the KRA Act to allow the Authority to automatically retain agency fee from revenue collections. A third initiative will be to lobby for a one off payment to cater for the considerable backlog in facilities that is threatening service delivery. KRA will also pursue new avenues of business to widen the resource envelope.

xviii

OUR VISION

To be the leading Revenue Authority in the world respected for professionalism, integrity and fairness.

xix

CORE VALUES

The guiding principles to our activities as an organisation both internally and externally will be guided by the following core values:

Integrity We uphold highest standards of trust and honesty.

Professionalism We ensure competency and efficiency and we focus on achieving excellence.

FairnessWe are committed to applying the law consistently, responsibly and administering our requirements reasonably.

Equity We value differences in people and ideas and we treat others with dignity and esteem.

Commitment and teamworkWe support the principle of teamwork and nurturing staff commitment.

Corporate Social ResponsibilityWe value all our stakeholders and collaborate with them to nurture participatory social well-being.

xx

OUR MISSION

To promote compliance with Kenya’s tax, trade, and border legislation and regulations by promoting standards set out in the Taxpayers Charter and responsible enforcement by highly motivated and professional staff thereby maximizing revenue collection at the least possible cost for the social- economic well-being of all Kenyans.

xxi

QUALITY POLICY STATEMENT

Kenya Revenue Authority is committed to developing a dedicated professional team, embracing modern processes and technologies, and delivering customer focused services that enhance compliance and revenue collection. The Authority shall endeavour to continually improve revenue collection and service delivery by meeting the requirements of ISO 9001: 2000 on quality management systems.

QUALITY OBJECTIVES

o Develop a dedicated and professional team

o Re-engineer business processes and modernise technology

o Improve and expand taxpayer services

o Enhance revenue collection and strengthen enforcement

xxii

OUR STRATEGIC GOALS

The strategic goals during the Fourth Corporate Plan are:

◊ Develop a professional team that is well remunerated,

◊ Createanenablingworkenvironment,

◊ Full automation of the Authority and ensuring that KRA IT is fullyintegrated allowing for a single view of the taxpayer and full utilisation of IT to promote compliance,

◊ Completethetransitiontoafullyfunctionalorganisation,

◊ Minimising customer compliance costs and enhancing customerservice, and

◊ Achieving revenue targets by rolling over uncompleted revenuemobilisation initiatives, whilst pursuing new revenue and compliance initiatives to maturity.

KRA will continue to use the Balanced Score Card approach to manage the implementation of initiatives to achieve these goals. The Corporate BSC will continue adhering to the four perspectives of the Second and Third plans: the people perspective, internal processes, customer and revenue.

xxiii

STRATEGIC THEME

“Attaining international best practice in revenue administration by investing in a professional team, deepening reforms and quality service delivery to enhance compliance.”

xxiv

xxv

xxvi

xxvii

1

CHAPTER 1

1.1 Introduction

In 2009, Kenya Revenue Authority (KRA) will celebrate 14 years since its formation in July 1995. KRA was established with the core function of mobilising revenue for the Central Government through effective tax administration as well as carrying out additional responsibilities mainly related to customs control. KRA is required by statute to assess, collect, and account for all revenues in accordance with specific laws set out in the first part of the First Schedule of the Kenya Revenue Authority Act Cap. 469 and the revenue provisions of the second part of the First Schedule; advise on matters relating to the administration of, and collection of revenue under the written laws or the specified provisions of the written laws; and perform such other functions in relation to revenue as the Minister (for Finance) may direct.

1.2 Establishment of the Kenya Revenue Authority

The Kenya Revenue Authority was established by an Act of Parliament (Cap. 469) on July 1, 1995 for the purpose of enhancing mobilisation of Government revenue, while providing effective tax administration and sustainability in revenue collection. Before 1995, the revenue collection functions of the Government were distributed among at least five different ministries and/or Departments. Lacking in co-ordination, their performance was characterised by inefficiency and low levels of accountability. The rationale behind the establishment of the Authority arose from the need to enhance efficiency, transparency and accountability in this critical area of the public sector. The main objective of the establishment of KRA, therefore, was to streamline the public revenue-generation function by bringing the relevant agencies under the umbrella of the central finance agency, the Ministry of Finance. This restructuring was expected to provide an effective administration for the enhanced mobilisation of Government revenue in a sustainable manner.

In particular, the functions of the Authority are:

• To assess, collect and account for all revenues in accordance with specific laws set out in the first part of the First Schedule and the revenue provisions of the second part of the First Schedule.

• To advise on matters relating to the administration of, and collection of revenue under the written laws or the specified provisions of the written laws.

• To perform such other functions in relation to revenue as the Minster (for Finance) may direct.

2

1.3 The Revenue Acts administered by the Authority

In order to realise its mandates, the Authority administers the following written laws relating to revenue:

The Income Tax Act (Cap. 470) 1.

The East African Community Customs Management Act2.

The Customs and Excise Act (Cap. 472) 3.

The Value Added Tax Act (Cap. 476) 4.

The Road Maintenance Levy Fund Act 1993 (No. 9 of 1993) 5.

The Air Passenger Service Charge Act (Cap. 475) 6.

The Entertainment Tax Act (Cap. 479) 7.

The Traffic Act (Cap. 403) 8.

The Transport Licensing Act (Cap. 404) 9.

The Second Hand Motor Vehicle Purchase Tax Act (Cap. 484) 10.

The Widows and Children’s Pensions Act (Cap. 195) 11.

The Parliamentary Pensions Act (Cap. 196) 12.

The Stamp Duty Act (Cap. 480) 13.

The Betting, Lotteries and Gaming Act (Cap. 131) 14.

The Directorate of Civil Aviation Act (Cap. 394) 15.

The Standards Act (Cap. 496)16.

The Government Lands Act (Cap. 280)17.

1.4 The organisational governance structure and management

KRA’s Governance and management are organised as recommended by international best practice for Semi Autonomous Revenue Authorities (SARA’s). The Board of Directors (BOD) is the governing body of KRA as set out in the KRA Act. It has two ex-officio members from the Government, the Permanent Secretary to the Treasury and the Attorney General, and six other members from private sector. The BOD is responsible for the review and approval of policies and monitoring the functions of KRA. Day-to-day management of the organisation is the responsibility of the Commissioner General who is assisted by six Commissioners in charge of Customs Services Department (CSD), Domestic Taxes, Large Taxpayer Office (LTO), Domestic taxes Domestic Revenue (DR) Road Transport Department (RTD), Investigations and Enforcement (I&E) and

3

Support Services Department (SSD) respectively. In addition there are (six) headquarters departments, the Board Secretary Corporate and Administration Department (BSC&A), the Human Resources Department (HR), the Finance Department, the Internal Audit and Risk Management Department (IA&RM), the Information Communications Technology department (ICT), the Marketing and Communications Department (M&C) and five Regional Offices, for Southern Region (headquartered in Mombasa), Central Region (headquartered in Nyeri), Rift Valley Region (headquartered in Eldoret), the Western Region (headquartered in Kisumu) and the Northern Region (headquartered in Embu).

By the end of May 2009, KRA has a total staff strength of 4,305 distributed as follows CSD- 1,199, DTD – DR 1074, DTD – LTO 191, RTD- 212 , I&E- 119, SSD -55, HR -136, Finance -212, ICT- 126, BSC&A -591, IA&RM- 25, M&C- 61, headquarters -40 and Training (Graduate Trainees) -264.

The Authority has been restructured from a tax-based organisation to a functional form. A functional-based structure removes duplication, provides for a single point of access for taxpayer enquiries, common registration function, unique identification numbers for each taxpayer, a single accounting framework, enforcement and audit across taxes, dedicated information processing operations, and common support functions. Hence, there are significant benefits of moving to a functional form.

4

5

Over the period of 1995 to 2009 KRA has been successful in meeting its mandate. Revenue collection rose from Kshs. 122 billion in 1995/96 to Kshs. 480.billion in 2008/09. Hence, revenues have grown by an annual average of 14.1 per cent over the period to 2008/09. With revenues totalling Kshs. 297.7 billion in 2005/06, the average annual growth over the Third Corporate Plan period is estimated at over 18 per cent.

This strong revenue performance has been matched by improvements in customer service, primarily driven by initiatives in automation, integrity and enhancing professionalism in service delivery. During the plan period KRA has delivered on its mandate, transformed its public image, and is now widely regarded as a high performing Public Sector Parastatal. Highlights of its success include achieving a rare ‘triple’ of meeting its revenue targets while simultaneously being voted the most respected public sector institution and exiting from the Transparency International’s Urban Bribery Index in 2007. In addition, KRA was able to successfully re-brand and be ISO 9001: 2000 certified.

A string of achievements characterised the Third plan period include: introduction of e-filing and e-registration for Domestic Taxes through the Integrated Tax Management System (ITMS); Computerisation of cash receipting through the Computerised Cash Receipting System (CCRS), Taxpayer Segmentation, integration of Custom Services Department Simba 2005 System with the Road Transport Department’s Vehicle Management System (VMS); and acquisition of enforcement tools such as scanners, patrol boats, and Electronic Cargo Tracking System (ECTs).

KRA was able to record these achievements by focusing on the four strategic goals of the Third Corporate Plan, namely:

• Developing a dedicated and professional team,

• Re-engineering business processes and modernising technology,

• Improving and expanding taxpayer services, and

• Enhancing revenue collection, improving compliance and strengthening enforcement.

KRA’s strong performance during the Third Corporate Plan period should mean that the Authority enters the Fourth plan period with a stronger foundation. However, external events have meant that the environment will not be as favourable as it was during most of the Third plan period. Three key events mean that the 2009/2010 fiscal year will be an adjustment and disaster management year rather than the dynamic growth-oriented year envisioned in the Government’s plans. These events are:

• The post-election violence in 2008 which both dislocated economic activity and undermined investor confidence. According to the Economic Survey 2009, economic growth in 2008 was 1.7 per cent (compared to a forecast of 6.4 per cent in the 2007/08 Budget Strategy Paper) with sluggish growth

6

expected to continue in 2009,

• The drought conditions experienced in 2009 which saw the Government declare the drought a national disaster, leading to reduced growth expected from agriculture. Since agriculture provides the main source of income for majority of Kenyan households, the bulk of merchandise exports which is the largest source of raw materials for industry, the drought conditions will undermine other sectors of the economy as well. In addition, the Government has been forced to shift its expenditures away from national development to famine relief as well as allow for tax free importation of food products, undermining revenue performance in 2008/09, and

• The global financial crisis whose effects are yet to be fully felt , but which has already led to a depreciation of the Kenyan currency, declining diaspora remittances, weakening export and tourism performance and is expected to lead to reduced Overseas Development Assistance (ODA) and Foreign Direct Investment (FDI).

Despite the less than rosy external environment, KRA enters the Fourth Corporate Plan period (2009/10 – 2011/12) against a backdrop of an ambitious Government development agenda outlined in the Kenya Vision 2030 whose aim is to create a globally competitive and prosperous country with a high quality of life by the year 2030. It aims to transform Kenya into a newly industrialised, middle income country providing a high quality of life to all its citizens in a clean and secure environment. The vision is anchored on three key pillars: economic; social; and political governance.

Phase I of the Vision is to be implemented through the First Medium Term Plan (2008-2012). The plan identifies the key policy actions and reforms as well as programmes and projects that the Grand Coalition Government intends to implement over the period (2008-2012). The overall objective is to realise a higher and sustainable growth of the economy in a more equitable environment, accompanied by increased employment opportunities. Overall growth in the Gross Domestic Product (GDP) is expected to rise from 4.5 per cent in 2008 to 10 per cent in 2012. The plan also envisions rapid recovery in tourism, revamping the agricultural sector and raising growth in the manufacturing sector to 10-12 per cent by 2012.

Underpinning the fiscal programme for the Medium Term Plan (MTP) are measures to sustain the revenue to GDP ratio at 20-22 per cent throughout the medium term plan mainly from increased efficiency in revenue collection with reforms and modernisation efforts. Maintaining a strong revenue effort is expected to be achieved despite the reduction in the scope of raising taxes from duties as a result of the ongoing Common Market for Eastern and Southern Africa (COMESA) and East African Community (EAC) trade liberalisation and the coming into force of the Economic Partnerships Agreement (EPA) between the EAC and European Union (EU). KRA will once again be expected to spearhead Government efforts to mobilise resources and thus ensure the ambitious development agenda is fully

7

funded.

The Fourth Corporate Plan outlines priorities, strategies, and expected results over the next three years. It describes the future direction of KRA from July 2009.

KRA will continue to streamline and integrate the governance process with focus on transparency, accountability and making it easier to comply, supported by better enforcement measures. It is expected that the gains in the Third Corporate Plan will allow further reforms in the Fourth Corporate Plan to cascade modernisation initiatives and adopt a structure to support operations.

The Fourth Corporate Plan was developed through:

• A review of past and current information about the Authority,

• Examination of the strategic direction of other tax administrations in the region as well as those of developed economies,

• Incorporating the opinions of stakeholder, both external and internal, including taxpayers, professional organisations, staff, Board of Directors, Ministry of Finance (Treasury) and other Government Parastatals and Ministries through reviewing submissions and carrying out Focused Group Discussions (FGDs), and

• Conducting technical and Top Management reviews of emerging proposals.

KRA has also modified its traditional planning process to take account of the requirements of the Guidelines for the Preparation of Strategic Plans 2008-2012 produced by the Ministry of State for Planning and National Development and Vision 2030. These guidelines require stakeholder consultations, ensuring linkages to the Medium Term Expenditure Framework (MTEF), assessment of risks, a monitoring and evaluation framework in line with the national monitoring and evaluation framework and including both outcome indicators for national monitoring as well as 12-15 indicators to be monitored by the parent ministry, as well as alignment to Vision 2030, the First Medium Term Plan (2008-2012), performance contracting guidelines and the National Monitoring and Evaluation System Master Plan (NMESMP).

The modifications have however not been allowed to change the Corporate plan from one that is in line with the traditional KRA approach which is built around the Balanced Score Card (BSC) concept and is amenable to performance contracting and continuous performance evaluation. There are therefore adequate provisions to ensure continuity with the Third plan even as changes are introduced into the planning process.

8

CHAPTER 2

EVALUATION OF THE THIRD CORPORATE PLAN

2.1. Introduction

KRA’s strategic theme during the Third Corporate Plan period was to develop a dedicated professional team embracing modern processes and technologies to deliver customer focused services that enhance compliance and revenue collection. The strategies were based on the four perspectives of the balanced scorecard namely; People, Internal Processes, Customer and Enhanced Revenue Collection.

The strategic goals for the plan period were:

• Developing a dedicated and professional team;

• Re-engineering business processes and modernising technology;

• Improving and expanding taxpayer service; and

• Enhancing revenue collection and strengthening enforcement.

2.2. Evaluation of the Third Corporate Plan

The performance of the Third Corporate Plan has been evaluated against the four perspectives as follows;

Goal 1: Developing a dedicated and professional team

This objective was to be achieved through implementation of best Human Resource (HR) practices; a comprehensive recruitment and retention strategy to reduce staff turnover by five per cent; reviewing salaries and benefits to match the market rates; improving staff integrity and the training infrastructure at the Kenya Revenue Authority Training Institute (KRATI) to make it a regional centre of excellence.

Initiatives undertaken:

(1) Implementing human resource best practice: this was to be achieved through four programmes, namely; providing tools, training and incentives to meet the changing demands of the future; attracting and retaining employees with the needed skills; ensuring leadership, continuity and retention of organisational knowledge and promoting an environment that optimises the use of talent and encourages employees to excel.

a) Providing tools, training and incentives to meet the changing demands of the future:

9

i) The Annual Training Programmes were developed and implemented, with staff attending both local and international courses. In addition, senior managers were trained on tax administration and advanced management courses; induction courses were conducted for new employees and a web-based Training of Trainers (TOT) carried out for 17 officers. KRA also facilitated its staff to acquire laptop computers through provision of loans.

ii) Refresher courses were conducted for various revenue programmes to enhance technical competences. In addition, a number of training courses were facilitated by the Regional Office for Capacity Building (ROCB).

b) Attracting and retaining employees with needed skills:

i) Remuneration: A new salary structure was approved to be implemented in three phases. Two phases were implemented in 2006/07 and 2007/08 while the third is still pending.

ii) A total of 120 Graduate Trainees were recruited annually to ensure succession in the Authority and cater for natural attrition. They underwent training on tax administration and mandatory paramilitary training at the Administrative Police Training Centre (APTC), Embakasi. An additional 240 Border Control Officers were recruited and undertook the same training. The latter were deployed to Customs Services Department to boost the enforcement team.

c) Ensuring leadership, continuity and retention of organisational knowledge:

i) Career development paths were developed and will be implemented during the Fourth plan period.

ii) KRA reforms were documented in a book entitled Tax Administration in Kenya; the Authority developed an internal and external communication policy; business process mapping for revenue departments was undertaken and the process maps uploaded to KRA intranet.

d) Promoting an environment that optimises the use of talent and encourages employees to excel:

i) The Performance Management System was developed and rolled out across the Authority. In addition, a Staff Recognition and Reward Policy was developed and implemented in 2007 and 2008.

ii) Policies on Mentoring & Coaching and Psychometric Testing were developed and staff sensitised on them.

e) Improving Integrity: the core initiative was the establishment of an Internal Affairs Department (IAD) to handle internal integrity issues. The integrity efforts however went beyond the planned activities.

10

i) An Internal Affairs Division (IAD) was established to handle staff integrity issues. A notable achievement of the division was the implementation of the KRA integrity testing programme;

ii) 1The Authority’s integrity action plan (IAP) was implemented by setting up Corruption Prevention Committees (CPCs) in all departments and regions. Corruption Risk Assessment (CRA) and Corruption Prevention Plans (CPP) were prepared, 198 additional Integrity Assurance Officers (IAOs) were trained; a Conflict of Interest Policy was developed and implemented while KRA’s Disciplinary Committee (DISC) was revamped. KRA also entered into an agreement with KIFWA to jointly fight corruption by signing the Mombasa Declaration on Integrity.

These initiatives enabled the Authority to make a historic exit from the Transparency International Urban Bribery Index for the year 2007.

(3) Developing KRATI into a Regional Centre of Excellence: the core initiative was improvement of infrastructure at the institute. KRATI was also to explore the potential for upgrading its courses including local and international collaboration. In addition, KRATI was to develop and implement curricula that met international best practice and thus allow it to become a regional centre of excellence.

i) Renovation of offices, lecture halls and hostels at KRATI was undertaken. Infrastructure for e-learning was installed under the auspices of World Customs Organisation (WCO).

ii) KRATI entered into an MOU with the University of Canberra (Australia) and JKUAT to offer management courses. KRA is currently in discussion with ESAMI and the University of Nairobi to collaborate on training on taxation.

Goal 2: Re-engineer business processes and modernise technology

Three initiatives were to implement this perspective to ensure a “single view” of the taxpayer; modernising IT systems for improved service and enforcement; improving IT and information security in the Authority; modernising and improving business processes and infrastructure.

a) Modernising IT systems for improved service and enforcement

i) Modernisation of CSD: The department continued to roll out Simba 2005 System to remote stations. During the plan period, Garissa, Lamu, Moyale, Mandera, Wajir and Lokichoggio stations were connected to Simba 2005 System. The system was enhanced by activating ORBUS and LEUK modules. Post-Simba, a Time Release Study (TRS) was carried out and its findings implemented,

1 The First Schedule contains written laws relating to revenue.

11

ii) Document Processing Centre (DPC): A 24-hour DPC was operati-onalised, to cater for the centralised processing of import documents. Clearing agents and importers can now lodge their documents any time of day and from anywhere in the world. Entries are processed within 24 hours of being lodged.

iii) Customs Oil Stock Information System (COSIS): This web-based computer system was introduced to manage the stock of all oil refined or imported into the country for domestic consumption or for export. The system has assisted in monitoring the stock held and drawn by individual oil marketers at any given time.

iv) Valuation Database: KRA began the process of acquiring a valuation database through a Government to Government arrangement with India. A ground study on the valuation database was done and software developers were identified to design and develop the valuation database system. The database is expected to address the current valuation challenges and boost revenue collection.

v) A total of eight X-ray scanners were acquired: They are to assist in verification and detection of uncustomed goods and mis-declaration of containerised cargo. These were deployed to Kilindini Port, Swissport Cargo Services (JKIA), the Inland Container Depot (ICD-Embakasi), Mombasa and Eldoret Airports.

vi) Cargo Management Information System (CAMIS): This data tracking system is aimed at improving service delivery and reducing compliance costs by providing a one stop centre for taxpayers. It is currently deployed at Kilindini.

vii) Electronic Cargo Tracking System (ECTS): An ECT system was introduced to track transit cargo from ports to borders to minimise diversion of transit cargo into the domestic market.

viii) Modernisation of DTD Operations: The Authority commenced the development and implementation of the Integrated Tax Management System (ITMS) in a phased approach. The piloting of the system began with online registration of taxpayers (this include PIN application, and registration for a variety of tax obligations i.e. VAT, Excise Duty, PAYE and Corporation Tax) and online filing of returns (VAT 3 and VAT 32). E-registration is fully operational and cumulatively, 60,310 new taxpayers had registered online by the end of May 2009.

ix) Modernisation of RTD Operations: The Vehicle Management System (VMS) and Simba 2005 System were linked, allowing for payment of motor vehicle registration fees with import duty. The integration process enabled vehicle importers to seamlessly pay for the registration along with other relevant customs duties online through the Simba System. The VMS was also integrated with the PIN database to allow for verification of the PIN numbers for RTD transactions. In addition, VMS

12

was integrated with Cash Receipting System (CRS) to facilitate online calculation and payment of taxes.

x) FOSS ERP: During the Third Corporate Plan period, KRA became the first public institution to implement Free and Open Source Software in the Republic of Kenya. The Authority is currently in the process of implementing a FOSS Enterprise Resource Planning (ERP) system which will merge the support administrative functions to enable efficiency, effectiveness and transparency. It will provide an integrated application with a unified database.

xi) LAN/WAN Connectivity: The Local and Wide Area Networks (LAN/WAN) were enhanced to improve connectivity and to allow more users to connect to the network.

xii) Library System: In line with the Authority’s vision of realising cost effective systems, KRA implemented free and open source software (KOHA) to manage the library process.

xiii) Integration with stakeholder systems: Due to the strategic relationship with KPA, KRA developed an interface between its systems (SIMBA and CAMIS) and the KPA system (KWATOS) for exchanging data that facilitates faster cargo clearance from the port of Kilindini.

xiv) Common Cash Receipting System (CCRS): KRA commenced implementation of CCRS. This system has been successfully piloted with payments of transfer of motor vehicles and VAT. The implementation of CCRS will ensure prompt update of taxpayers’ ledgers and reliability of bank reconciliation.

xv) KRA Revenue Portal: During the period, the revenue portal, KRAOnline was developed. The portal facilitates controlled access to applications by providing a single window for communication with stakeholders. It provides a single view of all KRA online systems.

b) Ensure IT services meet international standards and support operational needs:

i) ICT service desk and incident management: As part of ICT best practice based on ITIL framework, an ICT help desk was established to provide first level ICT support to the Authority. Additionally, incident management and problem management were established. A computer to staff ratio of 1:2 was achieved during the plan period.

ii) Availability management and business continuity: During the plan period, back-up links were installed between Times Tower and Mombasa and Forodha-Nairobi. Back up links were also installed for JKIA, Mombasa Customs, KRATI, and Eldoret KPC. Plans are underway for setting up back-up links to all critical stations. Monitoring of Wide Area Network (WAN) availability was also undertaken through the implementation of a WAN dashboard to monitor the KRA WAN countrywide. In addition,

13

improvements have been made in the computer centre including server environment improvements and communication/network equipments upgrades. The LAN at the data centre has also been raised to 1000kbs and the data storage capacity increased to store more data.

c) Improve IT and information security in the Authority:

i) Maintain safe and secure workplace environment: During the period, the Authority undertook a network audit and analysis of its systems and identified areas of weakness which were sealed off through application of security patches. The end user awareness was also conducted, consequently reducing security breach incidences. The Authority also developed policies and standards whose aim was to guide staff on information security and confidentiality, especially on password management.

ii) Maintain cost-effective risk-based information security programmes and controls: The Authority institutionalised system security controls in the development and maintenance of all revenue systems. In addition, limited training of Information Systems (IS) security personnel was undertaken. Annual internal security controls were conducted. Further, there is an ongoing security audit review of KRA systems that is being conducted by an external consultant to provide an independent assurance of the Authority’s IT environment.

iii) Develop disaster recovery and business continuity plans and other measures to ensure business continuity at all times: During the Third corporate plan period, the Authority formulated a disaster recovery strategy. An appropriate disaster recovery site and the necessary infrastructure requirements were identified. Liaison teams were formed to develop the business continuity plans.

d) Modernising and improving business processes and infrastructure:

i) Regional exchange of information: Through the Revenue Authority Digital Data Exchange (RADDEX), KRA was able to initiate real-time data exchange with Uganda Revenue Authority (URA). Live data on exports, ex-warehouse and transit goods is being exchanged between KRA and URA through the Simba 2005 System (KRA) and Ascyuda++ System (URA). This has enabled cancellation of bonds and confirmation of exports online. The second phase of the data exchange was rolled out to the Rwanda Revenue Authority (RRA) and Tanzania Revenue Authority (TRA) in December 2008.

ii) Self assessment declarations: A self assessment system was introduced during the plan period. This system requires all declarations through Simba 2005 System to be accompanied by evidence of payments. This initiative promoted voluntary compliance and encouraged correct declarations.

14

iii) One-stop border post: As part of the East African Trade and Transport initiative, Malaba and Busia border stations operate a fully functional joint verification of cargo with Uganda Revenue Authority (URA). The same initiative is being implemented at Namanga with Tanzania Revenue Authority (TRA). Real-time monitoring system has been developed with aid of Japan International Cooperation Agency (JICA) to facilitate faster cargo movement at exit points.

iv) Passenger declaration: In conformity with international best practice, a Passenger Declaration Form (F88) was introduced to allow pre-clearance of customers. The forms are issued to passengers on incoming flights while on board and are surrendered to customs officers on arrival. They are aimed at promoting compliance and hasten clearance.

v) Review of the CSD structure: The departmental structure was reviewed in conformity with the changing operating environment and to deal with structural, human and technological challenges.

vi) Excise duty – Domestic: A number of administrative measures were introduced to strengthen the implementation of excise stamps. These include; new regulations for manufacturers of spirits and licensing of duty-free and denatured spirits; update and introduction of the legislative amendments that recognise technology in the proposed Excise Bill; enforcement of installation of flow meters by distillers, and use of the Simba 2005 System to countercheck the exports of cigarettes destined for Uganda and Democratic Republic of Congo market to minimise their diversion into the local market.

vii) Advance tax: Advance tax for PSV drivers and conductors was successfully implemented.

viii) Turnover tax (TOT) was introduced with effect from January 2008. The objective was to reduce the administrative burden of small taxpayers. TOT aims at broadening the tax base and increasing the participation of the fast growing informal sector.

ix) Land rent: KRA took over the collection of land rent from Ministry of Lands with effect from January 2007. Since the takeover, the rent collection has registered tremendous growth.

x) Logbooks: During the plan period, old logbooks were phased out and replaced with computer generated security printed logbooks.

xi) Document scanning: All motor vehicles’ and drivers’ data was scanned and stored electronically. This has fastened the ownership transfer process.

xii) Motorcycle number plates: New number plates were introduced for motorcycles, tractors, and tippers. Registration of motorcycles was rolled out to Kisumu in Western Region.

15

xiii) Decentralisation of RTD services: A number of services were decentralised to the regions. They include; endorsement of driving licenses, issuance of dealers licences and replacement of the old motorcycle plates with unique plates.

xiv) Other RTD initiatives: During the plan period, the following initiatives were undertaken; development of Driving License Management System (DLMS); issuance of number plates at Container Freight Stations; mobile licensing and use of wireless technology in collecting revenue in Busia, Bungoma, Narok, and Mwingi.

xv) Quality Management System: KRA was ISO 9001:2000 certified on 2th September, 2007 by SGS. The certification underscores the Authority’s commitment to performance within universally acceptable standards, in its quest to be the leading revenue authority in the world. Three Surveillance Audits were conducted by SGS and the certification has been continued after the Third Surveillance Audit that was conducted in February, 2009. In addition, KRA internal standards were developed and implemented.

xvi) Process mapping: Process mapping was undertaken during this period for all key processes in the Authority. The process maps provide a knowledge base on all procedures undertaken in the various departments and help in business process re-design.

xvii) Other initiatives undertaken include centralisation of administration services including transport and single premises for KRA stations in Nyeri, Embu and Eldoret. The support services also restructured along functional lines. These were ICT, Human Resources, Finance departments and Administration, Procurement and Supplies divisions.

Goal 3: Improve and expand taxpayer service

The core initiatives included improving service options to taxpayers, facilitating participation by all sectors and simplification of the tax process.

Initiatives undertaken during the plan period include:

a) Improve service options to taxpayers:

i) A number of enhancements and integrations in Simba and VMS led to the taxpayers being able to access generated tax information electronically to help them comply. In addition, roll out of e-filing, e-registration and e-payment were introduced with the implementation of ITMS.

ii) KRA website maintained and updated to enhance communication with taxpayers.

iii) During the plan period, the following tax awareness initiatives were undertaken; taxpayer education seminars for newly recruited taxpayers and sector-based stakeholders; tax lectures for educational institutions;

16

tax clinics in all the KRA regional offices; and talk shows on radio and television.

iv) In recognition of the taxpayers’ contributions, the Authority hosted the annual taxpayers’ luncheon ceremony.

v) A call centre was established in January 2009 to enhance communication with taxpayers.

vi) The Complaints and Information Centre (CIC) continued to receive taxpayer concerns and follow up with the relevant departments to ensure appropriate responses.

vii) The Taxpayer Charter was revised and uploaded on the KRA website on June 30, 2007. The Charter spells out the rights and obligations of taxpayers with the timelines on when they expect services from the Authority.

viii) The Citizens Service Delivery Charter for road transport services was developed and launched in 2008. The charter spells out the rights and obligations of taxpayers with respect to implementation of the Traffic Act and other relevant statutes.

ix) A Time Release Study (TRS) to measure release times of imports/transit was carried out in 2007 and recommendations implemented.

b) Facilitating participation by all sectors:

i) Established partnerships with key stakeholders such as Traffic Police, Association of Kenya Insurers (AKI); Matatu Owners association (MOA), Matatu Welfare Association (MWA), Kenya International Freight and Warehousing Association (KIFWA), Kenya Bankers Association (KBA) and Rift Valley Railways (RVR). The Authority signed a Memorandum of Understanding (MOU) with KIFWA aimed at addressing matters of mutual interest.

ii) Authorised Economic Operator (AEO) was launched in 2007/08. The AEO status is granted to operators who have over a period of time proven to be reliable traders and partners of customs administration. Such clients are given preferential treatment in dealing with transactions where they have proven track record of compliance with customs operations.

iii) Taxpayer segmentation was implemented in domestic taxes and introduction of relationship management for large taxpayers aligned along sectors.

iv) In a bid to improve compliance, the Authority received support through co-operation with other tax administrations in the EAC region including signing of a Memorandum of Understanding (MOU) between KRA and the Zanzibar Revenue Board.

17

v) Capacity building was enhanced through cooperation with international organisations such as JICA, IMF, World Bank and USAID among others.

• Simplification of the tax process:

i) KRA re-branding: KRA commenced a re-branding programme to enhance its corporate image.

ii) Customs Valuation and Excise Tribunal: KRA commenced the establishment of the Customs Valuation and Excise Tribunal.

iii) Tax Appeal Tribunal Bill: In a bid to harmonise dispute resolution procedures and streamline the appeals process, the Authority produced a draft Tax Appeal Tribunal Bill for consideration by the Ministry of Finance.

iv) Corporate Social Responsibility (CSR): A number of corporate social responsibility activities were undertaken. They include: support of Government funded children’s homes, donations to AIDs orphans, support of the various health-related marathon and charity walks.

v) Tax Procedure Code (TPC): In a bid to harmonise and simplify all the administrative procedures of all the Revenue Laws, the Authority reviewed the draft TPC and forwarded it to Ministry of Finance for consideration.

Goal 4: Enhance revenue collection and strengthen enforcement

The key initiatives were: broadening the tax base, improving compliance, improve enforcement and deter tax and financial abuse, improve debt and refund management and tax exempt facilities, encourage professional ethics and standards and improve expenditures and programme funding.

Ordinary revenues were projected to grow over the plan period by 14.6 per cent, 10.1 per cent, and 11.5 per cent over 2006/07, 2007/08 and 2008/09, respectively. Table 1 below summarises revenue performance:

Table 1: Revenue Collection by Department: FY 2005/06 - 2007/08 in Kshs. Million

Source: KRA Revenue and Finance Departments* Cumulative collection up to April 2009

18

During the plan period, actual revenue collected by KRA rose by Kshs. 136.2 million (46 per cent) from Kshs. 297,699 million in 2005/06 to Kshs. 433,915 million in 2007/08. In the Fiscal Year 2008/09, the Authority collected Kshs. 480,569 million representing a growth of 14 per cent over the Kshs. 418,915 million (excluding the one off payment of Kshs. 15,000 million by Telkom) collected in 2007/08 Fiscal Year.

a) Broadening the tax base

(i) Broaden Tax Base: A total of 84,269 and 123,849 new taxpayers were recruited in 2006/07 and 2007/08, respectively, with a collection of Kshs. 3,196 million for the two years; in 2008/09, by December 2008, 64,251 new taxpayers and Kshs. 807 million was realised.

(ii) Turnover Tax (TOT) Regime: The TOT regime was introduced in January 2008 for businesses with gross annual turnover of below Kshs. 5 million. By April 2009, a total of 8,608 TOT taxpayers had been recruited and Kshs. 127 million realised.

b) Improving compliance:

The following initiatives were implemented; the audit manual for Post Clearance Audit (PCA) was developed and implemented, introduced excise stamps on wines and spirits, implemented Authorised Economic Operator (AEO) principle, risk profiling and risk-based selection for audits was adopted, continued with audit of local authorities, continued with monitoring of district treasuries, PCA quarterly bulletins on sectoral compliance were prepared and established market surveillance unit for domestic excise tax operations.

c) Improve enforcement and deter tax and financial abuse:

i) Investigations and Enforcement (I&E) Department was upgraded to be headed by a Commissioner. A prosecution unit was set up at the department to prosecute those taxpayers whose offences have been compounded.

ii) A KRA enforcement strategy was developed and implementation commenced. The KRA Marine Unit was established in 2007 to enhance surveillance along the coastline and on Lake Victoria and facilitate rapid intervention. So far, three patrol boats have been acquired for use by the unit.

iii) The Authority received enforcement and detection tools from several agencies including: Japan International Cooperation Agency (JICA) donated motor vehicles fitted with communication devices and motorcycles; the US Customs and Border Protection donated equipment for detection of narcotics, explosives, and radioactive materials; the Kenya Ozone Office through National Environment Management Authority (NEMA) donated radiation detection equipment for detecting Ozone Depleting Substances; and the International Atomic Energy Agency (IAEA) donated radioactive detecting equipment for use by customs officers at Kenya borders.

19

iv) Other enforcement measures included: the deployment of E-cargo Tracking System; acquisition of additional X-ray scanners for JKIA, ICD – Embakasi, Mombasa and Eldoret airports; three high speed patrol boats; and four drug detector dogs.

d) Improve debt and refund management:

i) Annual debt collections were Kshs 9.8 billion, Kshs 8.4 billion and Kshs 3.8 billion for 2006/07, 2007/08 and 2008/09 (up to December 2008), respectively. The outstanding stock of debt as at end of April 2009 was Kshs. 117.7 billion.

ii) Risk profiling in refunds: A framework for the management of refunds aimed at fast tracking refund payments through the use of risk profiling was developed and commenced implementation.

e) Encourage professional ethics and standards:

The Authority signed an MOU with KIFWA, which emphasised on the need to instil professionalism on KIFWA members through structured training and development of Code of Conduct, among other issues.

f) Improve expenditures and programme funding:

The cost of collection over the plan period averaged at 1.7 per cent as shown in Table 2 below. The statutory cost of collection is pegged at not more than 2 per cent of revenues collected.

Table 2: Cost of Collection by Departments FY 2005/06-2008/09 in Percentage

Department 2005/06 2006/07 2007/08 2008/09*CSD 1.5 1.3 1.2 1.1DTD 1.0 0.9 0.8 0.8RTD 18.2 23.0 26.8 23.5

TOTAL 1.9 1.7 1.6 1.7

Source: KRA Revenue and Finance Departments*Collections up to April 2009

Review of the Third Corporate Plan’s Monitoring and Evaluation System

The M&E system for the Third Corporate Plan was anchored on six requirements. These were:

(i) Capability of the system to assess progress towards pre-determined objectives, provision of up-to-date reports and enable the provision of recommendations and follow up,

20

(ii) Ability to monitor results based on clearly identified indicators that can be objectively assessed,

(iii) Realistic result chain from outcomes, outputs and activities,

(iv) Verifiable results through documentation and appropriate visits,

(v) Ownership by stakeholders both internal and external so as to maximise the feedback; and

(vi) Continuous learning to allow for improvement and minimise repetition of mistakes.

To operationalise and realise the intended M&E objectives, a new division, the Programme Management and Business Analysis Office (PMBO), was created. The division is mandated to coordinate the reform and modernisation projects and provide support in business analysis and processing mapping at KRA. More specifically the monitoring role involved:

• Breaking down the three-year action plan to annual work plans. The annual work plan was further broken down into quarterly activity schedules for effective monitoring.

• PMBO liaised closely with the Project Managers to ensure that all project initiatives are accomplished within the set timelines to avoid project creeps.

• Internal monitoring and evaluation was undertaken on a continuous basis with monthly co-ordinating committee meetings, quarterly project owner meetings and semi- annual steering committee meetings to review progress.

• Any issues requiring intervention were escalated to the project owners and project sponsor for timely interventions.

• To strengthen the M&E function, third party views were incorporated to conduct an independent audit on implementation progress. This has been done through external stakeholder representation in the steering committee which is the apex body of the KRA Reform Programme.

KRA’S Monitoring and Evaluation structure includes the following:

◊ Programme steering committee: the responsibilities of the steering committee involve five main functions: approval of changes to the programme/projects and its supporting documentation; monitoring and review of the programme; assistance to component project when required; resolution of programme conflicts; and formal acceptance of deliverables.

◊ Project Owners Committee (POC): the departmental heads with overall responsibility for a project are the project owners. They concentrate on their individual projects to assess progress and any interventions to be made by the project sponsor.

◊ Project Coordination Committee: (PCC): the PCC ensures harmonisation and alignment of departmental projects to the corporate objectives and

21

provides a forum for learning and information sharing and dissemination. Led by the head of the PMBO division, its membership comprises of all Project Managers.

Project Implementation Teams (PITs) which include regional representatives

KRA has put in place project management guidelines and all M&E is carried out as per these guidelines. In addition, the KRA M&E framework is subject to external review in the form of quarterly/biannual review by IMF/IBRD missions as well as other development partner organisations.

The monitoring function focuses on key indicators, milestones and outputs (qualitative or quantitative). The evaluation function lays emphasis on relevance (considering the validity and necessity, expected effects, appropriateness of the intervention and consistency with relevant policy of project), effectiveness (whether the initiative achieved the target objective), efficiency (measures how resources are converted to outputs), impact (considers the long term effect of the initiative) and sustainability (whether the outputs or outcomes will last into the future).

KRA also takes advantage of other indicators generated from customer satisfaction surveys and various studies (such as the time release study for customs processes) which provide output and outcome measures.

At the corporate level, all RARMP initiatives are evaluated in line with performance contract criteria covering timeliness, quality, relevance, cost efficiency, and completion rate.

2.3 SHORTCOMINGS

Despite the achievements of the Third Corporate Plan, there were a number of shortcomings as per the surveys carried out among the internal and external stakeholders, and other evaluations. These included:

People Issues

i) Training: The training programme did not adequately address skills gaps in specific areas including the petroleum sector, telecommunication sector, Computer Aided Audit Techniques (CAATs) and trade facilitation, among others. Therefore, greater focus should be given to these areas in the next plan.

ii) Performance management: Despite the introduction and implementation of the new staff appraisal system, there were challenges in filling the appraisal forms which ended up causing delays in implementation of the recommendations. In this regard and in order to avoid similar challenges in

22

future, identified officers have been trained who shall in turn train the rest of KRA staff on performance management, including filling the appraisal forms.

iii) Career progression: Though KRA has a career development policy with clear career paths, these are yet to be implemented. The policy and career paths need to be implemented and reviewed regularly to take into consideration peculiar circumstances facing some staff in remote areas. Whilst formal education remains important, including a pursuit of higher education, they need not necessarily solely determine staff progression path. KRA needs to develop a career progression plan and courses that enable all staff move up the ranks during the next plan period.

iv) Remuneration and welfare: Various employee satisfaction surveys revealed that the principal areas of concern for staff were inadequate remuneration and promotions which did not always meet HR best practices. Therefore, there is need to review and implement the compensation and welfare policies in line with HR best practice during the next plan period.

v) Infrastructure and work environment: There are concerns about inadequate working tools and poor work environment at some stations. In addition, there are concerns regarding poor condition of some institutional houses. There is need to address these concerns in the next plan period.

vi) Integrity: The Authority continues to face integrity challenges amongst staff and the resultant effect was KRA re-entry in 2008 Transparency International Urban Bribery Index. Therefore, there is need to revamp the KRA integrity programme during the next period.

Internal Processes

i) Exchange of information: KRA departments did not fully utilise the information available in the various automated internal systems to enhance risk assessment, profiling and third party data matching to provide a single view of the taxpayer and facilitate effective departmental strategies. Thus there is need to integrate the internal systems and utilise information available during the next plan period.

ii) Business process re-engineering: Tax processes and procedures are still considered complex and cumbersome, thus increasing cost of compliance. Moving forward, there is need to undertake Business Process Improvements in identified areas in the next plan.

iii) Communication channels: There are concerns that the current communication channels on policy and administrative matters are not effective. There is need to review and implement an effective communication policy to address the gaps.

23

iv) Internal audit recommendations: The various departments made great strides in responding to comments made in the Internal Audit Department reports within the set timeframes. However, timely implementation of the audit recommendations is not given priority. There is need to enforce implementation of the recommendations within the set timeframes.

v) Monitoring and Evaluation (M&E): Despite having an elaborate Monitoring and Evaluation framework, some of the initiatives in the Third Corporate Plan were not adequately monitored except those under the Revenue Administration and Reform and Modernisation Programme. There is need to establish an effective M&E mechanism during the next plan.

Customer Processes

Inadequate customer service culture: The issues raised through the Complaints and Information Centre (CIC) indicated that KRA was not sufficiently customer-focused. In addition, the corporate taxpayer education did not achieve its intended purposes. Moreover, each department continued to undertake its own taxpayer education sensitisations in uncoordinated manner. Other areas of poor service delivery were identified in the National Business Agenda (NBA) produced by the private sector in 2008. Thus, it is imperative that KRA develops and implements a customer-focused service strategy during the next plan period.

Enhanced Revenue Issues

i) Exemption management and incentive schemes: Inadequate monitoring of these schemes has continued to pose revenue risks as they are susceptible to abuse. There is, therefore, need to strengthen the management of these schemes to minimise potential abuse.

ii) Non-nil and credit filers: During the Third plan period, KRA witnessed an increased growth of Non- nil and credit filers. There was no focussed strategy to monitor and turn them around to payment filers. Thus, there is need to develop a specific strategy to deal with these filers during the next plan period.

iii) Debt: The outstanding debt has continued to grow over the years. The debt increased from Kshs. 103.7 billion in 2005/06 to Kshs. 145.2 billion by the end of 2007/08. As at end of April 2009, the debt/revenue ratio was 30 per cent. Therefore there is need for concerted effort to reduce the debt/revenue ratio to acceptable levels.

iv) Audit: The current audit coverage is not sufficient to enhance compliance to acceptable levels. In addition, conversion of the assessed audit amounts to actual collections is often hampered by lengthy settlement and litigation processes. Thus, there is need to develop and implement an effective audit strategy during the next plan period.

24

Monitoring and Evaluation

Despite its obvious strengths and achievements, the KRA M&E system has also revealed several weaknesses. These include inadequate staff and resources especially for field level monitoring and evaluation. In addition not all required skills are available among PMBO staff while some project indicators were not amenable to effective monitoring. The M&E framework in the Fourth plan will need to take these shortcomings into account.

2.4 Lessons Learnt From The Third Corporate Plan

The Authority has made remarkable progress in implementing the RARMP projects that have propelled KRA to meet its revenue targets. Further, the automation programme has significantly improved the level of efficiency in service delivery. In 2006/07 and 2007/08, KRA’s effort was recognised through the achievement of ICT Excellence Award for promoting ICT in the public sector. Indeed, in 2007, KRA was voted the most respected public sector entity in Kenya.

However, a number of lessons could be drawn from the implementation of the Third Corporate Plan. These include:

i) RARMP: Most of the projects under RARMP have been operationalised. However, the desired objectives have not been fully realised due to inadequate preparation and handover procedures during deployment. In view of heavy investment made in implementing these projects and acquiring some of the enforcement tools such as the patrol boats, scanners, ETR, drug detector dogs, there is need to ensure that the intended objectives are realised. This calls for adequate preparations and proper handover procedures to be carried out before deployment of the projects. In addition, proper M&E mechanism should be instituted after deployment.

ii) ISOCertification: A lot was achieved in improving the quality management as per the requirements of ISO 9001: 2000 standards. However, for KRA to maintain ISO certification, there is need to continuously improve processes and update the working instructions/procedure manuals. This calls for regular Quality Management System (QMS) audits and reviews.

iii) Disaster recovery and business continuity plan: As the Authority increasingly relies on automation, there is need to ensure continuity of all critical infrastructure assets and business processes. Thus, it will be important to identify an isolated disaster recovery site, prepare and implement business continuity plans.

iv) Infrastructure and work environment: In cognisant of the importance of human resources as the most important asset, the Authority should endeavour to provide better working environment for its staff and provide for adequate funding for infrastructure.

25

v) Integrated corporate functions: In an effort to achieve a “single view” of a taxpayer and create the necessary synergies to enhance the performance of the core tax programmes, there is need to adopt an integrated approach. These programmes include Taxpayer Registration and Recruitment, Compliance, Audit, Debt, and Risk Management.

26

CHAPTER 3

OPERATING ENVIRONMENT

3.1 IntroductionOver the Fourth Corporate Plan period KRA will face a different environment from that faced during the Third Corporate Plan period. The year 2008, began on a disastrous note for the country with disputed elections leading to violence. The political disputes were finally resolved through the formation of a coalition government, but the economic consequences of the chaos were still affecting the economy in early 2009. Indeed, following strong economic growth in 2007 where the economy registered a growth rate of seven per cent, 2008 witnessed a growth rate of barely 1.7 per cent. This poor growth performance in 2008 was also reflected in other macroeconomic variables with high inflation, depreciating exchange rate and declining stock markets all becoming common features.

Projections for 2009 do not point to an early return to rapid economic growth. Indeed, GDP growth for 2009 is forecast to be between two and three per cent. In addition the adverse effects of the post election violence have been made even worse by a drought and the global financial crisis. Thus, KRA begins the Fourth Corporate Plan with a less promising economic environment than existed in 2006 when the Third Corporate Plan was launched.

During this plan period, the Authority can expect momentous changes in Kenya, especially relating to the constitutional reform process and a referendum. There will also be elections in neighbouring countries. The regional economic environment will also be undergoing changes as the East African Community (EAC) countries complete the transition to a customs union as well as complete negotiations with the European Union (EU) on an Economic Partnership Agreement (EPA). Socially, Kenya’s various transitions will continue; the demographic transition, the transition from a primarily rural to urban community and the growth in the number of youth in the labour market among others.

The PEST framework (Political, Economic, Social and Technological) is a tried and tested environmental scanning tool. Because revenue mobilisation has to take the environment into account, this framework will be used to review the operating environment.

Political Environment

The key political dimension of the Fourth Corporate Plan period is the changing constitutional order which is likely to impact on how the Authority operates. Kenya has already witnessed constitutional changes leading to the formation of a coalition

27

government and the creation of the post of the Prime Minister, the replacement of the Electoral Commission of Kenya (ECK) by the Interim Independent Electoral Commission (IIEC), the putting in place of the legal framework for coming up with a new constitution, and other related constitutional changes. These significant steps and others in progress at the onset of this plan make it highly unlikely that the political environment will remain as predictable as was envisioned in the Third Corporate Plan. However, with potential for devolution, there is the real possibility that some of the revenues currently collected by KRA will be devolved to other levels of Government. KRA will therefore not remain immune from the local political environment.

The constitutional review process could lead to changes that impact on the KRA. The Authority collects over 93 per cent of Government revenue and the Kenya Government depends overwhelmingly on domestic resources for funding its expenditures. This dual dependence will continue to set limits on how radically revenue administration can change over a three-year period.

At the regional level, most countries in the EAC are expected to undergo national elections during the Fourth Corporate plan period meaning that the current political status quo may not prevail over the plan period. Several regional initiatives are also ongoing which will require regional political involvement. These include the implementation of the third phase of the East African Community (EAC) protocols with activities including negotiations on the Common Market Protocol, concessioning of the Kenya-Uganda Railways, implementation of EAC power master plan, extension of Eldoret-Malaba-Kampala oil pipeline, convertibility of East African currencies, convergence of macro-economic variables, (synchronising the budget, harmonising taxation and managing inflation) and starting of a consultative process of sensitising people on the fast tracking of East African Political Federation. These activities will have implications on the tax administration environment.

Further, with Rwanda and Burundi having joined the EAC, there will be a wider market and greater opportunity for profitable business, as well as potential for increased bilateral capital flows and expansion, translating into more challenges for tax administration.

Economic Environment

The economic environment over 2006/2007 and 2007/08 was positive both domestically and globally with both of them registering robust growths. Hence, until the final year of the Third Corporate Plan, revenue collection and reform could be conducted in a positive economic environment. However, the Fourth Corporate Plan begins when Kenya is faced with drought and the world economy is in its worst recession in over 60 years. The Kenya Vision 2030 and the first Medium Term Plan 2008-2012 both envision strong growth and development, but these will need to be achieved within the context of declining world economy and an adverse economic environment.

28

Kenya’s National Development Agenda

Kenya’s long-term development agenda is set in the Kenya Vision 2030. After successfully implementing the Economic Recovery Strategy for Wealth and Employment Creation 2003-2007, it became necessary to chart out the long term vision to provide guidance to the medium term planning horizon. Kenya Vision 2030 is the new long term policy blue print for Kenya’s development. The Vision defines the long term growth path, with a focus on, “transforming the country into a modern, globally competitive, middle income country, offering a high quality of life for all citizens in a clean and secure environment”. The Vision is also expected to be a major vehicle for the pursuit of the realisation of the Millennium Development Goals (MDGs) in Kenya.

Kenya Vision 2030 is anchored on three pillars: the Economic, Social and Political. The economic pillar aspires to attain an average growth rate of ten per cent (10 per cent) per annum and sustain it to 2030. The priority sectors of this pillar are Agriculture, Tourism, Manufacturing, Wholesale and Retail trade, Business Process Outsourcing and, Financial Services. The social pillar addresses issues of equity and social justice; national cohesion, security and environmental concerns. It lays great emphasis on the development of education and training; better healthcare, improved water and sanitation, sustainable and better environmental management as well as vital national attention to gender equity, youth, vulnerable groups, housing, and poverty reduction. The political pillar seeks to promote an issue-based, people centred, result-oriented and accountable democratic political system which is concerned with improving electoral and political processes, democracy and public participation, transparency and accountability, public administration, peace building and conflict management.

To spearhead the implementation of the Vision, a number of flagship projects have been identified to be implemented over the Vision period and also to act as the impetus for achieving the Millennium Development Goals and Vision 2030 goals.

The Vision 2030 will be implemented through the five year medium-term rolling plans, starting with the first Medium Term Plan (MTP) which covers the period 2008-2012. The Medium Term Plan is expected to implement the flagship projects identified as well as other key policies and programmes over the next five years. It calls for increased levels of savings and investment to facilitate growth and development, places a premium on faster job creation, poverty reduction, improved income distribution, gender equity and regional balance.

The MTP also incorporates the measures aimed at mitigating the effects of the post-election problems and restoring the country to a high growth path.

29

Challenges from Vision 2030 and Medium Term Plan (2008-2012)

Vision 2030 projects the rate of growth of the economy to rise from 6.1 per cent achieved in year 2006 to 10 per cent by 2012/13 and be sustained thereafter. Investment is expected to rise to 31.3 per cent of GDP by 2012/13 while public investment is expected to rise to 9.8 per cent by 2012/13 and expected to remain above nine per cent thereafter.

As a country committed to an export-led private sector-driven growth strategy, Kenya is likely to face several challenges in meeting these vision targets. These challenges include: ensuring continued macroeconomic stability; minimising institutional risks especially related to corruption and security; scaling up the quantity and quality of infrastructure; promoting efficiency; and achieving the investment targets. Equally important will be the required outcomes which include provision of productive employment to the growing youth population, enhancing the productivity of agriculture which will have a bearing on poverty reduction and improving the international competitiveness of the manufacturing sector to enable it to spearhead Kenya’s export led development strategy.

Fiscal Challenges Over 2009/10 to 2011/12 The Budget Strategy Paper 2009/10-2011/12 (BSP) is the principal policy document outlining how the Government will meet the fiscal challenges arising from the implementation of the MTP. Despite the adverse effects of the poor rains in late 2008 which led to drought conditions in 2009 and the global economic recession, the Government remains committed to attaining the goals under Vision 2030.

The BSP aims to address the current economic challenges as a basis for laying a solid foundation for the national development agenda. The Government will continue to align the allocation of public resources with national strategic objectives under the MTEF process. Annual budget preparation will continue to be guided by the macroeconomic framework set out in the BSPs in order to maintain policy consistency and to safeguard macroeconomic stability.

Key elements of the BSP include the following:

i) Reviewing the recent economic experience: with GDP growth declining from 7.1 per cent in 2007 to 1.7 per cent in 2008. This declining growth was compounded by high inflation, with headline inflation reaching 25.8 per cent in March 2009 while underlying inflation rose above the five per cent target to reach nine per cent. The balance of payments also moved in the wrong direction, recording a deficit of US$488 million in 2008 compared to a surplus of US$835 million, driven primarily by a decline in the trade balance with the trade deficit widening from US$4.9 billion to US$ 6.1 billion. This adverse position in the external account led to a depreciation of the Kenyan shilling, from Kshs. 63.8 to the dollar in June 2008 to Kshs. 80 to the dollar by March 2009.

30

ii) Outlining thefiscalpositionasper the3rdquarterof2008/09: which included a worse fiscal situation than originally forecast comprising lower revenues and consequently expenditures below target.

iii) Outlining the government’s fiscal stimulus package for 2009: which includes boosting demand for the products of farmers, cushioning industries hard hit by the global recession and enhancing their competitiveness by reducing energy costs and improving infrastructure, expanding irrigation and conservation activities, creating employment activities and expanding targeted food subsidy programmes,

iv) Outlines the projection for the key macroeconomic variables over 2009/10-2011/12: this includes recovery of economic growth from a low of 1.7 per cent in 2008 to 3.1 per cent in 2009/10 rising to 6.3 per cent in 2011/12. Investment is expected to rise from 14.6 per cent of GDP in 2007/08 to 19.4 per cent in 2011/12. Inflation is expected to decline from the high level witnessed in early 2009 to five per cent over the same period.

v) Revenue targets: revenues are expected to remain between 21-22 per cent of GDP for the entire period. In particular, ordinary revenues are expected to grow from Kshs. 405.1 billion in 2007/08 to Kshs. 659.3 billion in 2011/12, an annual average growth of 12.9 per cent. This is the core projection of interest to the Revenue Authority.

vi) Expenditure forecasts: total expenditure and net lending is expected to rise marginally as a percentage of GDP, from 26.8 per cent in 2007/08 to 27.4 per cent in 2011/12. However, in nominal terms, expenditure is expected to rise from Kshs. 534.8 billion to Kshs. 886.5 billion, implying an annual average growth of 13.5 per cent.

The fiscal framework that KRA will have to implement is thus built on the expectation of a recovery of economic growth, rapid growth in revenues and rising expenditures in line with growing revenues. It is thus critically dependent on KRA achieving its revenue targets.

Global Environment

Because Kenya has an open economy with both its current and capital accounts in its balance of payments being liberalised, Kenya’s economy will continue to be affected by the changing international and regional trading environment. Following the liberalisation of the economy in the early 1990s, international trade and commerce has expanded while the scope and speed with which international trade is conducted has increased mainly as a result of modern telecommunications and the internet.

Over the 2008/10 to 2011/12 period, Kenya will be affected by several external influences. It is more than likely that the effect of the global financial crisis will prove to be the single most important external influence on both the Kenyan economy and revenue collection in particular. Additional external environment issues will

31

be the multilateral trading arrangements under the World Trade Organisation (WTO) and the regional trading arrangements under the East African Community (where a Customs Union is expected by 2010), the finalisation of the Economic Partnership Agreement (EPA) between the EAC and the European Union which will begin the process of ensuring that substantially all imports from that region are duty free. The EPA will substantially impact on the opportunities for export-led development as well as limit the scope for adopting import substitution industrialisation as a strategy. The Common Market for Eastern and Southern Africa (COMESA) and the EAC will continue growing in importance as markets for Kenya’s exports, especially for manufactured goods. From a demand side, the growing world economy means a widening of the potential market for Kenyan products beyond the traditional developed country markets, with a larger role expected to be played by Asian economies.

The global financial crisis, which first emerged in 2007, is mainly the result of the stress faced by the financial markets in the United States. The stresses transformed to a financial crisis in 2008 with crashing stock markets, a freeze in the credit markets and insolvency, threatening the entire international financial system. The global financial crisis is expected to have the following effects:

• Lower economic growth below earlier forecast with minimal growth expected in the world economy in 2009 and (at best) a slow recovery in 2010,

• Decline in world trade volumes in 2009 following robust growth in the three preceding years,

• Decline in the price of oil compared to the 2007 levels, of commodity prices in general as well as unit prices for manufactured goods, and

• Tightening credit markets which will severely compromise the growth prospects of the developing world especially as finance for capital expenditures dries up. In addition, private capital flows to developing countries are expected to decline further weakening growth prospects.

At the regional level, Sub-Sahara Africa will be hard hit by the crisis. The strong growth experiences in the region, the highest in 35 years, was expected to decline in 2009 by more than three percentage points below the average of the past five years. African economies have been affected by a collapse in commodity prices, a continued fall in their stock markets and a depreciation of most currencies. Several countries have already witnessed rising unemployment and worsening fiscal and current accounts leading to loss of budget surpluses and declining foreign exchange reserves.

The recovery is expected to be slow with continental GDP forecast to grow by 4.5 per cent in 2010 while the current account will remain in deficit as will overall fiscal balance.

32

No country or region is likely to escape this growth recession. Recovery in 2010 to a 6.1 per cent economic growth is predicted upon a relatively quick improvement in financial and growth conditions among the high-income countries, a prospect that is currently highly uncertain. However, should the global slowdown prove more severe than expected, recovery could be delayed beyond 2010.

The global credit crunch is likely to affect private investment which is the most cyclical and most internationally traded component of GDP. At the same time, the credit crunch is restricting export finance. Similarly, exporting firms may cut back on shipments if their access to credit is limited. The crisis has been associated with sharp, unpredicted swings in exchange rates, which also will hamper trade. No developing country currency has appreciated against the US dollar by more than 0.5 per cent during this period and on average, currencies of developing countries have fallen by 15 per cent against the dollar. The sharp rise in food and fuel prices in the first half of 2008 pushed median inflation in the developing world to 12 per cent by July 2008 and more than 30 countries were facing double-digit inflation rates. In a welcome development, median inflation has since retreated to below 10 per cent from September 2008, as falling commodity prices have improved CPI developments across a wide range of developing countries.

The African Development Bank ranks Kenya among the countries considered to have a high level of vulnerability to the crisis, being a country with high poverty, low fiscal space and weak macro balances. Kenya is likely to be affected negatively by the global slowdown and uncertainty ahead. The impact of global financial crisis on Kenya will have both direct and indirect impacts. Direct effects include reduction on the demand for her main exports, weak remittances in investment related inflows and decline in capital inflows, both in the form of Foreign Direct Investment (FDI) and Portfolio Investment. Kenya’s exports, especially horticulture, may also be adversely affected impacting negatively on foreign exchange earnings. Indirect effects include slowdown of the tourism sector that relies heavily on foreign tourists, the stock market that benefits from remittances by Kenyans living abroad and foreign institutions. Donor disbursements may also be curtailed in the medium term as advanced countries spend more resources on rescue packages and fiscal stimulus programmes in their own countries. These will slow down economic recovery as well as put at risk the achievement of growth targets set in Vision 2030 and the MTP.

Kenya is also likely to face reduced direct investment by developed countries due to foreign investors’ focus on consolidating their financial position. The expected adverse effects on tourism are worrying, given that the tourism sector is currently the leading foreign exchange earner in the country. In 2007, the country earned an estimated Kshs. 65.4 billion from tourism, representing a 16.4 per cent increase over the Kshs. 56.2 billion earned in 2006. The volume of international arrivals grew by 13.5 per cent from 1,600 thousand recorded in 2006 to 1,816 thousand in 2007. With respect to agriculture, horticulture and tea accounted for 39.6 per cent of the total export earnings in 2007. Thus the projected declines could have far-reaching effects.

33

So far, the visible impact of the crisis has been seen in the stock market with the Nairobi Stock Exchange (NSE) index declining by 42 per cent since July 2008 and 51 per cent since January 2007 – the latter figure indicating that there were problems before the crisis. In addition, the Kenyan shilling has depreciated by 19 per cent against the dollar since the crisis began. During the same period, remittances from Kenyans in Diaspora shows a positive growth but on a declining trend. Table 3 is about behaviour inicators affected by global crises.

Table 3: Behaviour of key indicators affected by the global crisis

Exchange Rate (Kshs/US dollar)

NSE Share Index(Points)

Remittances(US$,000)

Jan 07 70.5 5,774 40,930 Dec 07 62.5 5,445 41,421 Jan 08 70.56 4,713 53,925 July 08 67.32 4,868 44,137Dec 08 78.04 3,521 40,129 Jan 09 79.54 3,198 39,535 Mar 09 80.29 2,805 55.361May 09 78.34 2853 49,180

Source: KNBS: Leading Economic Indicators, and Central Bank of Kenya monthly Reviews.

In these circumstances, it is expected that the Government will:

• Remain vigilant and continue to maintain financial stability and efficiency.

• Through the Central Bank of Kenya, continue to strengthen its supervision of the banking sector and work closely with other financial sector regulators in the capital markets, pensions and insurance to improve supervision to financial institutions and monitor risks closely.

• Continue to maintain and sustain macroeconomic stability to pre-empt any deleterious impact of the global recession on the economy.

• In the context of the global economy slowdown and its related impact on exports earnings, the government may stimulate growth through promotion of domestic demand.

• As indicated earlier the Government has already outlined a fiscal stimulus package as part of its Budget Strategy Paper.

• Continue to deepen financial sector reforms aimed at enhancing stability and efficiency of the financial sector, as elaborated in the action plan under the Vision 2030 Medium Term Plan.

34

Social Environment

The social environment is particularly important in determining the success of revenue mobilisation efforts. Public opinion is a critical determinant of the external environment for tax compliance. In addition, a society with a limited skills pool may limit the extent to which modern revenue mobilisation techniques and advanced technology can be applied. The social perceptions towards tax evasion and compliance and corruption are also critical determinants of the operating environment.

By regional standards, Kenya has a taxpaying public. This is shown by the country having one of the highest tax revenue to GDP ratio as well as achieving a high rank in measures of regional tax effort. Kenyans are also cognisant of the fact that paying taxes reduces their country’s dependency on foreign aid. Further, the Kenyan private sector has on several occasions awarded KRA (including being recognised as the most respected public institution in Kenya), showing some respect for the tax collection function. This positive operating environment is not however matched by general expectation in the public that those who qualify to pay taxes should do so and that the public should be proactive in ensuring tax compliance.

With respect to the legal environment, tax laws facilitate economic development in any country by encouraging investors and lowering the cost of doing business. Tax policies affect investors; bad tax policies discourage foreign economic development and assistance. The higher the tax rate an investor is subjected to, the greater the impact of taxes on his investment, and therefore the greater the benefit derived from a tax efficient investment. Taxes are collected based on specific laws which often specify in some detail the administrative procedures to be followed. Further, Government efforts to enhance tax incentives and shield various sectors of the economy from taxation may lead to unexpected revenue risks as these tax exempt schemes are abused or add additional administrative burden as KRA verifies that the incentives or benefits are being applied in the correct manner. Kenya will soon be revising the Export Processing Zones Act (EPZ) to convert these zones into Special Economic Zones (SEZ) and expand both the incentives and the scope of the programme. In addition, Government efforts to improve the business environment, while laudable, also have the potential of increasing revenue risks where legal provisions minimise KRA’s interventions to tackle the risks that arise from taxation.

Kenya’s legal environment is changing but still has shortcomings. The country has recently enacted amendments to the Communications Act (The Kenya Communications (Amendment) Act 2008) which among others, provided for legal recognition of electronic records and signatures, created regulatory, advisory and dispute resolution bodies to support implementation of national information and communications technology policy and provided for electronic commerce. These provisions will facilitate the expansion of the use of electronic means to ensure tax compliance. In addition, proposed changes such as the Arbitrators Bill and

35

administrative changes in the management of tax cases in court have improved the legal environment. Despite these advances, the slow process of amending laws in Kenya means that most of the legal impediments recognised during the Third Corporate Plan still persist. These include the existing of conflicting legislation, the failure to categorise tax fraud and tax crime as economic crimes among others.

With respect to corruption, the vice undermines democratic institutions, retards economic development and contributes to government instability. It hurts the poor disproportionately by diverting funds intended for development, undermining a government’s ability to provide basic services, feeding inequality and injustice, and discourages foreign investment and aid. Its negative impact to the economy undermines revenue collection both directly and indirectly. Experience has shown that reduction of opportunities for corruption in tax administration and the change of the incentive structures for tax officers while keeping tax policies simple is one of the most important entry points for curbing corruption in revenue administration.

International comparisons of corruption show that Kenya still experiences unacceptable levels of corruption despite government efforts to deal with the vice. The Government enacted the Economic Crimes Act, 2003 and the Public Officers Ethics Act and has put in place institutional framework for the fight against corruption. That the vigorous efforts have not led to significant improvement in Kenya’s rankings in this area is cause for concern and would appear to indicate that the environment with respect to corruption will remain unfavourable over the plan period.

Technological Environment

Information and communication technology has revolutionised the way businesses are transacted and this has a significant effect on revenue collection. It has also opened up opportunities for enhanced revenue collection and cost effective revenue administration. In the Third Corporate Plan, KRA continued implementing modern processes and quality management systems that has led to the improved service delivery and communication with taxpayers.

Going forward, the technological outlook is promising given that Kenya is implementing the undersea cable (The East African Marine system or TEAMS) and the fibre optic cable, both of which will reduce cost of electronic access and commerce. This should be in KRA’s favour as the authority completes this phase of automation and increasingly relies on web based systems.

36

3.2 SITUATIONAL ANALYSIS: THE SWOT

The Political, Economic, Social and Technological (PEST) analysis allows one to scan the environment. A SWOT analysis on the other hand will allow one to find the best match between environmental trends (opportunities and threats) and internal capabilities (strengths and weaknesses). An assessment of strengths and weaknesses occurs as a part of organisational analysis; that is, it is an audit of the organisation’s internal workings, which are relatively easier to control than outside factors.

Strengths

Strengths are the Authority’s capabilities and resources that allow it to engage in activities to generate economic value and competitive advantage. The strengths include:

• KRA is recognised as the best of the public institutions in the country having achieved most respected public company status as well as winning several awards related to innovation, excellence and service delivery. This public confidence is an important platform when reforms are to be implemented and the confidence of the public sector will be crucial in ensuring the reforms are implemented successfully.

• Proven capacity to adjust and implement complex modernisation initiatives as shown by the implementation of the RARMP.

• An elaborate organisational structure characterised by specialised qualified personnel, experienced Board, a legal framework that meets best practice for revenue authorities, trained, experienced and committed staff led by a dynamic management team.

• Monopoly in tax collection.

• Existence of operational offices at regional levels which offer a modern working environment and improved services to taxpayers.

• Computerisation of core business functions and availability of good IT infrastructure – The Authority has embraced modern technology in its operations leading to efficient service delivery and enhanced revenue collection.

• Excellent track record of revenue collection. This has been enhanced by the various reforms which have been formulated and implemented.

• Strong political support from the Government.

• A strong training capacity in the Kenya Revenue Authority Training Institute (KRATI) which is capable of delivering KRA’s training needs especially through the Graduate Training Programme.

37

Weaknesses

The Authority’s principal weakness is a lack of adequate resources to implement its strategy. Other weaknesses that must be contained in order to realise the corporate objectives during the plan period include:

• Inadequate staff in professional and technical cadres.

• High labour turnover as officers leave the Authority to seek greener pastures because of uncompetitive remuneration and low staff morale.

• Inadequate staff development programs as a result of underfunding.

• Failure of a significant number of staff to concur with the organisation’s core values.

• Inadequate facilities such as specialised equipments and vehicles leading to a failure to standardise working conditions and service delivery.

• Return of high levels of corruption within the Authority after a previously successful drive to tackle it.

• Inadequate skills in ICT among staff, limited number of IT literate staff and limited interface between KRA ICT systems with key stakeholders.

• Inadequate computers and internet and lotus connections in some stations mainly those at the borders.

• Lack of an operational corporate communication policy document.

• Limited security on IT systems, e.g. Simba 2005 to protect against intrusion by unauthorised users.

• A yet to be fully implemented performance management system.

• Weak audit systems.

Opportunities

Opportunities provide the Authority with a chance to improve its performance and its competitive advantage. Some opportunities may be anticipated, others arise unexpectedly. Opportunities are also the operational potentials that the Authority can take advantage of in order to enhance its ability to meet the corporate objectives and goals. They include:

• Great potential in attracting highly qualified staff with improved terms of service.

• Technological advancement: the Authority’s embracing of modern technology and research creates ways of enhancing revenue collection both locally and internationally. Kenya Revenue Authority needs to recognise emerging markets and facilitate the development of strong capital markets.

38

• Growing informal sector and the Authority’s introduction of the Turnover tax (TOT) regime provides the opportunity to penetrate the informal sector which will provide the bulk of new employment opportunities over the plan period.

• The rise of globalisation creates a wider market and greater opportunity for profitable businesses and hence an opportunity for KRA.

• Despite the considerable challenges and risks caused by the global financial crisis, this is an opportunity for KRA to show its true value to the country as a revenue mobiliser.

Threats

Threats can be an individual, group, or organisation outside KRA that aim to reduce the level of the Authority’s performance. The threats the Authority must guard against include:

• Other state corporations and the private sector that are attracting high calibre staff because of freedom to adjust their remuneration packages in line with the market.

• Global financial crisis from other countries.

• The influx of counterfeit goods and uncompetitive business structures and practices.

• Poor infrastructure.

• A cumbersome administrative and legislative regime, as well as insecurity in the country.

• Vulnerability of socio-political changes.

• Political patronage.

39

3.3 SWOT ANALYSIS SUMMARY FOR KENYA REVENUE AUTHORITY

40

CHAPTER 4

STRATEGIC GOALS

4.1 Introduction

As brought out in Chapter 1 and Chapter 3, the Kenyan Government has an ambitious development agenda outlined in the First Medium Term Plan (2008 to 2012). This plan implements the first phase of Kenya’s Vision 2030. The plan, whose medium-term fiscal elements are outlined in the 2009/10 to 2011/12 Budget Strategy Paper (BSP), places a premium on maintaining a strong revenue effort. The ambitious revenue targets will need to be achieved in an adverse global environment, with the world economy in the throes of the global financial crisis. The country is yet to recover from the effects of the 2008 post election violence and the drought being experienced in 2009. In this environment, KRA will have its work cut out as it endeavours to meet the revenue targets without placing such an onerous compliance burden on taxpayers that the revenue mobilisation effort itself undermines economic recovery.

KRA will therefore need to focus on the initiatives that achieve revenue mobilisation at least compliance cost to the taxpayers. Fortunately, the Third Corporate Plan placed significant emphasis on customer-related issues and thus both the automation initiatives as well as administrative reforms have worked to improve service delivery to customers. Persistent underfunding has however meant that KRA has been unable to match either the market or other financial sector institutions in the public sector when it comes to remuneration, has inadequate facilities in its stations, especially border stations, has not completed the automation initiatives relating to support departments among other initiatives. KRA’s strategic goals over the Fourth Plan period are focused on facing up to the environmental realities and tackling the shortcomings in the operational arena.

4.2 Strategic Goals

The strategic goals guiding the future direction of KRA during the Fourth Corporate Plan are:

◊ Develop a professional team that is well remunerated.

◊ Creation of an enabling work environment.

◊ Full automation of the Authority and ensuring that KRA IT is fully integrated allowing for a single view of the taxpayer and full utilisation of IT to promote compliance.

◊ Completion of the transition to a fully functional organisation.

◊ Minimising customer compliance costs and enhancing customer service.

41

◊ Achieving revenue targets by rolling over uncompleted revenue mobilisation initiatives, whilst pursuing new revenue and compliance.

During this plan period, KRA will continue to use the Balanced Score Card (BSC) approach in managing the implementation of its corporate plan. The BSC approach has served the Authority well during the past two plan periods and there is a clear need for continuity even as changes are introduced to conform to the Guidelines on strategic planning and the National Integrated Monitoring and Evaluation System (NIMES).

KRA also remains cognisant of the four (4) barriers to strategy implementation which will need to be tackled in implementing the Fourth Corporate plan. These are the vision barrier, where only a small proportion of the workforce understands the strategy, the incentives barrier where only a minority of managers have incentives to implement the strategy, the management barrier where inadequate managerial time is spent discussing corporate strategy and the resource barrier where budget are not aligned to strategy. Sensitisation across all regions will be used to tackle the vision barrier problem. The incentives barrier will be tackled by ensuring that all management performance contracts signed in the Authority are aligned to the plan obligations. Top Management and RARMP monitoring meetings will be used to ensure that adequate managerial time is spent discussing strategy. In addition, Chapter 6 on Budget and Resource Allocation, aligns the overall and development budgets to the MTEF expenditure ceilings. Thus, the barriers should not prove binding constraints to implementation.

People Perspective

Strategic goal 1: Develop a professional team that is well remuneratedIn the Third Corporate Plan, one of the major goals was to “Develop a dedicated and professional team”. To achieve this, the main objective was the implementation of best human resource practices. The strategies and means that were proposed towards best human resources practices are discussed in Chapter Two. Results from the employee satisfaction surveys conducted over the three years of the Third Corporate plan period would appear to indicate that not much was achieved. The important areas of concern among employees include:

◊ Creation of viable and attractive benefits and remuneration.

◊ Making sure that working conditions comply with the requirements of the statutes.

◊ Creating a conducive work environment.

◊ Recruitment of qualified staff, strict adherence of KRA policies, including promotion and transfer guidelines.

◊ Ensuring that all KRA stations have adequate staff numbers.

42

Retention of staff is always a challenge, but with small changes, real benefits can be reaped. KRA’s best HR practices should focus on optimising workforce to ensure a greater level of efficiency, timeliness and quality. Selection of staff for relevant training opportunities should based on formal and informal performance reviews. This will help staff to maximise their potential and develop their careers.

In any organisation, career progression and promotion underpins the whole business/service strategy. By giving each individual the support and training they need to grow and develop, recognition is given that in turn, one is able to contribute to both their own personal growth and the success of the organisation. Lack of career progression and promotion is one of the main reasons why people decide to change jobs, followed by lack of new challenges, dissatisfaction with pay levels and insufficient training or development opportunities. To this end, the Fourth corporate plan recognises that promotion and career progression are crucial to retention.

Skills gap has far-reaching implications on staff performance. This anomaly among staff can lead to increased staff turnover and low morale among employees. This subsequently leads to an increased time to deliver, and increase in costs.

To address these challenges, the following objectives will be pursued:

Objective 1: Develop a competitive and attractive remuneration package

KRA’s remuneration has fallen below what is offered by comparative organisations and in the market. Taking into account KRA’s size, complexity of tasks and systems, compensation is not commensurate with responsibilities especially when compared to state corporations in the same sector. The Authority is experiencing loss of critical staff especially auditors, lawyers, researchers, IT professionals and newly recruited officers. The gap between current remuneration and what is available in the market or other public sector organisations is also an important determinant of integrity challenges as tax officers seek to bridge the gap with their peers using illegal means. There is an urgent need to establish internal and external equity, match pay to responsibilities, retain the authority’s competitiveness in the job market and motivate the staff to continue with the trend of exceeding revenue targets.

Means and strategies To tackle the challenges arising from its remuneration package, KRA will review and implement a new emolument structure that is attractive and competitive. In addition, all relevant allowances will be reviewed to be comparable with that of other similar organisations. KRA will:

i) Establish internal and external equity, ensuring that pay is comparable to that offered by institutions and commensurate with responsibilities,

ii) Review and implement a new salary structure plus a menu of market driven benefits;

43

iii) Provide adequate budgetary provision to implement the remuneration package.

Objective 2: Enhance KRA’s corporate culture by espousing the organisation’s core values

The Authority has on various occasions received adverse mention where matters of integrity are concerned. This negative perception requires a reconsideration of the strategies to deal with integrity issues. As an employer, KRA determines who is invited to join the team.

Means and Strategies

i) Revamp the KRA integrity programme:

The integrity programme will be reviewed to implement measures that will permanently change the adverse perceptions about its staff. Senior management development programmes will be designed to include courses that will enlighten managers on principles of corporate governance. KRA will also ensure staff who qualify are registered with professional bodies to provide another ethical anchor and conduct due diligence when recruiting them.

ii) Institutionalise coaching and mentoring programme:

KRA will implement its integrity, coaching and mentoring programme to ensure change of attitude among staff. The core values require staff to demonstrate high degree of integrity, professionalism, fairness, equity, commitment, teamwork and corporate social responsibility. Previously these values have not been fully adhered to as revealed by various employee and customer satisfaction surveys.

A coaching and mentoring programme is currently being implemented. Its main objectives are to provide support, guidance and advice to newly recruited employees. Key elements of the programme shall be:

• Building relationships where newly recruited employees acquire practical knowledge, guidance, support and feedback from more experienced staff;

• Upgrading skills and enhancing employee satisfaction through strong professional and leadership development;

• Guidance by experienced senior staff to mentees in making significant transitions in knowledge, at work, in their thinking and behaviour; and

• Providing psychological support to mentees through social and professional interaction.

Integrity, mentoring and coaching will be carried out concurrently.

44

iii) Institutionalise change management in the Authority:

The Change Management Programme will continue to be implemented so that the staff are adaptable to the modernisation initiatives in the Authority.

The demand for an effective and efficient revenue collection agency has necessitated the implementation of reform and modernisation programmes.

With the objective of creating an integrated revenue agency that can consolidate best practice in tax administration, enhance revenue collection, improve service delivery, increase competitiveness and enhance productivity of the Kenyan economy, KRA shall continue to engage its staff in change process. The exercise shall empower staff to cope with current events and adjust successfully to the future. This change management training is a critical component to the organisational transformation process.

Objective 3: Enhance capacity for the KRA team

Training provides a broad structure for the enhancement of technical and behavioural skills among staff. It also assists them to attain personal growth and motivation. With introduction of new systems, staff need to be equipped to enhance their productivity.

Means and strategies

i) Finalise, approve and implement the KRATI strategic plan:

KRATI is facing challenges in terms of its capacity to handle the number of training activities. It requires a review of its mandate, structure, facilities and other requisite capacity building initiatives to enable it maintain standards consistent with its accreditation as a regional training centre to meet the growing demands for formal training in taxation.

The KRATI strategic plan is in the process of being finalised. This will transform the institute into a modern institute delivering programmes that promote inter-disciplinary and international perspectives to taxation.

ii) Undertake systematic and structured training based on identified compet-encies and needs including management development training:

During the Fourth Corporate Plan, a customer-focused curricular will be developed based on identified competency gaps. This will be linked to the Annual Training Programme. The Authority will also put in place an effective succession plan to ensure seamless transfer of knowledge.

iii) Implement e-learning practices:

KRA has already launched e-learning under the auspices of the World Customs Organisation (WCO). A corporate wide e learning solution will be formulated and implemented allowing the expansion of e-learning beyond its current customs base to all aspects of the Authority.

45

iv) Build and maintain a skills inventory and a competency model for the organisation:

A skills inventory is essential for effective promotions, deployment and management of staff. Currently KRA does not have a centralised skills inventory. During the plan period it will undertake a skills analysis and implement an updated skills inventory.

The organisation will put in place a competency model that will collect, develop, and deliver required future competencies and built on the ability of the current system.

v) Institutionalise the knowledge management process in KRA

Given the complex nature of KRA operations, the large number of employees and huge customer base, there is need to ensure best practise is consolidated, recorded and shared for harmony in service provision and equip employees with tacit knowledge. Currently, there is no database recording success stories or where services have met best practise and achieved required results.

To implement this, the Authority will define the scope of knowledge management and come up with a knowledge map. Thereafter key knowledge processes will be developed and a systematic approach to feed the requisite knowledge into the data base which will be integrated with other KRA systems to enable officers access and use the knowledge.

Objective 4: Implement human resource best practices Human resource best practice is essential for effectiveness and efficiency in the Authority. It covers all aspects of recruitment, selection transfer, promotion, training and others. This was an area of concern from staff surveys done during the Third plan period. In this regard, KRA shall evaluate current practices and benchmark against international best practice.


i) Develop appropriate job descriptions for all the jobs in the Authority:

During the plan period, KRA will carry out a job analysis and develop job descriptions and job specifications. Thereafter, regular reviews will be carried out to ensure the jobs remain relevant.

ii) Continuous evaluation of staffing levels:

KRA will put in place an approved staff establishment to determine optimal staffing levels.

iii) Optimise staff utilisation:

KRA is in the process of carrying out a job evaluation exercise. Based on which it will conduct proper job grading and deployment.

46

Due to the large portfolio of automation projects, the Authority will adopt a resource contracting policy for acquiring critical human resources to facilitate timely implementation of planned programmes.

iv) Institutionalise Result Based Management (RBM):

The Authority shall implement a performance management system that shall link individual staff objectives to business objectives through performance contracting, regular feedback and formal appraisal. There shall be up-to-date job descriptions clearly spelling out staff roles and responsibilities.

The Authority shall implement staff training and development programmes aligned to workplace requirements, and individual needs, based on competencies.

v) Adopt contemporary human resource management tools:

The Authority shall establish assessment centres as well as apply psychometric testing to recruit and manage a highly skilled and diverse workforce aligned to corporate goals.

In order to have a conducive work environment, the Authority shall undertake the following:

• Have departmental roles that are clearly defined,

• Have adequate budgetary provision for procurement of requisite goods and services, and

• Enhance internal communication.

Strategic Goal 2: Creation of an enabling work environment The work environment hosts staff and taxpayer interactions. Proper furniture, adequate space, and electronic technology enhance communication, stimulate creativity and boost efficiency.

Employee surveys, internal audit reports, and Quality Management Audits have identified several shortcomings in the Authority’s current work environment. Some stations especially those at the border stations do not meet the ISO standards nor meet business requirements. Other KRA buildings do not meet health and safety statutory requirements.

KRA seeks to ensure that its work environment is consistent with its obligations. To address the current shortcomings, the Authority will pursue the following objectives:

Objective 1: Implement the work environment policyThe work environment policy aims at providing a safe and healthy setting to enhance employee productivity. The key areas of focus include: proactive management of health and safety risks; minimisation of costs related to injury, illness or damage to property; reduce work stoppage; enhance health and safety awareness among staff; and comply with legal requirements on the same.

47


i) Proactive management of health and safety risks:

To ensure health and safety risks are adequately managed, KRA shall integrate these principles and practices into the Authority’s Business Strategies,

ii) Minimisation of costs related to injury, illness or damage to property:

In the previous plan period, KRA incurred minimal costs due to work related injury. The model adopted was successful and this will be replicated in the Fourth Corporate Plan.

iii) Enhance productivity, through reducing work stoppage:

In line with KRA Property and Facility Upgrading Programme, offices countrywide will be renovated, upgraded and appropriate infrastructure put in place to meet acceptable standards. This will entail providing generators, computers, and transport and communication equipment to all stations.

iv) Complying with all legal requirements relating to health and safety requirements:

During the Fourth plan period, KRA will continue to comply with all relevant legal requirements relating to health and safety.

Objective 2: Put in place additional initiatives to ensure compliance with the ISO standardsThe ISO standards for work environment have to satisfy the human and physical factors. These include ergonomics and cleanliness of the workplace among others.

Means and strategiesKRA will institute quarterly reviews of the work environment and track progress towards targets as part of its overall ISO QMS supervision and audit programmes.

INTERNAL PROCESSES

Strategic Goal 3: Full automation of the Authority and ensuring the IT in the Authority is fully integrated A modern revenue administration must fully exploit the use of information technologies to be effective. The RARMP targeted the Authority becoming a fully integrated organisation by financial year 2008/09. This was not fully achieved primarily due to failure to complete the automation of support departments and to integrate all systems to ensure that they communicate seamlessly.

Under the Fourth plan period, the Authority will continue with the implementation of automation programmes under the ICT strategy. Existing systems will be

48

continually enhanced, while ICT services will continue to be reviewed appropriately for better technical support and service delivery to business operations in the Authority.

Objective 1: Enhance ICT services, information systems security and ICT governanceICT services are critical for the success of the Fourth Corporate Plan. In this regard, therefore, ICT services will not only continue to embrace international IT best practices and frameworks such as ITIL, COBIT, ISO 17799, CMMI, and PRINCE 2, but will also undergo aggressive continual improvement, with requisite automated tools, in order to ensure a turnaround on the user perception of ICT services. This must be supported by a sound IT Governance framework and policies.

The safety of key information is critical to the operations of the Authority. This makes information security a strategic business issue. The Authority will therefore continue to enhance the security of taxpayer information, employees and critical infrastructure components. KRA will thus address the issue of risk management with respect to internal controls in its systems, including use of identity and access management solutions and second-factor authentication. Inherent development and system weaknesses will be addressed. Disaster recovery site and business continuity capabilities will be implemented to ensure high availability of ICT services and continuity of business operations, even in case of disaster situations. Business continuity will be implemented through the development of business continuity plans by all the business units to ensure that critical processes are identified and relevant contingent plans are put in place.


i) Develop and negotiate Service Level Agreements (SLAs):

Service delivery will be enforced through the implementation of Service Level Agreements to ensure that the Authority’s service expectations are met through a result/service oriented culture. The Authority will introduce self-service applications and workflow systems that will track date and time of the processes to aid in measuring service levels.

ii) Acquire security monitoring and control solutions for networks, applications and databases:

Following the rolling out of fibre optic cable countrywide and the subsequent increase in Internet accessibility, the level of exposure of KRA’s systems to outsiders will increase exponentially. There is an urgent need to constantly monitor and control access to the Authority’s networks, applications and databases. Hence, the Authority will be required to acquire and implement solutions to control the devices that are granted access to the network, as well as facilitate real-time monitoring of specific transactions at the application and database level. The acquisition of such solutions and the skilling of staff will contribute to the reduction of security incidents.

49

iii) Enhance information system security and availability:

KRA will implement risk management through the implementation of enhanced system authentication mechanisms including use of identity and access management solutions; tokens for second-factor authentication; and the identification of information security roles and responsibilities consistently across the Authority. Annual security reviews and controls testing of all major systems and networks will be conducted. The use of certification, audits, user awareness, objective and verifiable reporting will provide all stakeholders with confidence that information security is in line with international best practice. Performance matrix and corrective action plans will continue to be maintained and updated. KRA will carry out a complete inventory of information assets and data classification.

iv) Develop disaster recovery and business continuity plans, contingency plans and other measures to ensure business continuity at all times:

A disaster recovery site and disaster recovery and business continuity plans will be implemented during the Fourth plan period to ensure continuity of all critical infrastructure assets and business processes in accordance with business performance expectations. This will ensure that adequate security protections and business continuity plans are applied for all mission-critical and business-essential processes, facilities, and assets.

v) Intrusion detection/Intrusion prevention systems:

A proactive corporate intrusion detection/intrusion prevention system will be implemented. The target is to ensure secure work environment and reduce security incidents through the acquisition of security tools and giving skills to personnel.

Objective 2: Modernise, maintain and integrate IT systems The Authority will modernise business operations by implementing integrated information technology solutions that meet enterprise needs to improve services, enhance effectiveness and efficiency of business operations and provide greater value to all stakeholders. Technology solutions will seek to adopt best practices from other revenue authorities and integration advances in business systems to improve enforcement, customer service and modernisation. The Information and Communication Technology Strategy (ICT Strategy) will form the basis of information technology framework and direction for a coordinated approach.

Means and strategiesModernise IT systems to strengthen collection and enforcement efforts:The implementation of integrated and automated business processes will transform KRA into an efficient and effective organisation. Some of the benefits that customers will experience include: Interaction with KRA from the comfort of their homes or offices. They will also save costs due to elimination of manual processes and short turn-around times.

50

The core business systems – Integrated Tax Management System, S2005S, Integrated RTD system, Common Cash Receipting System and the Enterprise Resource Planning system for support departments will be integrated to facilitate a single view of the taxpayer. A Data Warehousing, Data Mining, Business Intelligence and Performance Management solution will also be implemented through acquisition of specialised applications. As a strategic move, the Authority will seek to employ cost-effective IT solutions and products specifically making use of Free Open Source Software (FOSS) such as ERP solutions, Linux and electronic mail products.

During the Fourth plan period, the following IT projects will be implemented in accordance with the KRA-Wide ICT Strategy:

a) Integrated Tax Management System (ITMS) and Integrated RTD system: The Authority will fully implement ITMS and an integrated RTD system. The product quality of the systems will be assured by appropriate quality assurance mechanisms and provision of requisite operational support arrangements during and after deployment. The integrated RTD system will be accessible through KRAOnline.

b) Integration of KRA systems: The Authority will enhance integration of ITMS, VMS/Integrated RTD system, Simba 2005 system, CCRS and other systems. These systems will be available through KRAOnline.

c) Data Warehouse, Business Intelligence and Performance Management system: This will be implemented to provide single source of information for KRA integrated systems.

d) Enhancement of RTD and CSD systems to incorporate registration of transit motor vehicles: To avoid diversion and registration in the local market, unique identifiers will be assigned to transit motor vehicles and RTD and CSD systems enhanced appropriately to enforce this control.

e) Modernisation of support departments: Implement the Enterprise Resource Planning (ERP) system to support administrative support functions in the Authority; a corporate e-learning facility; knowledge management; and introduction of enterprise architecture while promoting use of Free Open Source Software (FOSS).

f) Enhance functionality of other IT systems: Simba 2005 System (S2005S) will be enhanced to incorporate the functionalities of COSIS, CAMIS, APSC and any other emergent CSD sub-system, while the functionality and operationalisation of existing IT applications (S2005S, Orbus, ITMS, CCRS, Call Centre, and ECTS) will be enhanced. The takeover of S2005S source code for internal maintenance and enhancement will be effected during this corporate plan period.

51

Objective 3: Enhance and maintain ICT infrastructure The provision of superior services to taxpayers directly depends on the stability and maturity of the technology infrastructure. For its ICT systems to be effective, KRA will need to ensure stable power supply, compliance to software licensing provisions and effective network management. The ability to adapt and change within a stable network architecture will become increasingly important. More than ever before, both internal and external pressures to improve network services, including convergence of data, voice and video over a single network infrastructure will increase during the Fourth Plan period. The Personal Computer (PC) to technical staff ratio needs to be increased to 1:1. The Authority will modernise its data centre for enhanced availability of IT services and optimal utilisation of resources.


i) Improve and expand ICT infrastructure in the Authority:

During the Fourth Plan period, the Authority will; enhance network connectivity and coverage (LAN, WAN, servers and related components, embracing emerging RFID technologies); implement back-up links for critical stations; enhance connectivity and communication services (VoIP, Video Conferencing and CCTV) in identified operational areas; and implement requisite automated tools for central management of the network and ICT services. The data centre will be modernised to ensure high availability of ICT services, and ensure optimal utilisation of ICT resources. The operation of the call centre will be enhanced for effective and efficient call handling with an interactive voice response (IVR) system to support the entire range of services that are frequently requested by taxpayers and the general public. SLA-based maintenance contracts will be signed with service providers for enhanced serviceability of infrastructure components.

ii) Implement commercial power back-ups:

To mitigate against power outage and therefore ensure business continuity in the event of the main power blackouts, commercial power back-ups will be implemented in critical operational areas.

Strategic Goal 4: Completion of the transition to a fully functional organisationThe reform programme which started during the Second Plan period provided a holistic view of the taxpayer. During the Third plan period, KRA restructured itself along functional lines. This structure was not cascaded to the regional level and other operational areas resulting in overlapping of reporting framework.

During the Fourth Corporate Plan, a fully functional structure will be put in place. This will include having an integrated recruitment, audit and debt function and creation of regional commissioners. This will further provide a single view of taxpayer.

52

KRAOnline will act as the final milestone in making the single window approach to taxpayer transactions a reality. This will be achieved through: automating processes and procedures in audit, return processing, compliance and debt management, enforcement and investigation as well as taxpayer services.

Objective 1: Implement integrated audit function Historically, each department has had its own audit program usually focusing on specific tax heads. Most audit cases are identified manually or through ad hoc industry-based compliance checks. This ‘silo approach’ does not address important risks to overall compliance.

An integrated audit function will bring together cross-tax type and functional taxpayer segments through information sharing. Single audit visits will therefore reduce contact between customers and staff.


i) The audit function will have its policy arm hosted at headquarters while audit operations will be at the regional level. The corporate audit office will be responsible for policy, strategy and standards while the regional offices will implement the same.

ii) A national audit work plan will be developed to standardise audits across departments and regions. It will use corporate-wide risk profiling to create objectivity in audit case selection and allocation. It will also enhance audit coverage.

iii) Training and capacity building will be carried out. A single audit training curriculum will be developed to incorporate all challenges and risks encountered in various audit areas. Thereafter, staff will be trained on the same.

iv) Develop audit guidelines to cover additional issues of interest, periods of tax liability and other taxes.

v) Enhance the usage of computerised audit tools such as Computer Aided Audit Techniques (CAATs).

Objective 2: Implement integrated KRA-wide risk management functionCurrently, each department has its own risk profiling framework based on its own interactions with customers. A taxpayer may be considered “low risk” by one department due to a positive compliance record but “high risk” to another department where different compliance regimes are practised. In addition, several risk profiling strategies lead to duplication and a waste of time and resources. KRA needs to adapt a single view with respect to risk profiling.

53


i) KRA will develop a risk management framework which will provide a guideline for its implementation.

ii) A centralised structure manned by risk liaison officers will be put in place to coordinate the development of the framework.

Objective 3: Complete functional reorganisation by having Regional OfficesraisedtoCommissionerLevelRegional offices were established in 2003 as part of KRA’s restructuring programme. Currently, regional heads are responsible for day-to-day operations including administration of tax heads. However, their duties though covering a large geographical area are not commensurate with their authority. For instance, revenue commissioners may directly post and transfer officers but regional heads on the other hand, do not have this mandate.


i) To gauge the feasibility of this proposal, KRA will put in place a taskforce to initiate action on this programme;

ii) Study tours to countries that have fully functional regional offices; and

iii) Review existing departmental structures and work methods.

Objective4:RetaintheISOcertificationKRA achieved ISO 9000 certification during the Third Corporate Plan, yet in spite of this, the Authority faces various challenges in maintaining certification status. Results from the surveillance audits indicate there are still non-conformities to be addressed.


i) KRA will implement measures aimed at retaining the ISO certification with special emphasis on improving facilities, records management and adherence to timelines and standards in the Taxpayers Charter.

ii) To enhance ISO compliance the Authority will train additional Quality Management Systems (QMS) internal auditors to attain auditor staff ratio of 1:3. In addition, they will also be trained as Integrity auditors. KRA will also undergo ISO 9001: 2008 re-certification in 2010.

54

CUSTOMER

Strategic Goal 5: Minimising customer compliance costs and enhancing customer service

Despite its considerable achievements in minimising customer compliance costs over the Third plan period, there is need for KRA to continue enhancing its service levels. Over the past three years, various surveys and reports have exposed the weaknesses in service delivery. The National Business Agenda outlines twelve key challenges. The sixth challenge, “Create tax regime and tax administration conducive to business growth” identifies eight interventions required of Government. Three of these interventions are core KRA responsibilities. These are: reducing the business tax burden level, reducing the complexity of forms and time taken to file tax returns and expediting VAT and excise tax refunds. The Paying taxes, the global picture surveys have consistently ranked Kenya low with respect to the ease of paying taxes, while KRA’s own customer satisfaction surveys have repeatedly brought out the shortcomings faced by customers.

KRA is cognisant of the fact that the first step to improving customer compliance is to facilitate them. During the Fourth Corporate Plan period, KRA will come up with a taxpayers’ strategy which will be built around the following objectives and interventions:

Objective 1: Improving service options for taxpaying publicKRA will continue to improve quality, efficiency and service delivery through a wide range of initiatives and improved business processes. The Authority will expand existing working partnerships with professional bodies and taxpayers associations and establish new ones to enhance taxpayer education and compliance.


i) Increase the scope and accessibility of services offered electronically:

KRA will endeavour to avail more information electronically on its website and improve outreach taxpayer education through electronic publications.

KRAOnline services will also be enhanced to provide multiple channels for interaction with taxpayers.

KRA will establish a tax rulings database to avail information to the stakeholders on important tax rulings, interpretations, policies and procedures in the Authority.

The Authority will also ensure that the interpretation of tax laws is responsive to the needs of the public, and that interpretations are clear, succinct and understandable. The Authority will issue guidance to clarify the tax law, resolve uncertainty regarding its application and reduce potential for controversies.

55

ii) Deliver focused education, outreach and alternative services directly and through stakeholder relationship:

The 2007/2008 Customer Satisfaction survey revealed that some of the taxpayers are not fully aware of their tax obligations. Implementation of the Corporate Communication Policy will ensure that departments and regional offices identify opportunities to sensitise and educate the public about new initiatives. Also, KRA will use the available online services to communicate with registered taxpayers.

Focused outreach campaigns will be carried out targeting areas of significant and potential non-participation, with specific emphasis on attracting more taxpayers.

KRA will enhance partnership with tax practitioners through sponsorship programmes and tax education forums to discuss issues of concern. In addition to tax agents, the Authority will target principal importers to enlighten them and reduce compliance costs.

The Authority will collaborate with other Government agencies responsible for education (e.g. Ministry of Education, Kenya Institute of Education, Universities, Commission for Higher Education) to introduce tax syllabus for primary, secondary and universities to inculcate the culture of tax compliance amongst its younger citizens and future taxpaying groups.

The Partnership in Customs Academic Research and Development (PICARD) programme is a world customs organisation (WCO) initiative that seeks to encourage customs administrations, through their regional offices for capacity building, to enter into collaboration with their local universities to offer modules leading to conferment of diploma/degree or Masters level qualifications in customs. This initiative arose from diagnostic studies sponsored by the WCO that assessed the skills gaps in customs. Kenya’s study was conducted during the Third corporate plan and found that few customs officers pursued further academic training following deployment, despite the changing customs environment. During the Fourth Corporate plan period, KRA through KRATI and in partnership with the Regional Office for Capacity Building (ROCB) will enter an MoU with the University of Nairobi (UoN) with a view to having the university offer the modules.

iii) Strict adherence to taxpayers charter timelines and provision of tools to ensure accurate, timely and accessible responses to tax law and account issues and inquiries:

The open, responsive, timely and accessible nature of information on a taxpayer’s obligations is a key aspect of a fair revenue administration. In this regard, KRA will implement the Taxpayers Charter to the letter. KRA will also review and refine its portfolio of publications to help taxpayers understand and comply with the tax laws.

The Authority will consolidate and synchronise all FAQ’s to ensure that taxpayers are given up to date information.

56

iv) Revamp the customer care desks and reorganise the call centre programme:

The customer care desks will be revamped and the call centre reorganised to ensure that callers get the help they need expeditiously. Online surveys will be undertaken to monitor client satisfaction with the call centre service, while random testing will be introduced to ensure accuracy of the information provided. KRA will also implement automated queue management system in the banking halls.

Objective 2: Facilitate participation in the tax system by all KenyansKRA will identify less costly methods of service delivery, improve quality and utilise resources more efficiently.


Business process improvement:

During the Fourth Corporate Plan, KRA will continue with business process improvement. The Authority will implement the one-stop border post concept at our common borders and at the airport. This will facilitate clearance process and reduce time traders will take to clear cargo at border points. In addition, KRA will spearhead an initiative to have a one-stop integrated inspection point at key border points.

KRA will also explore other initiatives to simplify business processes and thus reduce customer costs.

Objective 3: Simplify the tax processComplex payment processes and returns impede the compliance levels of taxpayers. Simplification of documents and processes will therefore be a key area of focus under the Fourth Plan period.


i) Simplify the tax return filing/declarations and paying experience for all classes of taxpayers:

The Authority will reduce the complexity of forms and time taken to file tax returns through implementation of the Integrated Tax Management System (ITMS). This will also allow for seamless data exchange with the SIMBA and VMS systems.

The major ITMS components include; electronic tax registration, e-tax filing (all returns and attachments), e-tax payment, e-tax statement and enquiries, web based question and answer (Q&A) page and a facility to send e-mail. Other components will comprise the following modules: audit compliance monitoring, debt management, external information management, management statistics, tax credit and refunds, taxpayer account, technical

57

support services, workflow manager, taxpayer services and payments and processing.

Once fully implemented, ITMS will provide more efficient service delivery in terms of faster responses and reduced compliance cost. It will also facilitate easier information access and transaction flexibility, improve integrity by minimising human contact, facilitate seamless sharing of information across KRA and relevant third parties to assist in cross matching and statistical analysis, and improve revenue collection.

The Authority will also explore the use of mobile phone technology for tax compliance purposes, especially with respect to payment of small sums of money. This may prove to be particularly useful in the Turnover Tax regime.

ii) Reduce taxpayer burden by reducing record-keeping requirements, where possible, and simplifying the return preparation and examination process:

KRA has developed a payment system called the Common Cash Receipting System (CCRS) that integrates all payments by taxpayers. The system has been tested and works well with both ITMS and VMS systems. Through CCRS, taxpayers’ accounts are updated automatically with the payments made.

KRA will also encourage interested stakeholders to develop returns preparation and filing software which can interface with ITMS and thus simplify the return preparation process. However, to ensure this provision is not abused and there is no revenue risk, criteria and requirements will be put in place for any developers of the returns preparation and filing software.

The Authority will continue to work with stakeholders to identify challenges being experienced in recordkeeping, including return preparation and examination process. The Authority commits itself to analyse and address such challenges on daily basis.

iii) Operationalisation of the Tax Tribunal:

KRA will seek support for the enactment of the Tax Appeals Tribunal Bill and ensure that once passed, the Bill allows taxpayers to have a one stop appeal process. This will ensure that there is no delay in making timely rulings by tax tribunals. Measures will be put in place to monitor the performance of local committee and tax tribunals, while all audits will adhere to set quality standards to reduce the number of cases that end up in the tribunals.

iv) Ensure prompt payments of money owed to taxpayers:

Delay in processing and making payments interferes with the cash flow position of taxpayers and thus destabilises their operations. Refunds include income tax and VAT refunds, rebates and waivers. Although the Authority has endeavoured to pay tax refunds promptly, the process of refund payments is faced with serious challenges. KRA has instituted measures to address backlog and tie claims payments with risk status. This measure will

58

be enhanced to focus on risk profiling a taxpayer as opposed to individual claims, thus speeding claim processing. The Authority will also implement measures aimed at streamlining tax refund procedures and documentation and seek independent information to authenticate the tax claims.

REVENUE

Strategic Goal 6: Achieving revenue targets by rolling over uncompleted revenue mobilisation initiatives, whilst pursuing new revenue and compliance initiatives to maturity

KRA’s compliance programme will be a mix between enforcement and facilitation. Taxpayers will be assisted in understanding their rights and obligations as well as facilitated to access the benefits they are entitled to while those who fail to comply will face the law.

KRA must meet a myriad of challenges posed by the informal sector and large corporations. The former is the fastest growing sector while the latter operates in an increasingly complex global environment, characterised by growing electronic commerce. Both sectors have unique ways of tax evasion and avoidance.

Tax compliance is broader than just paying taxes. Taxpayers are expected to comply with registration obligations, filing of required tax information in a timely manner, reporting of complete and accurate information and timely and full payment of taxation obligations. Failure to adhere to any of these implies non-compliance.

Increasingly, the compliance programme must be driven by a risk management strategy and risk profiling to minimise waste of limited resources. This approach allows for a structured basis for strategic planning, enables the tax authority to focus on the underlying causes of non-compliance, improves programme efficiency and effectiveness and provides a stronger foundation for evidence based evaluation.

To achieve this, the Authority shall:

Objective1:ContinuewithimplementationofidentifiedrevenueinitiativesThe Authority will continue to implement the revenue initiatives under RARMP and exploit the gains made so far. Key revenue initiatives that have been implemented but are yet to reach full maturity include ECTS, X-ray cargo scanners, Turnover Tax (TOT), patrol boats, the Authorised Economic Operator (AEO) scheme and the valuation database.

59


i) Implementation of the Electronic Cargo Tracking System:

Phase I of ECTS has been implemented which involved monitoring of transit goods. Piloting commenced in August 2008 and emerging challenges from the pilot exercise will be addressed during the Fourth Corporate Plan to ensure that the project is a success. Thereafter, Phase II will cover all goods subject to customs control and domestically excisable goods,

ii) X-ray cargo scanner:

Seven scanners were procured to enhance verification of cargo using non-intrusive techniques. During the Fourth plan period KRA will intensify their use by implementing the scanner strategy. In addition, the Authority will acquire two more scanners.

iii) Turnover Tax:

The performance of TOT has not been satisfactory. In the Fourth Corporate Plan, KRA will revamp the operations of TOT by adopting block management, review the laws governing TOT and enhance recruitment and monitoring of filing and payment.

iv) Patrol boats:

The KRA marine unit was formed in 2007. Currently it has three boats, two of which are deployed in Mombasa and one in Lake Victoria. During the Fourth plan period, an additional five boats will be procured which will allow KRA to enhance the monitoring of coastlines and waterways.

v) Implementation of the Authorised Economic Operator (AEO) concept:

Implementation of the AEO scheme commenced in August 2008 and was geared at expediting clearance process for compliant importers and agents. The AEO status is granted to operators who have proved to be reliable traders and partners of customs administration. KRA will invite more compliant tax payers into the AEO scheme as part of an expansion strategy while effectively managing those already in the scheme by ensuring consistent reviews and audits. In addition, the criteria for identifying taxpayers who will be granted AEO status will be reviewed to cut across all departments.

vi) Valuation database:

Acquisition of a valuation database will be completed during the Fourth Corporate Plan. The system will provide officers with a database where they can access benchmark values for imports and exports for uniformity in the application of values.

KRA will issue updated valuation bulletins to upgrade the database into a price reference catalogue. This will allow uniformity in valuation and customs value consistent with the World Trade Organisation (WTO) requirements.

60

vii) Taxpayer Recruitment:

KRA will also put in place a focussed taxpayer recruitment strategy. We will strengthen information exchange with other Government institutions to facilitate recruitment.

Objective 2: Discourage and deter non-complianceKRA faces several compliance challenges. Firstly, the Kenyan economy is cash based making it difficult to use formal accountability tools to ensure compliance. Secondly, many small businesses have a poor track record with respect to record keeping, i.e. incomplete records. The taxpayer base has a high proportion of non, nil and credit filers. A third challenge is the problem of under declaration and mis-description in customs to minimise customs duties. There is also a high incidence of diversion of transit goods into the domestic economy and a growing problem of high incidence of non-payment of self assessed tax.

Recommended practice in compliance management involves several processes including identifying of risks, assessing and prioritising of identified risks, analysing of compliance behaviour, identifying which strategies to use to “cure” the non-compliant behaviour, and planning and implementing the strategy. The implemented strategies will include monitoring and evaluation of outcomes to enable comparison with the plan.

Means and strategies KRA’s compliance programme over the Fourth plan period will focus on several initiatives. Firstly, KRA will develop a corporate structure to govern compliance activities, complete with roles and monitoring parameters. Secondly, channels will be put in place to improve measurement and detection of non-compliance.

Thirdly, a framework for compliance monitoring incorporating tax head specific check lists will be developed. Lastly, KRA will train staff on corporate level compliance activities and. review legislation and propose amendments with a view to proposing amendments where legal provisions undermine enforcement of compliance.

Implementation of the MEGA ports initiative: The MEGA ports initiative is an initiative to secure global cargo, initiated by the United States of America’s department of energy. The US Government collaborates with strategic and major Ports to scan US-bound cargo. The goal is to target high priority ports and enter into partnership to scan as many containers (for imports, exports and trans-shipments) as possible regardless of destination with little or no interruptions to Port operations. Interventions include equipment, training, and technical support to international partners to enhance their ability to deter, detect, and interdict illicit trafficking of special nuclear and other radioactive materials in the global maritime system. At least 100 MEGA Ports are targeted for implementation by 2015, allowing for over 50 per cent of global shipping traffic to be scanned. Ultimately, no cargo will be allowed into the USA unless it has been scanned through by these ports.

61

During the Fourth plan period, the initiative will be fully implemented at the Port of Mombasa.

Objective 3: Implement the enforcement strategy When taxpayers voluntarily comply with tax law and regulations, their neighbours are also encouraged to do so and vice versa. Whereas taxpayer facilitation is the ideal strategy for ensuring voluntary compliance, it is essential that those who choose not to comply are forced to comply through enforcement measures. Failing to detect and respond to filing, payment and reporting non-compliance reduces tax revenue and undermines the voluntary compliance system.

Over the fourth plan period, KRA will implement the enforcement strategy. This will be a key pillar of the revenue mobilisation efforts. The strategy is built around the understanding that non-compliance can result from ignorance (hence a need for taxpayer education), high compliance cost (hence a need to improve tax payer services and reduce compliance costs), temporarily adverse economic conditions or personal emergencies. On the other hand, non-compliance can be as a result of conscious decision not to meet tax obligations.


i) Enhancing detection of unregistered taxpayers:

During the plan period, KRA will focus enforcement resources towards underground economy with a view to increasing the possibility of detection. Measures will include enforcing the use of PIN as a common identifier; harmonising KRA taxpayer information database (by developing a centralised KRA database for all registration undertaken by user departments); imposition of strict penalties and sanctions for identified non-compliers; increase the scope of business transactions requiring PIN by working closely with identified government agencies and promoting interconnectivity with other government agencies to limit the scope for tax avoidance.

ii) Enhancing capacity to detect non-filers and misstatements:

The Authority will enhance its capacity to detect non-filers and misstatements. Firstly, timely processing and follow up of returns will be used to detect non-filers. The audit processes will be re-examined to target areas of non-compliance. This will be achieved by refining return selection criteria, target returns that are significantly under-declared income, and risk analysis. Customs oriented post-clearance audit will increase the scope of sector and commodity based audits. Audit cycle time will be reduced and audit coverage improved by focusing on both short and long term processes, systems and procedure changes to improve audit coverage rates as part of the KRA wide audit policy.

62

In addition KRA will:

a) Ensure strict compliance with ETR regime requirements: The aim of introducing the ETR was to assist traders in keeping full details of their transactions, thus facilitating VAT and other tax audits. However, since its introduction, certain challenges have emerged. The performance of ETR will be reviewed during the 4th Corporate Plan with a view to enhancing its operations by intensifying surveillance, linking ETR to ITMS, and automating management of compounding of offences. KRA will also sensitise the public to demand issuance of ETR generated receipts, sensitise consumers, producers to demand issuance of ETR receipts or invoices for products or services purchased, enforce installation and use of ETR to generate sales receipts.

b) Revamp the KRA laboratory: This will ensure the laboratory provide analytical and scientific advisory services with regard to identification, description and tariff classification to support the revenue, investigation and enforcement departments. During the plan period, the capacity of the laboratory will be expanded to make it capable of handling complex chemical analysis. This will include:

◊ Proposing legal reform to enable the laboratory to operate on the basis of legal provision and ensure that laboratory results are officially recognised even in the courts of law.

◊ Development and implementation of laboratory management procedures, quality systems, and working methods in line with relevant standards and statutes.

◊ Implementing a Laboratory Information Management System (LIMS), for the laboratory service network.

◊ Development of operational capacity, human and physical resources to ensure quality service delivery.

◊ Co-operation with other testing laboratories.

iii) Enhance the capacity of enforcement units in the revenue departments:

Measures to enhance the capacity of enforcement will include the following measures. Firstly, enforcement advisory committees will be established to coordinate the various activities within the Authority. Secondly, the capacity of I&E department will be enhanced by strengthening capacity in fraud specialisation and developing forensic capacity. Lastly, the Authority will also work closely with the Director of Public Prosecution, Provincial Administration and other Government agencies to strengthen joint enforcement initiatives and build capacity.

iv) Simplification and harmonisation of dispute resolution:

Enforcement activities will benefit from the simplification and harmonisation of dispute resolution initiatives. These include the proposed tax procedure

63

code, tax appeals tribunal, preparing and continuously updating harmonised compounding guidelines. KRA will also, where possible, identify and remove barriers preventing expeditious resolution of cases in court while stakeholders will be sensitised on internal dispute resolution mechanisms.

v) Establishment and implementing an effective debt management policy:

The current debt stock has been increasing leading to the debt outstanding to revenue collected being significantly above internationally accepted standards. KRA is also not on track to reduce this ratio to five per cent by the end of the Fourth Corporate plan period as targeted in the Third Corporate Plan. In addition, there is the “old debt” problem, (pre 1992 income tax, pre 1996 VAT debt and pre 1994 PAYE debt) where records are unreliable.

Debt and compliance activities will be separated. These activities are very involving and experience has shown a preference by KRA stations to focus on compliance matters which are seen to yield results at a more rapid rate than follow up of debt. Specific staff will be dedicated to the debt programme and their skills enhanced through training. In addition, debt will be categorised by type, age and other characteristics and strategies put in place for dealing with different types of debt developed, including validation of debt, its categorisation into collectible and non collectible debt, and carrying out ledger corrections. KRA will also operationalise the in duplum rules through automating the process of accumulating interest and penalties. Lastly, KRA will pursue the write off of non-recoverable debt with the Treasury and develop a feedback mechanism to fast track debt cases submitted and the same time prioritise self assessed debt since there is no dispute on its level.

vi) Encouraging professional ethics and standards:

KRA will strengthen partnerships for improved professional integrity and compliance, since KRA firmly believes that compliance costs can be significantly reduced if professional conduct was enforced by professional bodies. Therefore, KRA shall enlist the support of professional bodies to communicate standards and codes of conduct to their members. In addition, the Authority will promulgate regulations for tax agents, licensing agents, among others.

vii) Prosecution of tax offenders:

In order to improve compliance, KRA will implement the KRA prosecution policy. Taxpayers who evade paying taxes will be aggressively followed up. Such cases will be advertised both in the electronic and print media. In addition, KRA will seek the gazetting of its prosecutors by the Attorney General. Moreover, the informer reward scheme has proved to be an effective source of information. During the plan period, its administration will be strengthened.

viii) Leverage enforcement activities by partnering with other governmental agencies, external partners, stakeholders and media:

64

KRA will co-operate with other tax administrations and international organisations to exchange information on cross-border financial transactions. One of the key measures will be the expansion of RADDEX to all EAC partner states. KRA will also collaborate with credit reference bureaus, the Central Bank of Kenya and the Kenya Bankers Association to explore potential for information sharing.

With respect to customs management, in progressing the Memorandum of Understanding (MoU) with KIFWA, KRA shall ensure the joint training is effective and therefore licensing of clearing agents will be tied to the Authority’s specific training as well as training by the Federation of East Africa Freight Forwarders Association which is designed to enhance professionalism of the agents. In pursuit of the MoU, KRA will assist KIFWA in developing a code of conduct for their members.

CAPACITY FOR CHANGE

Current Staff Establishment By June 2009, KRA had a total staff complement of 4,312 officers. The distribution of the officers by departments were as shown in Table 4 below:

From the table, it can be seen that 2,431 officers were technical (i.e, officers involved directly in revenue collection) while 1,881 officers were support staff.

Of the 4,312 officers, 351 were managerial cadre (KRA 5 and above) while 1,708 were supervisory cadre (KRA 6-10).

TABLE 4: KRA STAFF ESTABLISHMENT IN 2008/09DEPARTMENT STAFF NOS. TECHNICAL

STAFFOTHER STAFF

BOARD CORPORATE SERVICES & ADMIN

591 0 591

CUSTOMS SERVICES 1,199 960 239DTD - LTO 191 171 20DTD - REVENUE 1,074 801 273FINANCE 212 0 212HEADQUARTERS 40 6 34HUMAN RESOURCES 90 0 90IC T 126 2 124INTERNAL AUDIT 25 0 25INVESTIGATIONS & ENFORCEMENT

119 67 52

KRATI 46 5 41

65

LEGAL SERVICES 18 2 16MARKETING & COMMUNICATION 61 0 61ROAD TRANSPORT 212 153 59RESEARCH & CORPORATE 24 0 24SUPPORT SERVICES 13 0 13TRAINING 264 264 0TREASURY 7 0 7

TOTAL 4,312 2,431 1,881

Note: In this context technical officers are those involved in revenue collection.

Staff complement and strategic plan implementation One of KRA’s strengths has been the ability of its staff to adjust to changing conditions. This will continue. Hence, lack of staff capacity is not foreseen to be a serious problem unless the remuneration challenge is not met.

KRA will also be conducting a comprehensive job evaluation during the plan period. This will be the basis for restructuring to ensure the organisation structure is aligned to the corporate.

66

Chapter 5

Coordination Monitoring and Evaluation

5.1 Introduction

Monitoring and Evaluation (M&E) is important in an organisation’s performance. Monitoring is a continuous function that uses systematic collection of data on specific indicators to provide management and the main stakeholders of an ongoing development intervention with indications of the extent of progress and achievement of objectives and progress in use of the allocated funds. On the other hand, evaluation entails the systematic objective assessment of an ongoing or completed project, programme or policy, including its design, implementation and results. The aim is to determine the relevance and fulfilment of the objectives, development efficiency, effectiveness, impact, and sustainability.

Monitoring and Evaluation is geared towards identifying and measuring the gains made from specific instituted programs and projects. The overarching goal of having monitoring and evaluation system in place is to assist in:

• Evaluating and adjusting strategies and activities;

• Reporting on progress on the key issues being implemented;

• Identifying lessons learned; and

• Improving the programming of new interventions and strategies.

The M&E role is critical and will require dedication of resources, both human and financial to ensure it is effectively carried out. An effective M&E system is critical to the successful implementation of the Corporate Plan 2009/10-2011/12. M&E system provides a means of learning from past experience, improving service delivery, planning and allocating the scarce resources. In addition, the system provides a regular flow of information on the performance of various policies, programs and activities.

5.2 Monitoring and Evaluation requirements as per the guidelines The Guidelines issued by the Ministry of State for Planning and National Development and Vision 2030, recommends for the adoption of the National Integrated Monitoring and Evaluation System (NIMES). The objective of NIMES is to provide a consistent framework for measuring the efficiency and effectiveness of government policies and programmes. The system is geared towards augmenting the already existing links between the budget and the Medium Term Expenditure Framework (MTEF). To this end, NIMES envisions provision of feedback mechanism with the view of achieving efficient allocation of resources over time. The system is also designed to track and provide feedback on the implementation of government policies and programmes for improved performance, results and accountability.

67

The system monitors indicators and measures organisational efficiency in utilizing the available resources and achievements. The indicators will include:

◊ Input and process indicators, such as execution and adoption of reforms, across programs and government institutions to ascertain progress in the implementation of policies and programs.

◊ Output indicators, such as services provided by the organisation, to measure the efficiency in the utilisation of resources of the organisation.

◊ Outcome and impact indicators, that inform on the actual achievements made and form the basis for evaluation.

The guidelines also require the following:

• Identification of 3-4 indicators for National Monitoring,

• 12-15 main indicators for ongoing ministerial monitoring,

• Identify annual targets for inclusion in the Performance Contract, and

• A target results matrix will be attached as Appendix A.

KRA’s Fourth Corporate Plan M&E framework incorporates the requirements of the NIMES as well as takes cognisance of the weaknesses revealed in the existing framework. To further strengthen the M&E system and ensure effective monitoring, a dedicated M&E unit will be established. In line with the NIMES, the M&E system for the Fourth Corporate Plan is based on the various goals, outcomes and specific outputs that KRA envisages to achieve. Specifically, the M&E will look at both the organisational and departmental level objective to ensure corrective actions are taken to avoid any deviations from the standards. Performance measures have been expressed in a manner that is as measurable as possible. The Results Matrix will focus on outcomes and output. A separate matrix has been prepared showing activities corresponding to the Output, Activity Indicators, Input, and Indicative Budget. The Authority will incorporate these annual targets in its annual Performance Contracts.

5.3 Monitoring and Evaluation of the Fourth Corporate Plan

The Fourth Corporate Plan identifies a set of 15 outcome and output indicators in line with the provisions of the strategic planning guidelines. Out of the 15 indicators, a set of four outcome indicators have been identified for national monitoring and evaluation under the NIMES framework. The indicators will replace the Key Performance Indicators (KPI’s) used in past corporate plans.

In determining the indicators and target, KRA took cognisance of the following:

• Core functions of the Authority which are the mobilisation of revenue, trade facilitation and facilitating business,

• The strategic objectives of the Corporate Plan, and

• Requirements of performance contracting.

68

5.4

MO

NIT

OR

ING

AN

D E

VA

LUA

TIO

N F

RA

ME

WO

RK

Th

is c

hapt

er p

rese

nts

M&

E fr

amew

ork

that

gea

red

tow

ards

ens

urin

g th

at th

e C

orpo

rate

Pla

n is

impl

emen

ted

as a

ntic

ipat

ed.

The

fram

ewor

k fo

llow

s th

e N

IME

S g

uide

lines

des

igne

d fo

r eac

h re

sult

area

sho

win

g th

e ov

erar

chin

g go

al, p

urpo

se, o

utpu

ts a

nd th

e ou

tput

indi

cato

r. Th

e fra

mew

ork

is g

iven

bel

ow:

Str

ateg

ic G

oal 1

: Dev

elop

a p

rofe

ssio

nal t

eam

that

is w

ell r

emun

erat

ed

69

70

71

72

CHAPTER 6

BUDGET AND RESOURCE ALLOCATION

6.1 IntroductionThis chapter outlines resource envelope for undertaking the strategic activities outlined in the Corporate Plan. Achievement of the key strategic objectives highlighted in the corporate plan will be dependent on the resources availed to it. Well laid out but unfunded plans are nothing more than wish lists. The Authority will therefore be constrained by the provisions of various laws setting out its resource base and the willingness of the Ministry of Finance to fund its development agenda as part of the Medium Term Expenditure Framework (MTEF) process.

Section 16 of the Kenya Revenue Authority Act (Cap. 469) provides for the funding of the Authority to consist of:

a) Not more than two per cent of the revenue estimated in the financial estimates for each financial year to be collected by the Authority under this Act.

b) Three per cent of the revenue collected in each successive three-month period in the financial year in excess of the amount estimated to be collected in respect to that period.

c) Loans and grants received by the Authority with the approval of the Minister.

d) Any other monies as may, with the approval of the Minister, be received by or made available to the Authority for the purpose of performing its functions.

Whereas the statutory provisions are expected to provide a basis for multi-year planning, the fact that the Minister may vary the level of agency funding from year to year means that medium term planning is constrained. Given the underfunding that has characterised the Third corporate plan period, KRA is basing its resource forecasts on the assumption that this time round, with the expected adverse international environment, the Government will be placing increased emphasis on achieving its revenue targets and will be amenable to ensuring KRA is adequately funded for both recurrent and development activities.

6.2 Revenue Projections

Because of the 3-year MTEF planning framework, Government revenue forecasts are available for the 2009/10 to 2011/12 period. The revenue forecasts are available from the Medium Term Budget Strategy Paper (BSP) 2009/10-2011/12. Table 5 below provides the revenue forecasts from the BSP.

73

Table: 5 Government Revenue Estimates 2009/10 to 2011/12(Values in Kshs. Bn)

2006/07 2007/08(Provisional)

2008/09 (Revised Estimates)

2009/10 (Printed Estimates)

2010/11 (BSP numbers )

2011/12 (BSP numbers)

Total Revenue 373.0 432.2 510.7 569.5 634.5 711.1

Ordinary Revenue (incl. LATF)

346.6 405.1 472.6 522.8 588.1 659.3

Income Tax (incl. LATF)

124.9 165.4 192.8 220.3 245.1 275.4

Import duty (net)

27.5 32.9 36.54 40.6 46.2 51.9

Excise Duty 56.4 61.9 68.9 78.1 84.4 94.2

Value Added Tax (net)

96.3 111.9 128.6 148.4 159.2 178.6

Investment Income

6.6 3.1 7.9 9.0 7.5 8.3

Other 28.4 29.8 38.1 26.4 45.7 50.8

Ministerial and Departmental fees (AiA)

26.4 27.1 37.4 46.7 46.4 51.8

Estimated Growth in Ordinary Revenues

16.9 per cent

16.7 per cent

10.6 per cent

12.3 per cent

12.1 per cent

ESTIMATED GROWTH IN OVERALL REVENUES

15.9 per cent

18.2 per cent

11.5 per cent

12.3 per cent

12.1 per cent

Source: MoF: Budget Strategy Paper 2009/10-2011/12, Quarterly Budget and Economic Review

In 2008/09 the government expected to collect a total of Kshs. 510.7 billion of which Kshs. 472.6 billion was Ordinary Revenues. KRA was expected to collect an estimated Kshs. 455.4 billion of these Ordinary Revenues, i.e, 96.3 percent.

KRA is also expected to collect agency revenues for various Government agencies. In 2008/09 these agency revenues were expected to total Kshs. 29.6 billion. Hence, the Authority was expected to collect a total of Kshs. 485 billion in 2008/09.

Over 2009/10 to 2011/12 Ordinary Revenues are expected to grow by an annual average of 11.5 percent. In particular, income taxes are projected to grow by an annual average of 12.5 per cent while Value Added Taxes (VAT) are to grow at an annual average of 11.6 per cent growth and import duties is expected to grow at an average 12.4 per cent annually. In addition, agency revenues are forecast to grow at an annual average of 8 per cent reaching Kshs. 37 billion in

74

2011/12.

Given the high cost of collection experienced during the Third Corporate Plan and especially during 2008/09, it is assumed that the agency rate will be maintained at the maximum 2 per cent over the Corporate Plan period and the same 2 per cent will be charged for agency revenues. Also assuming that the considerable arrears built up over the past are paid, the Authority can expect its recurrent revenues to increase from Kshs.8.4 billion in 2008/09 to Kshs.15.1 billion in 2011/12, an annual average growth of 21.5 per cent, mainly driven by raising the agency rate to 2 per cent. These numbers are shown in Table 6 below.

Table 6: KRA REVENUE FORECASTS 2009/10 TO 2011/12(Values in Kshs. Mn)

2008/08(KRA

Budget)

2009/10 2010/11 2011/12

From Agency Revenues ** 7,145 10,134 11,385 12,766Agency Fees arrears 0 739 739 739Appropriations in Aid /Other

1,225 1,335.1 1,460 1,609.7

TOTAL RECURRENT REVENUES

8,369.6 12,208.1 13,584 15,114.7

** Assumes that from 2009/10 KRA is able to access 2 per cent of Ordinary Revenues. These figures also omit bonuses which are only earned when KRA exceeds its targets.

With respect to the development budget, KRA expects the Ministry of Finance to continue funding required projects directly from the Exchequer as has been the practice. In addition, the Authority will be able to access additional funding from development partners.

6.3 EXPENDITURE

The challenge for KRA is to fund an ambitious reform agenda together with rising recurrent expenditures within a budget with statutory constraints. This will require the organisation to at the very least cover its recurrent costs within its resource envelope and seek for additional funding for its development activities.

75

Table 7 below provides an estimate of the recurrent expenditure estimates for the 2009/10 to 2011/12 period:

Table 7: TOTAL ESTIMATED RECURRENT EXPENDITURES(Values in Kshs. Mn)

2008/09 (Revised Budget)

2009/10 2010/11 2011/12

STAFF COSTS 5,794 8,154 8,724 9,597OPERATIONS AND MAINTENANCE

2,750 3,946 4,538 5,219

TOTAL RECURRENT EXPENSES

8,545 12,100 13,263 14,817

TOTAL RECURRENT REVENUES

8,369 12,208.1 13,584 15,114.7

SURPLUS OR DEFICIT ON RECURRENT REVENUES ( ) IMPLIES DEFICIT

(175) 108 321 297.7

SOURCE: Generated from KRA Finance Department

Total recurrent expenditures are expected to increase from Kshs. 8.5 billion in 2008/09 to Kshs.14.8 billion in 2011/12, i.e., at an annual average of 21.0 per cent, with the bulk of the growth forecast for 2009/10, with a growth of 41.6 per cent. Thus, recurrent expenditures will be growing faster than recurrent revenues. Personnel emoluments are forecast to rise from Kshs. 5.8 billion to Kshs. 9.6 billion, an annual average growth of 19.2 per cent,with the bulk of the growth in 2009/10 at 40.7 per cent. This growth is primarily occasioned by a need to improve personnel emoluments in line with overall wage review proposals. Operations and maintenance expenditures are forecast to rise from Kshs. 3.9 billion to Kshs. 5.2 billion, an annual average of 15 per cent, just keeping pace with overall revenue growth. Expenses that are primarily ‘people’ related (personnel expenditures, medical expenses, transfer allowances, training uniforms and welfare) will grow by an annual average of 35.5 per cent, i.e., faster than other expenses. There is therefore a deliberate effort to address people related issues over the plan period.

Development Budget

To implement its RARMP as well as bring its facilities up to the standards required by its ISO-9001 : 2000 status, KRA will need to make considerable outlays towards its development and capital budget. Table 8 below provides estimates of

76

expected development expenditure requirements:Table 8 Total Estimated Development Expenditures

(Values in Kshs. Million)2008/09 2009/10 2010/11 2011/12

REFORM AND MODERNIsATION PROGRAMME PROJECTSCustoms Services Department reform and modernization

444 238 45 35

Domestic Taxes Reform and Modernisation

62 383 347 120

Road Transport Department Reform and Modernisation

0 720 160 120

Investigations and Enforcement Reform and Modernisation

0 37 23 3

Infrastructure Development 20 1,800 600 600Training and Change management 107 150 150Business Automation 1,066 741 414Total RARMP projects (incl Donor funded)

861 4,351 2,066 1,442

Other Capital Requirements 158 976.1 801.9 601TOTAL DEVELOPMENT REQUIREMEN TS

1,019 5,327.1 2,868 2,043

Source: Finance department data

From Table 8 above, the available surplus after covering recurrent expenditures totals Kshs. 727 million over 2009/10 to 2011/12 compared to a development expenditure need totalling Kshs. 10.2 billion. There will therefore be substantial need for development funding from the Treasury and other development partners.

The cost implications of the reform and recurrent programme are clear; even with a 2 per cent agency revenue, there will be need for considerable additional resources for KRA to both carry out its mandate as well as implement its development programme.

77

6.4 WAY FORWARD

KRA’s failure to complete all its development activities over 2006/07 to 2008/09 was primarily the result of inadequate provision of resources, including the failure of the Ministry of Finance to honour statutory obligations such as bonus payments. For the Fourth Corporate Plan to be successfully implemented, it is imperative that the organisation:

i) Continue lobbying vigorously at the Treasury and sensitising the Ministry staff to make them understand the absolute imperative of ensuring KRA is adequately funded.

ii) Recommend for the amendment of the Act to allow KRA to automatically retain agency fee from revenue collections. This will go along way in enabling timely and flexible availability of funds.

iii) Lobby for a one off payment to cater for the considerable backlog in facilities that is threatening service delivery especially with respect to border station and regional offices.

iv) Pursue new avenues of business to widen the resource envelope.

Overall, KRA remains committed to the efficient utilisation of resources and will aim at reducing the cost of collecting revenues which is one of the key tenants of the cannon of taxation.

78

79

80

81

82

DDeevveellooppaawweellllrreemmuunneerraatteedd,,pprrooffeessssiioonnaallllyyccoommppeetteennttssttaafffftthhaattiinntteerrnnaalliisseessaannddppuuttssiinnttoopprraaccttiicceetthheeccoorreevvaalluueessoofftthheeoorrggaanniizzaattiioonnaannddccrreeaattiinnggaannEEnnaabblliinngg

WWoorrkkEEnnvviirroonnmmeenntt

DD eevv ee

ll oopp

aacc oo

mmpp ee

tt ii ttii vv

eeaa nn

ddaa tt

tt rr aacc tt

ii vvee

rr eemm

uu nnee rr

aa ttii oo

nnpp aa

cc kkaa gg

ee

EE nnhh aa

nn ccee

KK RRAA

sscc oo

rr ppoo rr

aa ttee

cc uull tt uu

rr eebb yy

ee sspp oo

uu ssii nn

ggii tt ss

cc oorr ee

vv aall uu

ee ss

22 7733 MM

11 ..55 MM

EE nnhh aa

nn ccee

cc aapp aa

cc iitt yy

ff oorr tt

hh eeKK RR

AAtt ee

aa mm22 ,,

33 8866 MM

83

11 88MM

22 00MM

II mmpp ll

ee mmee nn

tt HHuu mm

aa nnRR ee

ss oouu rr

cc eess

bb eess tt

pp rraa cc

tt ii ccee ss

77 00MM

II mmpp ll

ee mmee nn

tt wwoo rr

kkee nn

vv iirr oo

nn mmee nn

tt PPoo ll

ii ccyy

WWii tt hh

ii nnBB uu

dd ggee tt

84

AA dddd ii

tt ii oonn aa

ll IInn ii

tt ii aatt ii vv

ee sstt oo

EE nnss uu

rr eeCC oo

mmpp ll

ii aann cc

eeww ii

tt hhII SS

OOss tt

aa nndd aa

rr ddss

FFuullllaauuttoommaattiioonnoofftthheeAAuutthhoorriittyyaannddeennssuurriinnggtthheeIITTssyysstteemmssaarreeffuullllyyiinntteeggrraatteedd

EE nnhh aa

nn ccee

II CCTT

SS eerr vv

ii ccee ss

,,II nn

ff oorr mm

aa ttii oo

nnSS yy

ss ttee mm

ssss ee

cc uurr ii tt

yyaa nn

ddII CC

TTGG oo

vv eerr nn

aa nncc ee

11 0000 MM

11 5500 MM

77 55MM

22 0000 MM

22 00MM

85

88 4466 ..

99MM

11 ,,22 00

00MM

11 4411 MM 44 00

MM

22 5500 MM

WWii tt hh

ii nnBB uu

dd ggee tt

86

11 00MM

55 MM 22 55MM

77 55MM

11 55MM

55 00MM

22 9911 MM

55 MM 11 55MM

33 00MM

33 00MM

22 8866 MM

44 00MM

44 55MM

22 00MM

87

55 7755 MM

90M

33 9900 MM

33 0000 MM

11 ,,11 77

00 MM

11 ,,33 11

22 MM

77 1144 MM

22 55MM

88

44 3300 MM

WWii tt hh

ii nnBB uu

dd ggee tt

11 22.. 66

MM

CC oomm

pp llee tt

eeff uu

nn cctt ii oo

nn aall rr

ee --oo rr

gg aann ii

zz aatt ii oo

nnbb yy

hh aavv ii

nn ggRR ee

gg iioo nn

aa llOO ff

ff ii ccee ss

rr aaii ss

ee ddtt oo

CC oomm

mmii ss

ss iioo nn

ee rrLL ee

vv eell ..

WWii tt hh

ii nnBB uu

dd ggee tt

’

89

MMiinniimmiizziinnggccuussttoommeerrccoommpplliiaanncceeccoossttssaannddeennhhaanncciinnggccuussttoommeerrsseerrvviicceeSS tt

rr aatt ee

gg iicc

OObb jj

ee cctt ii vv

eeII nn

ii tt iiaa tt

ii vvee ss

TT aarr gg

ee ttss //

MMee aa

ss uurr ee

ssCC

oo sstt

II mmpp rr

oo vvee

ss eerr vv

ii ccee

oo pptt ii oo

nn ssff oo

rr ttaa xx

pp aayy ii

nn ggpp uu

bb llii cc

WWii tt hh

ii nnBB uu

dd ggee tt

00 ..33 MM WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

11 22MM

90

FF aacc ii

ll ii ttaa tt

ee PP aa

rr tt iicc ii

pp aatt ii oo

nnii nn

tt hhee

TT aaxx

SS yyss tt

ee mmbb yy

aa llll

KK eenn yy

aa nnss

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

SS iimm

pp llii ff yy

tt hhee

tt aaxx

pp rroo cc

ee ssss

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

91

44 00MM

// ppee rr

aa nnnn uu

mm

WWii tt hh

ii nnBB uu

dd ggee tt

iieevviinnggrreevveennuueettaarrggeettssbbyybbrriinnggiinnggtthheenneewwrreevveennuueemmoobbiilliizzaattiioonnaannddccoommpplliiaanncceeiinniittiiaattiivveessttooffuullllmmaattuurriittyy

SS ttrr aa

tt eegg ii

cc OO bb

jj eecc tt

ii vvee ss

II nnii tt ii

aa ttii vv

ee ss

TT aarr gg

ee ttss //

MMee aa

ss uurr ee

ss CC oo

ss ttMM

aa xxii mm

ii ssee

rr eevv ee

nn uuee

cc ooll ll ee

cc ttii oo

nnNN ii

ll

NN iill

CC oomm

pp llii aa

nn ccee

&&uu tt

ii ll iiss aa

tt ii oonn

ww iitt hh

aa pppp rr

oo vvee dd

bb uudd gg

ee ttaa rr

yyll ee

vv eell ss

NN iill

DD iiss cc

oo uurr aa

gg eeaa nn

dddd ee

tt eerr

NN oonn --

CC oomm

pp llii aa

nn ccee

22 0000 99

// 1100

22 33MM

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

92

WWii tt hh

ii nnBB uu

dd ggee tt

11 00mm

44 55MM

66 22.. 33

MM

WWii tt hh

ii nnBB uu

dd ggee tt

RR ee-- ii nn

vv iigg oo

rr aatt ee

mmaa nn

aa ggee mm

ee nntt oo

ff ddee bb

ttWW

ii tt hhii nn

BB uudd gg

ee tt

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

93

WWii tt hh

ii nnBB uu

dd ggee tt

WWii tt hh

ii nnBB uu

dd ggee tt

EE nnhh aa

nn ccee

EE nnff oo

rr ccee mm

ee nntt

CC aapp aa

bb iill ii tt

yy66 22

.. 77MM

Date post:	27-Apr-2018
Category:	Documents
Upload:	nguyenque
View:	214 times
Download:	2 times

2009/10 - 2011/12 - kra.go.ke · FOURTH CORPORATE PLAN 2009/10 - 2011/12. ii ... ETR Electronic Tax...

Documents