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					  KENYA REVENUE AUTHORITY

REVENUE ADMINISTRATION REPORT

         JUL-DEC 2004

        M. G. WAWERU
    COMMISSIONER GENERAL

         27 JANUARY 2005


      Kenya Revenue Authority
Introduction

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

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

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


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

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

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

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

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



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



                 Red – Represents Little/ No Progress



                  Amber – Represents Fair Progress



                  Green – Represents Good Progress/ Results




                   Kenya Revenue Authority
       OPERATING ENVIRONMENT

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

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

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



                    Kenya Revenue Authority
  REVENUE PERFORMANCE DURING THE FY 2004/05

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

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




                   Kenya Revenue Authority
        1st Quarter: July - September 2004 (Kshs Million)


                                     PERF.     ACTUAL    GROWTH
DEPT    ACTUAL    TARGET     VAR
                                    RATE (%)   2003/04     (%)


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


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

RTD       680       615       65     110.6       482        +41.1

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



                  Kenya Revenue Authority
    2nd Quarter: October - December 2004 (Kshs Million)


                                     PERF.     ACTUAL    GROWTH
DEPT    ACTUAL   TARGET     VAR
                                    RATE (%)   2003/04     (%)


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


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


RTD      675       595      80       113.4      449       +50.3

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



                 Kenya Revenue Authority
  Cumulative Half Year: July - December 2004 (Kshs Million)


                                      PERF.     ACTUAL    GROWTH
DEPT    ACTUAL    TARGET     VAR
                                     RATE (%)   2003/04     (%)


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


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


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

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



                  Kenya Revenue Authority
 This good revenue performance was as a result of:
   • Aggressive implementation of tax administrative reform measures as
     articulated in the second Corporate Plan,
   • the overwhelming response to the tax amnesty 2004,
   • and the generally favourable economic environment.

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

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


                   Kenya Revenue Authority
1. INITIATIVES TO ENHANCE REVENUE COLLECTION

Broaden the tax base
 Taxpayer Recruitment – A total of 10,791 new taxpayers for Income Tax and
   5,177 for VAT were recruited realising Kshs. 283 million in additional revenue.
   Take over of stamp duty collection is complete. Work is underway to take over
   collection of land rates. A memorandum of understanding has already been
   signed with Mombasa City Council while Nairobi and Kisumu will follow soon.




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




                        Kenya Revenue Authority
 Improve compliance
 Computerised risk management systems - KRA has installed a fixed and
mobile X-ray scanner with risk profiling capabilities at the port of Kilindini.
Implementation of VAT Electronic Tax Registers is also in finalisation
stages.

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

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

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



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




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

Budgeting system
Several initiatives were undertaken to enhance expenditure controls:
    The KRA financial procedures manual is being finalised;
    Guidelines for activity based costing were implemented for the preparation
     of the 2005/06 budgets;
    Several modules in the Scala financial system were activated.


                     Kenya Revenue Authority
2. INITIATIVES TO ENHANCE QUALITY OF SERVICE DELIVERY

Implement Quality Assurance Programme
 There was limited progress over the last six months after
  sensitisation programmes were implemented. However the
  recruitment of a QAP consultant is in early stages.



Develop and implement simplified compliance procedures
 Some of our documentation was modified and simplified. The
  Income Tax Act is now updated and uploaded on the KRA website.
  We however recognise that more needs to be done in this area.



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


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




                   Kenya Revenue Authority
3.      INITIATIVES TO MODERNISE INTERNAL PROCESSES

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

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

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

                      Kenya Revenue Authority
Computerisation

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

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

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




                      Kenya Revenue Authority
4.      INITIATIVES TO REVITALISE HUMAN RESOURCES

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

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


                      Kenya Revenue Authority
Expand corporate social responsibility
KRA participated visibly in various community initiatives. Notable was in
areas of HIV and AIDs, National Disaster Fund, Hunger campaigns, Student
Associations, etc.

             OVERVIEW OF BSC IMPLEMENTATION STATUS

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

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

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



                     Kenya Revenue Authority
- To Pay Your Taxes is to Set our Country Free -


         A Performance Overview




         Kenya Revenue Authority
  TAX AMNESTY 2004 PERFORMANCE

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

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

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

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

                   Kenya Revenue Authority
  TAX AMNESTY 2004 PERFORMANCE

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

 Customs and Excise Department collected a total of Kshs. 163.49
  million from 803 applications.

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

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



                    Kenya Revenue Authority
   TAX AMNESTY 2004 PERFORMANCE

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

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

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

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

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



                        Kenya Revenue Authority
   CONCLUDING REMARKS

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

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

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

                              - THANK YOU -

                      Kenya Revenue Authority

				
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