volume i second corporate plan - kenya revenue · pdf file · 2015-09-284.2 quality...

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TABLE OF CONTENTS Foreword………………………………………………………………………………….….………………………… 4 Executive Summary………………………………………………………………………………….….……… 6 Our Vision………………………………………………………………………………………………………………… 9 Our Mission Statement………………………………………………………………………………….….…… 10 Core Values……………………………………………………………..……………………………………………… 10 Strategic Theme……………………………………………………………………………………………………… 10 CHAPTER 1: INTRODUCTION 11 1.0 Introduction…………………………………………………..……………………………………………….………… 11 CHAPTER 2: EVALUATION OF THE FIRST CORPORATE PLAN 13 2.0 Introduction………………………………………………………………………..…………..………………………… 13 2.1 Revenue……………………………………………………………………………………..…………………….……… 13 2.2 Quality Service Delivery………………………………………………………………………………………… 14 2.3 Human Resources………………………………………………………………………………………….………… 15 2.4 Internal Processes………………………………………………………………………………………….……… 15 2.5 Shortcomings………………………………………………………………………………….……………….………. 16 2.6 Lessons from the first plan……………………………………………………………………………………… 18 CHAPTER 3: OPERATING ENVIRONMENT 20 3.0 Introduction…………………………………………………………..………………………………………….……… 20 3.1 Political Environment 20 3.2 Socio-Economic Environment……………………………………………….……………………………… 21 3.3 Human Resources Environment……………………………………………..………………..…..……… 22 3.4 Information Technology Environment……………………………………………….………………… 23 CHAPTER 4: STRATEGIC OBJECTIVES 2003/4-2005/6 25 4.0 Strategic Map…………………………………………………………………………………………….………… 25 4.1 Enhanced Revenue Collection………………………………………………….……………….………… 25 4.2 Quality Service Delivery………………………………………………………………………………….……… 27 4.3 Modernize Internal Processes……………………………………………………………….……………… 28 4.4 Revitalized Human Resources………………………………………………………………..…………… 30 CHAPTER 5: MONITORING AND EVALUATION 33 5.0 Introduction……………………………………………………………………… 33 5.1 Purpose…………………………………………………………………………. 33 5.2 Methodology……………………………………………………………………… 34 5.3 Monitoring Indicators……………………………………………………………. 35

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CHAPTER 6: FINANCIAL PROJECTIONS & IMPLICATIONS 38 6.0 Introduction……………………………………………………………………….. 38 6.1 Revenue Projections…………………………………………………………… 38 6.2 Expenditure Implications………………………………………………………. 38 Notes & Assumptions to Financial projections 40

LIST OF CHARTS & TABLES Chart 1 BSC Evaluation Model………………………………………………………………………………………… 19 Table 1 Revenue collection by Department……………………………………………. 13 Table 2 Economic Indicators……………………………………………………………... 22 Chart 2 BSC Strategy Map………………………………………………………………. 32 Table 3 Financial Projections &Implications…………………………………………… 39 Chart 3 Monitoring & Evaluation flow chart…………………………………………….. 41 Schedule I Financial Projection Summary………………………………………………… 42 Schedule II Projections – Customs & Excise……………………………………………… 43 Schedule III Projections – Income Tax…………………………………………………….. 44 Schedule IV Projections – Value Added Tax……………………………………………….. 45 Schedule V Projections – Road Transport Depart…………………………………………. 46 Schedule VI Projections – Human Resources & Administration………………………….. 47 Schedule VII Projections – Management Information Systems……………………………. 48 Schedule VIII Projections - Other service Departments…………………………………….. 49 Chart 5 Corporate level BSC …………………………………..……………………… 50

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FOREWORD BY THE COMMISSIONER GENERAL

The Second Corporate Plan (2003/04 -2005/06) presents Kenya Revenue Authority’s (KRA) strategic direction for the next three years. Our strategic themes during the plan period are: Enhanced revenue collection,

through enhanced Quality service to our stakeholders, Modernisation of our internal processes and

Revitalisation of our work force. These will be the four pillars on which we will build to restore public confidence in Kenya Revenue Authority and effectively support government’s development and reform agenda. Indeed the extensive and wide ranging change initiatives contained in the Plan exemplify KRA’s our commitment to provision of fair and efficient service to our stakeholders. The first Corporate Plan that covered the period 2000/01 - 2002/03, was a milestone in that it symbolised the formal adoption of modern strategic planning and performance management techniques. During this period, KRA made great strides forward in, among others, the following areas:

• Revenue yields increased by 20% despite the challenging economic and political operating environment, characterised by low growth and weak governance structures;

• Revenue collection was streamlined while quality of service was improved through the adoption of greater transparency and accountability systems and benchmarking; and

• KRA’s enforcement and preventive programmes effectively protected society from the inflow of illegal drugs, firearms, counterfeit goods and other illegal goods.

KRA has therefore made considerable progress in modernising its operations and meeting the set objectives. In this regard, I would like to thank all KRA employees for the hard work and the sturdy dedication that has enabled the achievement of the positive results. There is no denying, however, that Kenyans are more than ever before aware of their rights as evidenced by their scrutiny and comments on KRA’s past performance. Indeed questions have been raised regarding our

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ability or even willingness to confront all forms of tax evasion, our lack of even-handedness and our failure to show human face in dealing with taxpayers. These issues must be effectively addressed during the Plan period. Our single most important objective during the second corporate plan must therefore be to fully restore public confidence in KRA as an organisation which has zero tolerance to corruption, tax evasion and which treats all taxpayers fairly and equally. The second Corporate Plan makes it clear that we will settle for nothing less. While we convince Kenyans of our ability and willingness to tackle tax evasion, we must also continue to develop our systems and procedures to befit the challenges of a growing and complex economy – with ever expanding domestic and international innuendos and connections – and of major changes in the tax system that we administer. Technology has transformed the way businesses are transacted the world over. It has made it easier to navigate global economy and generate fast and vast volume of transaction at a touch of button. These innovations provide both opportunities and challenges in the period ahead. The current manual systems and procedures are an impediment to synchronized capture and timely delivery of managerial information for analysis and decision- making. KRA as an organisation must improve and lead the field in the development of e-Government by acquisition of customised Enterprise Resource Planning systems during the plan period. In addition if we are to facilitate trade and economic activities, we need to further integrate our processes along functional lines in order to avoid wastages arising from overlap and duplication. We must enhance integrity and work ethics above recourse to develop confidence and positive corporate image. It is clear important lessons have been learnt regarding our approaches and practices from past experiences. Dear colleagues, it is very clear that the challenges before us are even more daunting. We should all therefore roll up our sleeves and work together diligently to support this nation become a truly prosperous nation as propagated by H. E. the President. We should always remember that nobody but ourselves will develop this nation.

M.G. Waweru COMMISSIONER GENERAL

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EXECUTIVE SUMMARY

During the first corporate plan period (2000/01-2002/03), KRA successfully implemented administrative measures aimed at revenue enhancement and quality service delivery. A number of lessons can be drawn from the implementation of the first plan and these have formed basis for preparation of the second plan. These include the following:

Overall, revenue growth was achieved in the face of a hostile economic and political environment.

This is commendable and was achieved mainly through the implementation of incremental revenue enhancement administrative measures.

The Authority operates in the context of a dynamic and ever changing environment. Modernisation and effective utilisation of modern technology is therefore not negotiable. KRA must make use of computer resources to support efficient processing and analysis of information, intelligence gathering, information sharing and provision of management information.

KRA must develop and implement a function based organisational structure in order to eliminate bureaucracy, overlap and duplication of effort and resources.

Any change process at KRA must significantly change administrative procedures through business process improvement, incorporating process, people and technology.

Our human resource must be, and must be seen to be, KRA’s key asset. Emphasis must be placed on the core pillars of competency-based management – knowledge, skill and behaviour.

Planning will only be successful if fully owned by leadership and it is deemed by staff to support all KRA operations on a day-to-day basis.

Cultural change and the fight against corruption must be at the centre of any change process at KRA.

Any effective Plan must contain clear verifiable performance indicators and spell out an effective monitoring and evaluation framework.

In addition, non-revenue functions of KRA such as the fight against drugs, terrorism and drugs and administration of the rules of origin requirements must be adequately recognised in the Plan and relevant targets set. KRA has played a critical role in preventive services, but this has not been adequately recognised, because more emphasis has been put on revenue collection.

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The principles of good tax policy come to naught without measures of good tax administration. In an ever changing environment, the need for clear focused goals and tenacious review of operating procedures and processes are vital. To keep abreast with the global, economic, political and technological challenges, the Authority will adapt and adopt appropriate technologies and strategies to achieve best practice in revenue administration. In this regard the Authority will improve both its public image and work practice to further its corporate niche and improve voluntary compliance. The second corporate plan outlines the strategy and measures that Kenya Revenue Authority plans to pursue over the next three years. The strategies are based on the four perspectives of the Balanced Score Card, a management tool widely used in private and public institutions. The use of the Balanced Score Card (BSC) as performance management tool acts as the yardstick for performance benchmarks. The BSC views the strategic objectives from the four perspectives – enhanced revenue collection and containment of cost, quality service delivery, modernisation of internal processes and revitalised workforce. People. The Human resources of an organisation is the chief asset underpinning the achievement of the organisations strategic goals. Although KRA has improved the terms and conditions of its personnel, it has yet to adopt competency based management practices that combine knowledge, skill and behaviour. Moreover lack of scheme of service and proper job description has bred a negative culture, poor work ethic - a contributory factor to demotivation. Therefore, the second corporate plan focuses on revitalising the workforce through review of terms and condition of services, establishment review, competency management through training and career path development. These strategies are aimed at developing functional competencies, enhancing motivation and impart cultural change as an efficient way of achieving technically competent, professional and courteous workforce. Operational excellence. Efficient and effective processes are critical in achieving the set goals. Though KRA has reorganised and streamlined the internal process infrastructure over the years, there is still room for improvement to enhance program delivery. The planned integration and computerisation program for effective implementation of function-based structure, use of the PIN and electronic filling and entry processing has not been implemented. Therefore, the priority will be to modify business processes and procedures to give a single view of the taxpayer. Functional integration and Computerisation will be the key drivers to make this happen. The first phase will be to implement quick wins under the KREISA project before the full implementation of KREISA, which is an enterprise wide integrated system. These strategies will rationalise the Authority towards functional lines and integrated operations.

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Customer. The expectations of our stakeholders are high, that translates to demand for exemplary performance. There is need to develop focused taxpayer programs geared at changing taxpayer attitudes towards tax administrators. The authority will strive to provide timely, reliable and affordable services. In this regard, the Authority will implement Quality Assurance Programs (QAP) geared towards maximising stakeholder satisfaction and improving voluntary compliance. The Authority will modify and simplify forms and procedures, improve queue management procedures and management relationships through increased visibility in the general community. Financial. KRA has continued to achieve commendable revenue growth despite the hostile economic and political environment. The achievements are mainly attributable to implementation of incremental revenue enhancement administrative measures. The Authority aims to surpass the set revenue targets at lowest cost over the plan period through better implementation of administrative measures to broaden the tax base and widen the tax net, improve voluntary compliance and development of better focused and targeted programs. The emphasis will be on efficient resource utilisation, acquisitions of new business and increased compliance to better revenue collection and cost reduction measures. The core of a corporate plan is effective Monitoring and evaluation mechanism to enable the existence of a feedback loop. This will reflect the reality of the environment on the implementation of the objectives through constant process review. The second corporate plan recognises this important function by the appointment of a full time project manager and project team whose responsibility is to ensure the implementation and completion of all initiative and reporting of the same to the Commissioner General. To achieve these objectives, the Authority will need an enabling environment that facilitates trade in order to encourage both domestic and foreign investors. KRA is committed to facilitate trade within our borders. Finally, the Authority acknowledges commitment to the Corporate plan, Taxpayers charter and the internal standards as the driving force of day to day operation of the various department and a strategic document for improved operations.

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SECOND CORPORATE PLAN 2003/04 – 2005/06

Our Vision

To be the leading Revenue Authority in the World respected for professionalism, integrity and

fairness.

Professionalism

We are committed to the highest standards of achievement obtainable through dedication and skill.

Integrity

We are committed to treating people fairly and applying the law fairly through honesty and openness.

Fairness

We are committed to applying the law consistently and responsibly as well as administering our requirements reasonably.

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Our Mission Statement

To promote compliance with Kenya’s tax, trade and border legislation and regulation by promoting the

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 socio-economic

well being of Kenyans.

Core Values

- Integrity - Professionalism - Equity - Corporate Social Responsibility

Strategic Theme

Our strategic theme during the plan period is Enhanced Revenue Collection through Enhanced Quality Service to Stakeholders, Modernization of our

Internal Processes and Revitalization of our Workforce.

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CHAPTER 1

INTRODUCTION 1.0 Introduction

Kenya Revenue Authority (KRA) has, over the last seven years, evolved from four distinct government departments and transformed itself into one of the most modern and more integrated revenue collection agency in the region. KRA now collects a total of Kshs 202 billion or 21% of gross domestic product (GDP), at relatively low cost. This represents 95% of total government revenue. In addition, KRA administers a wide range of agency responsibilities to a number of public institutions. During the last Corporate Plan period, the Authority successfully implemented a broad range of administrative measures aimed at the twin objectives of revenue enhancement and quality service delivery. As a result, KRA achieved an average performance rate of 96.5% during the Plan period, which is commendable. KRA has adopted a single premises and open office plan approach in its major stations. KRA offers market-based remuneration and has begun addressing issues of greater integration across departments. Quality service delivery to taxpayers has been improved while great strides were made in taxpayer recruitment, audit, debt management, transit and warehousing control as well as queue management. These achievements have been made despite the fact that the operating environment has been challenging and eventful. Over the last three years, the economy registered low growth in real GDP at an average rate of 0.67% per annum while population growth remained at a high of 2.4%. Consequently, per capita income has declined and poverty levels increased (by 3 percentage points). All productive sectors were adversely affected, with the agricultural and manufacturing sectors being the worst hit. The suspension of programme financing by our development partners and the unstable policy making environment impacted negatively on economic growth and revenue generation prospects. The positive results realized are attributable to the fact that KRA has made considerable progress over the past three years in bringing a more strategic focus to planning. In the year 2000, KRA prepared its first Corporate Plan covering the period 2000/01 to 2002/03 and Taxpayers Charter. The Plan was meant to ensure that the Authority takes coordinated action to address issues identified by all stakeholders and respond to government’s reform agenda. The Taxpayers Charter, on the other hand, outlines performance benchmarks as well as taxpayers rights and obligations. The Corporate Plan is now the pinnacle of the Authority’s strategic planning and performance management systems. Over the last three years, it has played a crucial role in directing KRA development policy and guiding the allocation of resources. KRA is currently able to link revenue targets directly to administrative strategies through the preparation of annual departmental business plans. As KRA enters the second Plan period, the challenges it faces are not unlike those facing other organizations. Changes in technology, in the global economy, and the Kenyan social and political fabric are further compounding the complexity of the environment in which we operate. In an ever-changing environment, KRA recognizes that it must have a clear focus on what its goals are and continually review it’s operating approaches and procedures to ensure they are making the most effective and efficient use of the resources available to them. By adapting and adopting appropriate technologies as well as by being open to the benchmarking and testing of its operations to achieve best practice, KRA will improve both its public image and the organization of work practices. The purpose of the second Corporate Plan is to guide functional planning across the Authority. The 2003/04 to 2005/06 Corporate Plan sets out a course for the next three years and identifies objectives and key results we intend to achieve. Specifically, it provides a strategic foundation that includes the

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Authority’s vision, mission statement, core values and reiterates the medium term goals that are key to our success, namely; revenue enhancement, quality service delivery, modernization of internal processes and revitalization of our workforce. The strategic goals, objectives and results outlined in the Plan have been developed through: a series of KRA top management meetings, a series of mobilization meetings with KRA employees from the field and head office; a review of responses to questionnaires sent out to our stakeholders (policy makers,

taxpayers and our employees); a review of the International Monetary Fund Report – Kenya: Tax and Customs

Administration Modernisation – The next Steps, February 2001; an evaluation of our performance during the last Corporate Plan; a scan of the current environment in terms of significant political, economic, social and

technological factors. The Balanced Score Card (BSC) approach, a management tool that is now widely used by a number of private and public institutions, was then utilized to translate KRA’s vision into a comprehensive set of strategic objectives and measures, viewed from four perspectives – revenue collection and finance, service delivery to taxpayers, people and internal processes. As a result a corporate level BSC has been prepared. The strategic goals, objectives and results will not only serve to deliver more effective tax collection and service delivery programmes, but will also help guide our evolution to a fully and truly integrated agency. Departmental level BSCs that are being finalized will spell out activities that will catalyze achievement of the overall plan objectives, goals and results. Annual Performance Improvement Plans (APIP) will also be prepared to translate the business plans into annual implementation mechanisms. Ultimately BSCs will be cascade further to the operational and even individual levels. Performance will be measured against the BSC while preparation of the financial budgets will also be linked directly to the BSCs. The implementation of an effective Monitoring and Evaluation mechanism is key to the success of any planning process. As a result, effective monitoring and evaluation (M&E) will be at the core of implementation of the second Plan. KRA has therefore identified the key result areas and established clear, measurable and verifiable performance indicators. This will enable the continuous and objective monitoring of the Plan. The Plan will also be reviewed and revised to reflect the reality of the environment. Further, implementation of the major initiatives in the Plan will be undertaken on a project management basis. This will entail the appointment of a full-time project manager reporting to the Commissioner General and a project team that will have overall responsibility for ensuring that the major initiatives are completed.

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CHAPTER 2 EVALUATION OF THE FIRST CORPORATE PLAN

2.0 Introduction

KRA’s strategic theme during the first Plan period was revenue collection enhancement and quality service delivery. The Plan developed strategies and objectives to meet these goals and to ensure that KRA moves towards closer to realization of its vision. The performance of KRA during the Plan period will therefore be evaluated against these strategies and objectives as well as the characteristic features of efficient and effective tax administrations worldwide. This section highlights the key accomplishments and shortcomings during the plan period and draws lessons for the second Corporate Plan.

2.1 Revenue Table 1: Revenue Collection by Department During FY 2001/02 – 2002/03 in Kshs million

Department

FY 1999 /2000

FY2000/01 FY2001/02 *FY2002/03

Actual Target Actual Rating % Target Actual Ratin

g % Target Actual Rating %

C&ED 90,630 99,424 98,748 99.3 103,535 94,616 91.3 107,433 102,413 95.3

ITD 53,556 57,209 56,246 98.3 61,828 60,938 98.6 67,944 67.944 100.0

VATD 22,404 26,375 26,575 100.7 34,070 31,081 91.2 30,904 30,004 97.1

RTD 1,073 1,179 1,173 99.4 1,366 1,328 97.2 1,802 1,402 77.8

TOTAL 167,663 184,187 182,742 99.2 200,799 187,963 93.6 208,083 201,763 97.0

Source: Treasury/KRA Revenue Departments * Estimates Table 1 above indicates that during the Plan period, actual revenue collected by KRA rose by 20.3% from Kshs 167,663 million in 1999/2000 to an estimated Kshs 201,763 million in 2002/03. The Authority achieved a 96.5% revenue performance during the Plan period, which is impressive, given the prevailing economic conditions. The revenue targets were not met as the anticipated national economic growth was not realized. The real GDP grew by negative 0.2%, 1.2% and 1% during 2000, 2001 and 2002 as opposed to the 2%, 2% and 1.8% projected during the respective years. The operating environment was negatively affected due to; suspension of donor financing, challenges of trade treaties (COMESA, EAC), slump in the international commodity prices, decline in the tourism industry and the global instability following the 2001 and 2002 terrorist attacks. Despite the decline in the inflation and interest rates, consumption and lending declined hence dampening investment and growth. Revenue enhancement was attributable to the implementation of revenue enhancement administrative measures including: Tax Base - Broadening of the tax base was achieved through recruitment of a total of 8,500

taxpayers under VAT with a tax yield of Kshs 942 million and 66,289 taxpayers under Income Tax with a tax yield of Kshs 575 million.

Debt and Arrears Management - Improved debt and arrears management reduced the debt portfolio as ITD collected a total of Kshs 30 billion and VAT Kshs 8 billion.

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Tax Audits – Efforts aimed at enhanced tax audits resulted in ITD covering 6,156 cases in Pay As You Earn (PAYE), Accounts, Withholding Tax (WHT) and Rental audits, which contributed 5% of the departments’ revenue collection while the VAT Department settled 6,163 cases, which contributed 7% of the department’s collection.

Compliance – This was addressed through adoption of the accounts management approach in the VAT Department that increased payment compliance from 86% in1999/2000 to 92% in 2001/2002. Revenue leakages issues were also addressed through security printing of accountable documents such as licenses and receipts.

Inspectorate, Audit and Investigation Units - The Inspectorate and Investigation Unit in the Road Transport Department (RTD) was established and now undertakes joint operations with the traffic police in carrying out spot-checks across the country while the Compliance Verification Unit in the Value Added Tax (VAT) Department cross-checks information declared. The Customs Clearance Audit (CCA) undertakes audit functions to verify clearing process.

Examination and Audit - Improved examination and assessment has reduced the proportion of objections to tax assessment by 30% in the VATD.

New business initiatives – This was achieved through and expansion of tax base e.g. introduction of revenue stamps, excise tax on airtime, collection of Directorate of Civil Aviation (DCA) revenue, Widow’s and Children’s Pension (WCP), Members of Parliament (MP) Pension and Kenya Bureau of Standards (KEBS).

2.2 Quality Service Delivery

During the Plan period, the Authority strived to provide accessible, responsive and reliable service at affordable cost. The specific measures undertaken to ensure that we maintain client focus were as follows: Single Premises and Open-Office Plan – This approach has been successfully implemented

in Nairobi, Mombasa, Nakuru, Kisumu, Eldoret and Malindi. This will enable the integration of all KRA Departments in these stations.

Taxpayers Charter – The implementation of the Taxpayers Charter, detailing the rights and obligations, has to some extent improved service to taxpayers. Indeed 66% of taxpayers interviewed indicated that the Taxpayers Charter was useful in dealing with KRA.

Taxpayer Education – A number of initiatives were undertaken through the electronic and print media. KRA also inaugurated a KRA website and participated in trade fairs, annual shows and seminars. Post budget seminars in collaboration with Kenya Association of Manufactures (KAM), Institute of Certified Public Accountants (ICPAK), Kenya National Chamber of Commerce & Industry (KNCCI) e.t.c. were also held.

Decentralisation – Decentralisation of motor vehicle registration to the port of Mombasa, the main entry point for imported vehicles was implemented and has eased the congestion hitherto experienced at the Head Office in Nairobi. In addition, a total of 15 stations were opened countrywide by the Road Transport Department to take services closer to taxpayers. The department has also computerized records management in order to monitor motor vehicle files. This has significantly improved service delivery.

Documentation – The Customs and Excise Department implemented the Single Entry Document (C63) and has trained both staff and stakeholders on its application. This has further eased documentation and processing. The department also implemented the World

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Trade Organization (WTO) Valuation Agreement through installation of WTO Valuation software, establishment of a price database and training staff and stakeholders on usage.

Intelligence – The installation of hot line facilities has enabled direct communication to the Commissioner General and Commissioners on urgent and sensitive tax administration issues. This has given taxpayers faster access to assistance and/or redress.

Customer Care – The establishment of customer care desks for all the revenue departments at Times Tower has enhanced speedy handling of taxpayer queries, receipt and dispatch of returns. In addition, it has extended a personal touch in our service delivery to taxpayers.

Preventive Services – KRA also played in key role in prevention of importation of counterfeit goods, drugs, the fight against terrorism and administration of the rules of origin requirements.

2.3 Human Resources (HR)

In an effort to ensure that employees have the knowledge, skills, information and support to work in an environment that promotes and recognizes exemplary performance, the Authority undertook the following: Right-sizing – The Authority implemented a right-sizing programme, which involved the

review of business processes and establishment review that culminated in the retrenchment of 27% of the workforce in January 2001.

Recruitment – A total of 135 graduate trainees were recruited, trained and deployed to cater for manpower-needs caused by natural attrition and retrenchment. Transparent recruitment processes were also established by involving Top and Senior Management in constitution of interview panels.

Remunerations - The two-tier salary structure was harmonized to ensure application of uniform scales across all the cadres within the Authority. Further, the development of an effective staff performance appraisal system has improved promotion and reward systems. KRA has therefore become more professional as it has been able to attract personnel from the private sector.

Capacity Building – This was achieved through retraining and multi-skilling. For example, over 300 staff have undergone conversion courses during the plan period.

Centralisation of Training – The training function has been centralized at the Headquarters and the Training Units were refurbished and re-named as Kenya Revenue Authority Training School (KRATS) in Nairobi and Kenya Revenue Authority Training Institute (KRATI) in Mombasa. All major training programs are currently run at these centres.

Welfare activities – Welfare activities were increased through the formation of sporting clubs and the establishment of a HIV/AIDS Peer Educators program in the regional offices.

2.4 Internal Processes

Efficient and effective processes are critical in meeting set goals. To ensure that policies, systems and processes provide effective support for programs initiatives and service delivery the following corporate infrastructure was developed: Standards - An Internal Standards Manual was formulated to guide inter-departmental service

delivery.

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Streamlining - The management of customs security bonds, warehousing and clearing and forwarding agents licensing procedures was streamlined to enhance compliance.

Reorganization - The Income Tax and VAT districts were reorganised along geographical lines to facilitate the alignment of taxpayer information and exhaustive utilization of local knowledge.

Knowledge – The establishment of the KRA Library/Information Centre has facilitated accessibility of information to KRA staff as well as the taxpayers.

2.5 Shortcomings

Despite these achievements, there were a number of shortcomings. The survey carried out among Policymakers, Taxpayers and Staff confirmed the following shortcomings: Computerisation - The planned computerization programme was not implemented. The

Survey results rate KRA computerization to be below average. Anticipated basic requirements were not effected during the Plan period. These include effective use of Personal Identification Number (PIN) System, computerization of motor vehicle registration and licensing, cash receipting at Road Transport Department, electronic filling of returns, installation of e-mail services and electronic banking facilities were not effected. Furthermore, Customs and Excise Department has obsolete systems, PAYE and withholding tax internal processes still use manual systems while critical systems needed to support service departments such as human resources, finance, investigations, research and statistics are not in place. Overall current systems at KRA use the old traditional approach to data processing – data entry of paper documents with reports being generated on either a regular or ad hoc basis. Staff are not able to interact with the systems to manipulate data and analyse information. The systems are incapable of sharing information with each other. Systems development has continued in the same way that it did prior to the implementation of KRA, that is, a tax-by-tax approach with no overall plan to identify priorities and assign resources. Emphasis has been on systems development rather than use of readily available and tested off-the-shelf solutions. In addition, systems development has remained a sole responsibility of the Management Information Services Department and there is no ownership of the systems by the end users – the departments.

Integration – While the movement to Times Tower has accorded KRA an opportunity to integrate further in order to promote efficiency and effectiveness, KRA is still a tax-based organization with the inherent inefficiencies that result from such a structure. The result is the replication of organizational units for each tax. As a result, scarce resources are wasted on repetitive tasks in many areas while inefficient resources are invested in core areas that have the biggest payoff. There is considerable overlap in the services provided by the service departments and duplication of certain responsibilities in the revenue departments. For example, every revenue department has its own taxpayer recruitment, audit, investigation, taxpayer education, debt management, (e.t.c.) unit, a situation that has hindered joint operations which are much more effective and which would enable expanded operations. Support departments have also retained a departmental focus and are therefore as inefficient as they were prior to relocation. Except for the Large Taxpayers Office (LTO), there is little sign of a major coordinated effort to work jointly. Therefore, a lot of effort is wasted as different teams of KRA officials visit the same taxpayers for compliance checks, audits and investigation. This situation is costly to taxpayers and has been interpreted as harassment. Lack of integration and/or joint initiatives have also impeded the creation of a common culture across KRA.

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Administrative Procedures – Administrative procedures across the revenue departments, especially Customs and Excise and Road Transport, are still characterized by repeated manual checking of documentation. This in turn is wasteful, increases the time required to pass documents and consequently increases the compliance cost for the taxpayer. Officers are also forced to concentrate on detailed box checking rather than a focused examination of risk. All transactions receive the same level of physical inspection and there is little recognition that low risk taxpayers should receive expedited service.

Corporate Plan and Taxpayers Charter – There is still lack of total commitment towards the implementation of the goals set out in the Taxpayers Charter and strategies set out in the Corporate Plan. Indeed, more effort has been spent on trying to revise the Taxpayers Charter to accommodate less than best practice service delivery levels than developing programmes that would enhance KRA’s ability to meet the set targets. Majority of the questionnaire respondents were not aware of the existence of the KRA Corporate Plan and felt that KRA’s response to enquiries, complaints and redress is still less than satisfactory. At the operational level, the Corporate Plan, Taxpayers Charter and Internal Standards still do not drive the day-to-day operations of the various departments both revenue and service. Indeed exercises to develop these planning documents are regarded as ‘academic’ exercises rather than serious strategic review exercises that develop a clear path for improvement of operations. The challenge is to transform strategic planning from an academic exercise into the nerve centre of KRA.

Corruption - The survey carried out indicated that measures taken to address tax evasion and corruption have not been effective. A June 2002 report by Transparency International - Kenya indicated that in terms of the bribery index, which is an aggregate index constructed as an unweighted average of six indicators (incidence, prevalence, severity, frequency, financial cost and bribe size), KRA ranked 14th out of a sample of 50 public institutions while the Road Transport Department was ranked separately at 19th.

Corporate Image – Efforts geared towards changing taxpayer attitudes towards tax administrators have failed largely due to perceived selective enforcement of the law, corruption and perceived rigidity and draconian tendencies by tax administrators. In addition there hasn’t been a concerted effort to develop a corporate image, rather, fire-fighting approaches have been adopted as and when required. There is need to change taxpayers’ perceptions and attitude towards tax and tax administration so as to encourage voluntary compliance. This area was not adequately addressed during the Plan period.

Human Resource Matters – Although KRA has been able to improve the terms and conditions of service and can now effectively attract qualified personnel both from within and without, a number of complaints are still evident. KRA is yet to adopt competency based management practices encompassing knowledge, skill and behavior. Lack of a scheme of service for KRA support staff such as secretaries, drivers and other support staff continues to be a borne of contention among these staff. Due to historical and teething problems, a number of officers have not been promoted for a long period of time with some stagnating for 10 – 15 years. In addition, the harmonization of the two-tier salary fell short of staff expectations, since its implementation failed to recognize seniority and length of service. These shortcomings have bred negative culture and contributed towards poor work ethics.

Communication Channels - Most respondents in the survey felt that current internal and external communication channels are inadequate. The power of the internet has not been adequately tapped and the KRA website remains largely unutilized. Communication, even among top management, is still paper-based while clear communication channels for staff do

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not exist. Indeed, KRA does not have a communications strategy. This has hindered effective articulation of KRA policies and strategies to staff and taxpayers.

Monitoring and Evaluation – The first Corporate Plan has been criticised on account of not having had clear verifiable performance indicators, a situation that made it impossible to monitor the implementation of the same. As a result, it is difficult to provide an objective assessment as to whether the objectives of the first Plan were met or not.

2.6 Lessons from the first Plan

A number of lessons can be drawn from the implementation of the first plan and these will form basis for preparation of the second plan. These include the following:

Overall, revenue growth was achieved in the face of a hostile economic and political environment.

While this is commendable, it was achieved mainly through the implementation of incremental revenue enhancement administrative measures. In addition, human resource issues were not fully addressed. Hence, KRA’s operational processes were not modernised and they remain largely unresponsive to the needs of its stakeholders.

Modernisation and effective utilisation of modern technology is not negotiable. KRA must make use of computer resources to support efficient processing and analysis of information, intelligence gathering, information sharing and provision of management information.

KRA must develop and implement a function based organisational structure in order to eliminate bureaucracy, overlap and duplication of effort and resources.

Any change at KRA must significantly change administrative procedures through business process improvement, incorporating process, people and technology.

Our human resource must be, and must be seen to be, KRA’s key asset. Emphasis must be placed on the core pillars of competency-based management – knowledge, skill and behaviour.

Planning will only be successful if fully owned by leadership and it is deemed by staff to support all KRA operations on a day-to-day basis.

Cultural change and the fight against corruption must be at the centre of any change process at KRA.

Any effective Plan must contain clear verifiable performance indicators and spell out an effective monitoring and evaluation framework.

In addition, non-revenue functions of KRA such as the fight against drugs, terrorism and drugs and administration of the rules of origin requirements must be adequately recognised in the Plan and relevant targets set. KRA has played a critical role in preventive services, but this has not been adequately recognised, because more emphasis has been put on revenue collection.

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Chart 1: BSC Evaluation Model

REVENUE

• Achieved 96% revenue performance • Security Printed Licenses and Receipts. • Formation of inspectorate, audit and investigation

units • Enforced strict monitoring of top taxpayers and

enhanced tax audits • Improved debt and arrears management • Broadened tax base • New business initiatives to enhance revenue

collection

HUMAN RESOURCE • Implemented a Right -sizing program • Harmonized the two-tier salary • Recruited 135 Graduate Trainees • Increased capacity building through

retraining and multi -skilling • The Training function has been

centralized and Training InstitutesRefurbished

• Established transparent recruitmentprocesses

• staff performance appraisal system • Increased Welfare activities

TAXPAYERS • Implementation of the Taxpayer

Charter • Single Entry Document and WTO

Valuation Agreement • Implemented computerized records

management • Set up regional offices to take ser vices

closer to the taxpayers. • Enhanced taxpayer education e.g.

through media & seminars • One -stop-shop for transfer of

ownership, duplicate logbooks,exemptions and registry

INTERNAL PROCESSES • Development of Internal Standards to guide inter-

departmentalservice delivery • Streamlining the management of customs security

bonds, warehousing & agents licensing procedures • Implemented computerized records management • Reorganization of VAT districts • Establishment of recruitment procedures • Relocation to Times Tower • Construction of C&E Offices in Western region • Establishment of KRA Library/Information Centre

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CHAPTER 3

OPERATING ENVIRONMENT 3.0 Introduction

KRA, like any other organization, operates in the context of a dynamic and changing environment that creates new demands and focus. The following is a review of the operating environment and its implications on the Authority’s operations.

3.1 Political Environment

The National Rainbow Coalition (NARC) was democratically and overwhelmingly elected and consequently ascended to power on December 30th 2002. The NARC election was on the basis of its manifesto, which an overwhelming majority of Kenyans felt fully addressed their expectations, aspiration and perceptions.

The theme of NARC’s manifesto is ‘‘Democracy and Empowerment’’. This can be further expounded to mean empowerment through good governance, devolution and the creation of an environment where Kenyans (and non-Kenyans) can safely invest their energies and resources. It is in this context that the government has now began the process of restarting economic growth and development, restoring the rule of law and reducing poverty as well as creating a conducive environment for effective participation in order to foster sustainable development, peace and harmony among the Kenyan communities. This noble and necessary undertaking when translated to specific projects and programmes such as: provision of universal free education and affordable healthcare, rehabilitation of the dilapidated infrastructure, e.t.c. entail expenditure of resources. Whereas the thawing of relationship with our development partners has paved way for the inflow of foreign assistance, the only sustainable source of financing for development is from domestic sources.

The draft paper on Economic Recovery recognizes the challenges that this poses. That Kenya’s capacity to raise additional revenue through tax policy measures (change in tax rates) is limited - ‘In the short run, the single most important contribution the budget can make to the economy’s recovery is to ensure that it does not contribute to macro economic instability. The scope for substantial increase in revenue is highly constrained. The government budget at 25 to 30 per cent of the GDP is already too high especially in the light of our depressed economic situation.’ Higher levels of taxation may also lead to investment disincentives granted that for an economy to attract investment, it has to be globally competitive given the high velocity of capital mobility and allied competition for these scarce resources. Kenya is already on record for its inefficiency in production largely due to inefficiency in generation and procurement of certain critical inputs not forgetting the production burden imposed by poor transportation and communication infrastructure. In the short-run, government expenditure is generally fixed in the light of Consolidated Fund prior commitments via domestic and foreign borrowing, payment of salaries etc. Financing the deficit via expansionary monetary policy is a no-go area since such a pursuit is bound to exacerbate the already existing internal imbalance via high interest rate and an unstable exchange rate. The inevitable consequence of high interest rates crowding out the private sector is acknowledged by NARC as the engine for growth.

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Implementation of the NARC government policies on sustainable poverty reduction, creation of employment and institution of good governance are expected to improve on voluntary tax compliance as Kenyans enjoy more of public goods and services. The impacts of the allied expected decline in high dependency level and an increase in households disposable income should be borne in mind. The latter is among other things said to have contributed to disincentive to compliance with tax legislation. Assault on corruption will not only make us more efficient in production but also lead to more transparent pursuits which commands easier tax handles. The foregoing scenario leaves KRA with only one option, that is, optimization of revenue via modernization and administrative measures such as: Employment of more efficient method in revenue collection including employment of latest

technology and practices. Non-discrimination in collection of taxes especially VAT and customs duties. Plugging loopholes leading to tax leakage by training and retraining as well as recruitment of

competent personnel. Extending the tax net to cover more of the informal economic activities. Using the NARC Government goodwill to reduce the impact of political impingement on tax

administration, which has in the past seen impeded professionalism as espoused in the KRA vision.

Improving the administration and management of exemptions by: o Removing all discretionary powers that have led to past abuse. o Ensuring that where exemptions are given, they are made public and justified

on sound reasons. o Ensuring that incentives are industry or sector based and not individual firms. o Ensuring that our tax policies are fully transparent and subject to public

scrutiny.

All the above have been identified in the NARC manifesto as key areas that must be addressed. 3.2 Socio-Economic Environment

It is no secret that revenue generation prospects are affected positively or negatively by the general performance of the economy. An environment characterized by macroeconomic stability and high growth in real GDP positively impacts on revenue collection (assuming effective tax administration) while the opposite is true for slow growing and unstable economies. It is in this regard that a review of the macroeconomic prospects and government objectives during the next three years is necessary. Although economic prospects have been stagnant over the last six years, it is projected that the economy will turn around from this year. It is expected that the International Monetary Fund and the World Bank will resume development assistance to Kenya in the second half of 2003. This will boost investor confidence and in turn encourage capital flow into Kenya. As a result, economic prospects during the plan period 2003/04 to 2005/06 are bright. Real GDP growth is expected to average 1.75% in 2002/03 rising to 5.8% by 2005/06. In addition, interest rates are projected to remain low and lending to the private sector is projected to grow at higher levels. The shilling exchange rate is also expected to depreciate marginally. Table 2 below provides the expected forecast for key economic indicators.

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Table 2: Key Economic Indicators Indicators/Year 2002/03 2003/04 2004/05 2005/06 Real GDP growth (%) 1.75 3.00 4.40 5.80 Real income per capita growth (%) -0.25 1.00 2.40 3.80 Inflation (%) 2.9 3.65 3.50 3.55 Nominal import value growth (%) 3.46 7.95 9.86 11.26 Total government revenue (Kshs bn.) 217 236 246 268

Source: Treasury The key objective of the government fiscal strategy is to maintain government taxation at a level that is consistent with the objective of domestic debt reduction while simultaneously easing the burden on domestic producers and consumers. Consequently, the revenue target for the next three years is to increase collections from the expected Kshs 217 billion in 2002/03 to Kshs 268 billion in 2005/06, an average of 22% of GDP and a growth rate of 24% during the Plan period. For example, a total of Kshs 6.4 billion is expected to be realized from enhanced revenue measures in 2003/04. Given the government’s admission that it will be difficult to generate additional resources domestically through tax rate increases, the only alternative source of these additional funds will be through KRA administrative measures. The following socio economic factors will, however, continue to affect the Authority in terms of meeting stakeholders’ expectations: Society’s changing attitudes to issues of corruption, alcohol and tobacco consumption, illicit

drugs and pornography are likely to influence taxation in terms of discouraging certain behaviors.

A number of factors both external and internal may lead to the non-realization of the anticipated growth rates during the Plan period.

The growth of the informal sector, brief case operations and exhibition halls is likely to necessitate the adoption of appropriate tax policies that will effectively bring these activities into the tax net.

Demographically, Kenya is characterized by a high dependency rate. This will continue to exert pressure on revenue requirements as the dependants enjoy public goods and services without commensurate contribution to revenue.

Changes in lifestyle and incomes have led to the demand for “value for money”, services and increased awareness of their rights.

The Constitutional Review process is also likely to change the way tax is administered. To address these challenges, KRA will continue to intensify implementation of actions to improve administrative efficiency and the adoption of best practices in revenue administration. Other measures include harmonization of tax regimes within the East African Community to create a level playing field and deter smuggling and effectively deal with the problems of counterfeits and dumping.

3.3 Human Resources Environment The Authority has a rapidly ageing workforce (mean age is 45 while 250 officers will retire during the period 2003 - 2006) majority of whom are deployed in the revenue departments. The challenge for the Authority is the continued motivation of these experienced employees, adoption of new technologies and methodologies while countering low morale. There is also a need to recruit younger personnel to counter the effect of natural attrition and bring in the vital specialist skills. The Authority will have to

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compete against other organizations in an environment where Tax Consultancy as a viable business venture is on the rise. The following factors will influence the Authority’s approach to human resources development over the Plan period: Training, motivation and education - There is an emphasis on the need to develop both

personal and professional skills of employees. In FY 2001/02, 48% of the training budget went towards refunding expenses arising out of self initiated training programs.

Availability of outsourcing and short term contracts - Development of the service industry is such that it is no longer necessary for organizations to recruit for all its functions but can also outsource non-core activities e.g. data capture and analysis, etc.

Preference for autonomous work practices based on output - The adoption of performance measures and performance related benefits.

Demand for updated Personnel Policies - The emphasis on best practices and good governance.

The adoption of cost effectiveness measures - The current trends in the costing of service delivery.

Industrial Relations Agreements - There are union representatives who have been trying to recruit the Authority’s staff members.

The need for social/ organizational bonding - The emergent organizational culture vis-a-vis the strong departmental cultures and the increasing significance of corporate social citizenship.

Impact of the HIV /AIDS pandemic - Latest statistics indicate that out of every 7 persons tested in a Voluntary Counseling and Testing (VCT) centre, 3 were positive.

3.4 Information Technology Environment

Information Technology revolution is redefining KRA’s traditional focus and boundaries and offering an increasing number of opportunities to expand our client services and increase effectiveness as revenue collectors. The Internet and its attendant technologies have transformed the way the world transacts business. This transformation has not only made it easier to navigate in the ever-increasing global economy but it has also raised the customers’ expectation. Taxpayers are becoming familiar with the new capabilities and they are expecting innovative concepts to be employed in all areas of their life, including taxes. Major areas of threats and opportunities are: The developments in computers and super-highways have generated fast and vast volumes

of transactions that are difficult to monitor. The inherent threats in jurisdictional disputes across geographical boundaries are real.

The invention of the plastic money has increased the need for more technical capacity building and staff capabilities versed with valuable and fast encryption network.

The Digital convergence and information super-highways have increased the problem of evidence and the need for embedded processors to keep track of real-time operations.

These development advances will cause changes hence future success lies in the use of innovative application of new technology to serve the large and diverse taxpayer base. The Authority will redefine its IT strategy prudently to tap the opportunity for developing electronic service delivery options while improving its methods and processes. These will necessitate the embrace of: Automated collection and processing of revenue and customer queries in all revenue

departments. Use of electronic monitoring equipment in transit goods movement and warehouse controls

as opposed to the current physical controls.

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Use of mobile and fixed X-ray scanners for verification of containerized cargo. Networked revenue collection that assists to validate identity and locations of documents and

entities. Use of transaction facilitators as centralized collection points through use of; online banking

facilities, electronic data entry and commercial release as well as electronic remittances of payroll deduction and corporate installments.

E-commerce techniques.

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CHAPTER 4

STRATEGIC OBJECTIVES 2003/4-2005/6 4.0 Strategic Map

The key purpose of the strategic map is to lay down the cornerstone of the strategic Plan that guides all programmes and functional levels of the Authority. It provides a strategic foundation as stated in the Authority’s Mission Statement and Core Values. The map as a logical flow of the vision forms the theme of the objective through a set of cause - and - effect relationship. The strategic map envisages this to be achieved through;

4.0.1 Creating a climate to support strategic change .This will be nurtured as Culture change where the level of strategic awareness will be high to enable sufficient understanding of the strategy to enhance teamwork and teambuilding initiatives, Create performance focused programs as communication vehicles in understanding the strategy and enhance development of functional competencies. This will lead to improved resource utilisation, development of highly skilled and interactive professional staff.

4.0.2 Translating the strategy to operational terms. This will involve reorganising our operations along functional lines for joint integrated, effective and efficient internal processes achievable through the development of modern systems using Information and communication technology. The internal processes will be designed to be innovative and give operational excellence so as to provide quality and timely service to our stakeholders.

4.0.3 Provide timely and quality services to our customers. This will be done within the budgeted levels to support the provision of specialised and differentiated customer service so as to increase customer satisfaction, compliance and improve resource utilisation.

4.0.4 Maximise available resources to increase compliance and acquire new business. These initiatives will increase revenue collection so as to surpass the government revenue targets while containing the expenditure within the prescribed level.

The medium-term goals that are keys to the success of the Authority are enhanced revenue collection through delivery of quality service to all stakeholders, modernization of our internal processes and revitalization of our workforce. The following are the broad strategic areas that have guided preparation of departmental plans.

4.1 Enhanced Revenue Collection “Our aim is to surpass the set revenue targets at lowest cost” The objective of KRA for the second Plan period is to enhance revenue collection by collecting the target revenue set by Treasury. Total government revenue is projected to grow at a nominal rate of 24% during the Plan period as follows; Kshs 217 billion (2002/03), Kshs 236 billion (2003/04), Kshs

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246 billion (2004/05) and Kshs 268 billion (2005/06). This will be achieved through the following initiatives: Broaden the tax base and widen the tax net – This will be achieved through an enhanced

and integrated taxpayer recruitment policy and specifically by targeting the informal sector. This measure is targeted to recruit an additional 30,000 new taxpayers with a yield of Kshs. 1 billion per annum. In doing this, the Authority will tailor its interventions to meet the diverse needs of different groups of taxpayers rather than using a ‘‘one size fits all” approach.

Improve voluntary compliance – This will be achieved through increased use of intelligence and the implementation of focused programmes that would encourage taxpayers to comply. Specifically, compliance will be strengthened through increased use of modern computerized risk assessment and risk management techniques. The measure is targeted to produce and disseminate monthly risk assessment reports. The various taxpayer registration numbers will be eliminated and replaced with the personal identification number (PIN). Overall, KRA will provide consistently good service to taxpayers including clear and transparent procedures. Taxpayer education initiatives will be enhanced through dissemination of result oriented tax information programmes. The print and electronic media will also be used much more effectively to disseminate focused and targeted taxpayer education programmes. The effectiveness of the help desks as one-stop-centres where the public can seek direct assistance and obtain all necessary documentation will also be increased. Tax clinics will be introduced in order to accord taxpayers a forum to air their grievances. This measure is targeted to raise compliance levels by an average of 5 percentage points and realize an average of Kshs. 3 billion a year.

Enhance and improve assessment/audit – This will be achieved through development and implementation of a standardized KRA-wide audit plan and selection system. This strategy will be to initially adopt a holistic approach to examine domestic taxes simultaneously - joint audits - and after integration, integrated audits will be implemented to address all taxes. This will reduce unnecessary duplication and release resources that will enable increased audit coverage and post assessment actions and implementation of integrated and better-targeted programmes. Particular attention will be paid to ensure compliance of the largest taxpayers through the large taxpayers office (LTO) while at the same time specific programmes will be put in place for the medium and small taxpayers. The skills of auditors will also be upgraded through training and capacity building initiatives so that they will be able to conduct computer assisted audits. Additional audit staff will also be recruited especially to supplement skills that are currently lacking. This measure is targeted to increase audit coverage by 5 percentage points and yield an additional Kshs 2 billion per year.

Integrity Assurance - All stakeholders expressed concern at the prevalence of integrity problems within the operations of the Authority. While KRA has taken the issue of corruption seriously, many of the current systems and procedures are not transparent, promote face-to-face contact and encourage the use of discretion. This will be reversed as the processes and procedures are reengineered and modernized. Overall, the Authority will endeavour to uphold high ethical standards in its employees by adopting a zero tolerance to cases of Corruption and Fraud. A comprehensive, customized and integrated policy will be developed and implemented in line with the Public Sector Integrity Assurance Programme and the provisions of the Public Officer Ethics Act and the Anti-Corruption and Economic Crimes Act. The target during the Plan period will be to remove KRA from the list of corrupt public institutions.

Improve Debt and Arrears Management – This will be achieved through the integration of the arrears collection function and the implementation of improved debt management systems

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and strategies to ensure reduction of debt stock and creation of new debt. Emphasis will be on reducing the creation of new debt through policies that enable collection of debt as and when it falls due or is identified. The measure is targeted to reduce the stock of debt by 50% over the Plan period and reduce the maximum age of debt to 7 years in the medium term, the long-term objective being 3 years. This measure should generate an additional Kshs. 3 billion a year.

Improve Exemptions Management – This will be achieved jointly with the Treasury through; elimination of a number of exemptions which are either unnecessary or discriminatory, removing all discretionary powers, modernizing exemptions management through computerization of procedures and creating effective linkage between Treasury and KRA, putting in place effective mechanisms for reconciliation especially with respect to remissions for exports and putting in place a framework for publicly declaring those who benefit from exemptions and the justifying reasons. The objective is to reduce the amount remitted on account of exemption by Kshs. 1 billion annually.

Effective enforcement by applying the tax law strictly, fairly and responsibly. In addition, KRA prosecution capabilities will be strengthened.

o Finance - KRA has limited resources available for delivering her mandate. Consequently,

measures must be implemented to ensure that the Authority’s expenditure is effective and efficient. In addition, concerted efforts must be implemented to expand the revenue base of KRA through the acquisition of additional new business initiatives. Measures will include:

Reduce the cost of collection by limiting expenditures to the legal provisions. Implement Activity-based Budgets by FY 2003/04. Implement transparent and efficient centralized procurement policy to realize the

inherent economies of scale. A defined policy framework outlining capital and revenue expenditure is of essence.

Identify and take on 2 new businesses on agency basis per year to increase the Authority’s appropriations-in-aid income.

4.2 Quality Service Delivery

“Our aim is to provide quality service at least cost with maximum satisfaction to our stakeholders” Taxpayers have a right to expect that decisions made by KRA are correct, made within reasonable time, well explained and that they are treated in the same way in all parts of the country. The performance expectations from the stakeholders are high and the Authority must strive to decrease the expectation gap. Therefore the Authority needs to strengthen its corporate image and culture by providing timely and quality service to all stakeholders. In this regard, KRA will implement a Quality Assurance Programme during the plan period geared towards managing the output quality of our services at the least cost with maximum satisfaction to stakeholders. The long-term objective will be to attain ISO 9000 certification. This will entail efficient management of the processes and procedures leading to delivery of individual services, including the efficiency and effectiveness of the methods used to convey these services to stakeholders. As a result, a major effort to simplify compliance procedures will be implemented. The implementation of the quality assurance programme by KRA will entail; recruitment of quality assurance managers, sensitisation and creation of awareness among all staff, training of quality assurance auditors, carrying

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out of quality review audits, benchmarking and monitoring and evaluation among others. Specifically, the programme will aim to achieve the following: Providing Accessible, Dependable, Timely, Fair, Open, Courteous service. The target will

be an improvement in public perception from below average to above average by achieving 70% of targets set in the Taxpayers Charter.

Use of Simplified forms and procedures. The target will be to modify and simplify all the various forms, returns and entries used by taxpayers over the Plan period.

Reduce cost of Taxpayers compliance within the Plan period by 50%. Effective Queue Management – The target will be to reduce the amount of time spent by

Taxpayers in waiting to be served by 70%. Corporate Social Responsibility --To effectively discharge its mandate, the Authority would

make efforts to expand its profile in social responsibility by actively participating in community activities. This will entail the following:

Be more visible in the general community through managing relationships rather than simply undertaking transactions.

Improve KRA’s industry and business knowledge to expand compliance within specific targeted industries and develop relationships with industry groups to remove barriers that inhibit compliance.

Participate in charity/community development projects through an annual expenditure of Kshs 15 million over the Plan period.

4.3 Modernize Internal Processes

“Our aim is to develop effective and efficient process that takes a single view of the taxpayer” The Authority needs to review and modify key processes and procedures to ensure that they are designed with the need of the complying taxpayer in mind and incorporate appropriate interventions for non-compliance. All internal processes should allow the Authority to take a “single view of the taxpayer” perspective and support the business processes of revenue collection. These initiatives will be achieved by the following: Business Process Improvement and Integration – The single building approach will be

used to further the integration process to promote efficiency and effectiveness of services and maximize resource utilization while avoiding overlap at operational levels. This will be achieved through the development and implementation of a function-based organizational structure to tax administration that is more efficient and effective than the current one organized by tax type. This will entail, initially: (i) establishing single departments for each of the major administrative functions such as taxpayer recruitment and registration, return processing and payments, auditing taxpayers, investigation, debt collection, taxpayer education, etc. and in the long term, (ii) integrating domestic taxes, (income tax, VAT and domestic excise collections) under one department. This will enable the creation of a truly one-stop-facility in tax administration. For example: Integrated taxpayer recruitment, registration and services office – This office will

be responsible for developing and implementing the procedures for single recruitment, registration and taxpayer services, the necessary forms and other necessary requirements. This will enable taxpayers to register for all taxes and receive information about all tax liabilities in one location.

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Integrated audit function – This office will be responsible for establishing a national audit plan that encompasses all domestic taxes and is primarily focused on areas of highest risk to the revenue. The office will also be given support in terms of additional staff and training to upgrade skills particularly to conduct computer assisted audits. With all audit staff within the same unit, KRA will be able to increase or decrease resources devoted to particular taxes in order to optimize results and also expand its coverage that is extremely low currently.

Integrated return processing and payments - A single, functional unit, processing returns and payments for all taxes will provide economies of scale and a better capacity to cover the respective peak periods of each tax and, at the same time, simplify the taxpayers’ obligations.

Integrated debt management unit – This unit will be responsible for all outstanding taxes. The unit will be responsible for developing an integrated debt management strategy for domestic taxes that will set priorities, guidelines, and goals for collections and enforcement. This will help improve effectiveness as the same accounts are likely to be in arrears for several taxes.

Integrated enforcement – This unit will oversee and encompass the total investigative effort, for all taxes, by KRA. It will also develop an enforcement strategy and plan specifying the expected outcomes and direct resources based on priority and expected outcomes. This unit will also develop and maintain an intelligence database.

Enhance effectiveness of the preventive services.- The Authority will restructure the operational structure of the customs preventive services with a view to highlight the increased role the preventive service play in KRA operations and enhance the international role of the service

Ultimately, the Authority will benefit from increased taxpayer compliance, increased staff productivity and reduced scope for collusion between taxpayers and tax officials.

Effectiveness of LTO – The operational and reporting structure of LTO will be enhanced for

increased efficiency and effective tax administration. Specifically, the LTO will be made into a full service office with a full complement of its own staff and budget with the same reporting relationship as the other departments as identified in the new functional organizational structure.

Computerisation - Development and application of best practice by streamlining internal

processes (business process reengineering) to reduce both compliance as well as administration costs is necessary if the revenue and taxpayer service objectives are to be met. Computerisation will be the key driver and enabler for this to happen. KRA’s capability to access and process revenue data in an integrated manner is an issue that is at the core of its ability to provide better services as well as achieve higher levels of compliance.

As an immediate step and as part of implementation of quick wins under the Kenya Revenue Authority Enterprise Integrated System Architecture (KREISA) project, the level of automation will be increased by acquisition of adequate hardware and software and facilitation of our staff to buy laptops for both official and private affairs through an appropriate loans scheme. . Increase number of computers to number of staff ratio from the current 1:5 to 1:4, 1:3, 1:2 over the plan period. Secondly, the application of IT-based solutions will be intensified to aid decision making and improve efficiency by reducing turnaround times,

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increase certainty and accuracy of outcomes and lower costs. Thirdly, KRA will enable stakeholders to gain access to its information and services using the internet, telecommunication networks and other technologies as they emerge. Fourthly, KRA will complete the implementation of interdepartmental and regional networking by the installation of local area network (LAN) and wide area network (WAN) targeted at 100% coverage for all computerized stations. Lastly, KRA will implement the use of audit and computer based controls as opposed to the current use of physical controls.

The second phase of KREISA will be implemented during the Plan period. This includes a detailed review and business process re-engineering of the current KRA systems and development and implementation of an enterprisewide integrated system. Specifically KRA will address the inefficiencies in its automated systems support as follows: Customs systems support – KRA will implement a replacement system that will

support key functions such as manifest processing, entry processing, selectivity, verification, inspection, payment and accounting, release, statistics, transit and warehousing. The system will also be able to interface with X-ray scanners, Community Based System as well as other KRA business automation systems as part of KREISA objectives. This system will reduce time for clearance of goods through customs, reduce transaction and administrative costs and ensure security in international trade.

Inland revenue systems support – KRA will implement systems enhancement to support registration of taxpayers, receipt of tax returns and payments, collection of arrears and audit of taxpayers. The objective of systems enhancement will be to enable taxpayer information sharing through effective utilization of the PIN, effective undertaking of selective and systematic checking based on risk analysis, standardization of payment processes and accounting requirements and support for decentralized operations. Enhancement of Income Tax and VAT systems and integration of the same and including developing systems for administration of domestic excise tax will be implemented.

Road Transport – KRA will acquire and implement document imaging system for the registry and enhancement of motor vehicle information system.

4.4 Revitalization of Human Resources

“Our aim is to develop a workforce respected for technical competence, professionalism and courtesy” Human resource is the determining factor in achieving the desired outcomes of the second KRA Corporate Plan. Revitalizing the capability of staff will involve not only developing their skills and knowledge but also adopting the values of the stakeholders. KRA will support measures that ensure that its workforce is respected as technically competent, objective, professional and courteous. The occupation of single premises for the headquarters and regional offices affords an opportunity to crystallize the emergent organizational culture. The following measures will be implemented: Review of organizational structures and subsequent establishments that will support

integration of functions for effective and efficient delivery of services while allowing staff to develop successful career paths.

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Review of Terms and Conditions of Service so as to remain competitive in the market. The target will be maintaining an above average rating in the market.

Develop and implement modern and innovative human resource management practices and prepare human resource manual. Areas of emphasis shall be, for example, performance appraisal, recruitment and promotion, methodologies.

Revitalizing the workforce through sustainable culture change pogrammes so as to attract and retain competent individuals by upholding the principles of merit, equal opportunity in recruitment and promotions.

Continuous Professional and Personal Development through management of competencies will remain critical in promoting workplace effectiveness. To this end, the preparation of competency profiles, key result areas (KRAs) and key performance indicators (KPIs) must be internalized during the Plan period.

Singular Corporate Culture and Team Building will still feature as a challenge during the Plan period. This will be addressed by the development of Integrated Team building initiatives targeted at 6 per year

The Authority will commit to development of a clear and concise communication strategy and implementation plan so as to ensure that staffs are at all times aware of new developments in administrative and revenue matters. The target is to achieve 100% in terms of awareness.

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CHART 2: BSC STRATEGY MAP

FINANCIAL

CUSTOMER

INTERNAL PROCESS.

PEOPLE

Enhance Government Revenue Contain Costs at 1.5%

Increase Compliance Acquire new business Efficient

Utilisation of resource

Provide Quality and timely service

Provide specialised services based on customer segmentation.

Implement efficient, effective and Modern systems and ICT

Implement joint Integrated Operation

Reorganise operations along functional lines.

Motivation & effective participation

Culture change & effective Communication

Provide opportunities for learning and growth for staff

Develop functional competencies.

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CHAPTER 5

MONITORING AND EVALUATION

5.0 Introduction

Monitoring and evaluation process will enhance the effectiveness of strategic objectives by establishing clear links between the past, present and future interventions and results. Monitoring and evaluation will help the authority to extract, from the past and ongoing activities, information that can be used as the basis for programmatic fine–tuning reorientation and planning. Without monitoring and evaluation, it would be impossible to judge if the planned strategic direction is in focus, whether progress and success can be claimed and how the future efforts can be improved. Chapter 4 of this Corporate and Business Plan, details revenue: objectives, outputs, strategies and performance indicators during the Plan’s execution period. Having set the corporate direction for the organization, its success will depend on a sound and systematic accounting and auditing systems that goes to ensure that actions identified are efficiently implemented to achieve the desired outcomes.

5.1 Purpose

Monitoring and evaluation help improve performance and achieve results. Precisely, the overall purpose of monitoring and evaluation is the measurement and assessment of performance in order to effectively manage outcomes and outputs of strategic results. Performance can be defined as the progress towards and achievement of results. Monitoring of the corporate direction is the continuing function that aims to provide the management and the stakeholders of KRA of ongoing interventions with early indications of progress, or lack thereof, in the achievements of the desired results. Evaluation of the Corporate Plan is a selective exercise that attempts to systematically and objectively assess the progress towards and the achievement of the planned outcomes. Evaluation is not a one-time event, but an exercise involving assessment of differing scope and depth carried out at several points over the plan period in response to evolving needs for evaluative knowledge and learning during the efforts to achieve the planned activities. Reporting is an integral part of the monitoring and evaluation process. The reporting will be systematic and timely for the provision of essential information at periodic intervals. Monitoring and evaluation of the plan implementation is meant to serve the following purposes: - Verification as to timeliness and correctness or otherwise of periodical reports received. - Measure individual initiative contribution to the desired goal. - The verification is expected to trigger remedial measures leading to revision of the departmental

business plans pertinent target(s) upwards or downwards depending on the established cause of deviation from the desired path.

- Lay emphasis on culture of planning as an effective tool for achieving the desired goals. - Evaluation of a system against specific purpose that it is supposed to achieve, that is, size up the

subject unit capacity to problems solves.

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5.2 Methodology Traditionally, KRA staffs are familiar with monitoring and evaluation that is project based that views performance in terms of outputs only. The challenge is to go beyond this level and link performance with outcomes, with rigorous and credible assessments of progress and achievements of outcomes as compared with best practices. This can be facilitated through a feedback process, which is within the framework of monitoring and evaluation as information and knowledge are disseminated and used to assess the overall progress of the planned activities. The feedback consists of findings, conclusions, recommendations and lessons from experience. It is used to improve performance, act as basis for decision-making and promote learning in the Authority. As a rule, monitoring is designed to pick up signals for early recognition of trends so as to steer the entire programme. It uses the key indicators and critical events derived from the business plans, periodic impact assessment of the various activities, receipts and efficiency in resource utilization developed for results-oriented controlling. To enhance the use of participatory monitoring mechanisms and ensure commitments, ownership, follow-up and feedback the Departmental Monitoring Committees (DMC) and the Research and Corporate Planning Department (R&CPD) will work jointly in implementation, monitoring and evaluation of the Corporate Plan, with special emphasis on results – based management that lays basis for substantive accountability and performance effectiveness. This will generate the following: Monthly reports Quarterly reports Semi-annual reports and ` Annual reports.

These reports will indicate the department’s performance against verifiable indicators as set out in the respective business plan. The R&CPD will carry out field audits and surveys to ascertain the reports content.

Plan implementation and evaluation will be a continuous exercise using periodical reports generated by the departments and leading to compilation of Top Management reports and eventually report to the Board on achievements realized with respect to the corporate strategy’s targets. Analysis of response borne in the proposed questionnaire here below will be an important indicator of the Plan’s achievement or failure. However, in case of large departments such as the four revenue departments, the periodical report may gloss over serious untoward or sterling outstanding performance in individual stations. At the same time, some processes such as queue management and some internal processes can best be evaluated via observation. For this reason, the monitoring and evaluation exercise on top of relying on performance reports generated by the Authority’s departments will also employ the following other methods:

- Random physical verification of both adverse and outstanding performance that is akin to proactive verification of implementation by R & CPD.

- Sending out questionnaires to the stakeholders at least within each half year (six months) of the Plan’s implementation period.

It must also be emphasized here that plan monitoring and evaluation is not a witch hunting undertaking. It is an exercise seeking to benefit the Authority from the lessons of our success and failure.

The monitoring and evaluation system to be adopted for this plan is designed to provide continuous tracking and feedback mechanisms to the stakeholders. The information generated from the monitoring and evaluation process will be useful in making the strategic policy decisions necessary to undertake adjustments in the Plan’s implementation strategy.

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Already, a number of mechanisms are in place. The first and foremost of this being the annual business planning and evaluation process. Under this each department, in consultation with its staff and R&CPD, develops an annual business plan under which it prioritizes objectives and strategies set out in the Plan’s strategic direction. Progress on implementation is monitored and reported on an ongoing basis to Top Management and the Board of Directors. The R&CP will ensure this process underpins all activities and facilitates measurement of achievement of the Plan’s objectives.

Internal audit, custom clearance audit, control verification unit and other technical audits processes will play a key role in ensuring that the systems, procedures and controls are of the highest standards. Value for money (VFM) function will carry specific examination to ensure optimization of return on resources comprising the Authority’s input. A revamped MIS will facilitate more effective sharing of information and better exploitation of available data. A rigorous evaluation of resource allocation, as cost and performance geared towards better decision making on resources allocation shall be employed. The results of M&E will be used to revise the Taxpayer Charter, internal standards and variance analysis of actual and budgeted strategies.

5.3 Monitoring Indicators

Strategies Performance Indicators

1. Enhanced Revenue Collection and Finance.

Debt Age. %Debt collected to Total Revenue. Variance from debt collection target.

Target Revenue to Actual Revenue. Actual Cost of collection Verses Target cost of

collection. % Increase in Voluntary Taxpayers to total

taxpayers (compliance level). Total revenue increase as proportion of

Voluntary compliance. % Increase in revenue. % Increase in number of Taxpayers in the plan

period. % Of revenue related cases lost. Number of evasion cases Prosecuted.

% Increase in Revenue output per employee. Variances in capital spending.

Number of new business initiated in the Plan period.

Total revenue foregone in exemption

Number of Audits conducted over the period. Revenue yield per audit. Audit cost as proportion of Revenue yield. Number of audits performed on schedule.

Number of employees participating in cost effectiveness.

Stock costs. Purchase order cycle time.

Time required to process equipment purchase orders.

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Cost reduction measures. % Projected cost reductions missed.

Number of project plans that meet schedule, price and quality.

Number of customer complaints. Time taken to answer customer complaints.

2. Quality Service Delivery

Number of problems identified in the process. Achievements of the Taxpayers Charter

objectives Time required to process request for corrective

action. Inspection cycle time.

Existence of quality cycles groups. Number of quality cycles and teams.

% of QA personnel to total personnel. % of reports/ field returns published on

schedules. Time to correct a problem. Time taken to serve a Taxpayer.

Time taken by the Taxpayer to walk through the process.

3.Internal process Number of plan revisions. Terminal response time.

Mean time between system repairs.

Systems availability. Number of changes to meet Taxpayers

requirements. Number of documentation errors and time taken

to recognize and correct the errors. % of time required to debug programs.

Input correction on data entry. Costs in computer downtime. Number of changes in program codes and %

error in lines of code.

% of reports delivered on schedule. Payment processing time. Access to intranet and Internet facility. Integration levels of the Network.

Number of user complaints per month. Process down time. Correctness of the processes. Process simplification programs.

% Absenteeism.

% Personnel turnover rate.

4.Human Resources

Departmental morale index.

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Ratio of direct to indirect employees.

% Of managers active in community work. % Errors in personnel records. Number of hours per year of career and skill

development per employee. Number of job improvement ideas per employee. % Of employee output that is measured.

% Of appraisal done on schedule. Number of grievances per month.

Number of security violation per month. % Of employees taking higher education.

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CHAPTER 6

FINANACIAL PROJECTIONS AND IMPLICATIONS 6.0 Introduction. The second corporate plan has all the giving of Best practice in tax Administration. The implementation of the practice will involve enhancing technical knowledge and tool, re-engineer the processes and procedures and develop competency based performance management. Kenya revenue Authority is continually challenged to improve the quality of its programs with greater regard for cost. Adding to this challenge, the Authority operates in complex social, economic and technological environment that is very dynamic. It is for this reason that KRA has to continue to enhance the management of strategic issues across business lines. The plan presents the course, as set out in the four perspectives, their supporting objectives and key results that will be pursued over the next three years. It is intended to guide the departments develop their long range and operational plans. The departments will identify measures and initiatives that support progress towards the objectives and key results. It will also depict the timeframe in which the departments intend to achieve the objectives. 6.1 Revenue Projections

On the overall the strategies adopted in the second corporate plan will generate Kshs.39,225M over the plan translating to Kshs. 13,075M annually. The implementation of the plan will entail Business process improvement strategies and critical value mapping over the plan period at an estimated cost of Kshs.4,985 M . This translates to an average Kshs.1,662 M annually. The income of the Authority over the plan period will grow by 16% in the first year of the program to stabilise thereafter, at 6%. This translates to 12% normalised revenue growth by the third year of the plan. The growth is the result of increase in the revenue collection from the implementation of the plan strategies and subsequent increase in the commission. 6.2 Expenditure Implications The expenditure primarily is operating costs. The operating expenditure consist mainly two key components: Staff related costs and maintenance & facilities costs. On the overall, the total expenditure will increase slightly in the first year of the program and scales down to 3% over the next three years. Staff costs are manpower cost and staff welfare & training costs. Staff related costs constitute about 60% of the operating costs over the plan period while other operating expenditure will make up 35%. Capital expenditure will grow at 3% over the plan period. The special project, are projects designed to re-engineer and improve the systems and processes for improved service delivery. Information technology will be the vital factor in the reengineering of the processes and operations. The Authority will optimise in a manner that will support process improvement and priorities across all lines of business. In this regard, the Authority will minimise administrative costs and compliance burden on the taxpayer through streamlining and simplifying our legislation, programs, and operations. The current revenue collection rate of 1.5% is far below the threshold of the implementation process. Currently KRA already has cost of collection that is high. The recurrent and capital expenditure for program running is above the set revenue inflow. When the cost effect of the special projects are factored in, as shown by the projections proforma, the cost of collection will rise to about 3% in the year of implementation and thereafter scale downwards to slightly above 1.6% in the third year. In the context of benefit analysis the cost will be taking a downtrend when the revenue yield will be moving towards full benefit maturity.

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TABLE 3: FINANCIAL PROJECTIONS & IMPLICATIONS

NOTES 2002/3 2003/4 2004/5 2005/6

Kshs' M Kshs' M Kshs'

M Kshs'

M

Projected/ Total Govt Revenue 208,083

236,000

246,000

268,000

Expected Revenue(KRA) (95-93%)

201,763

219,480

233,700

249,240 Expected Revenue growth (%) 1 8.78% 6.48% 6.65% GDP Growth (%) 1.75% 3.00% 4.40% 5.80% Inflation rate (%) 2.90% 3.65% 3.50% 3.55%

Agency Income (1.5%) 2 2,791 87%

3,292 89%

3,506 90%

3,739 90%

A I A - Normal 3(a) 400 13%

402 11%

404 10%

406 10%

TOTAL INCOME 3,191 100%

3,695 100%

3,910 100%

4,145 100%

Normalised Income Growth 16% 6% 6%

Staff Costs( 5% growth) 4(a) 2,159 65%

2,367 61%

2,485 62%

2,609 62%

Other Recurrent expenditure 5(a) 1,080 32%

1,367 35%

1,401 35%

1,446 35%

Capital Expenditure 99 3%

160 4%

128 3%

121 3%

TOTAL EXPENDITURE BEFORE SPECIAL.

3,338

3,894

4,014

4,176

Normalised Expe. Growth 17% 3% 4%

NET SURPLUS/(DEFICIT) BEFORE SPECIAL PROJECTS (147) (199) (104) (31)

Special projects 6 2,981 43%

1,943 33%

61 1%

TOTAL EXPENDITURE AFTER SPECIAL.

3,338 100%

6,875 143%

5,957 133%

4,237 101%

Absolute Expe. Growth 106% -13% -29% NET SURPLUS/(DEFICIT) AFTER PROPOSALS (147) (3,180) (2,047) (92) Cost of Collection (Recurrent Expenditure) 1.61% 1.67% 1.62% 1.56% Cost of Collection (Capital expenditure) 0.05% 0.07% 0.05% 0.05% Cost of Collection (Special Projects) 0.00% 1.33% 0.81% 0.02% Total Cost of Collection( All inclusive) 1.65% 3.08% 2.48% 1.63%

ANTICIPATED EXTRA REVENUE 7 - 3,923

6,538

10,460

Expected Extra Revenue Growth 67% 60%

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FINANCIAL PROJECTIONS - NOTES & ASSUMPTIONS Figures are presented in Kshs. Exchange rate to US $ is 77.1, 80.0 and 82.0 for the three years respectively. 1 Projected Revenue is as per the Research & Corporate Planning projections. The

expected revenue used here has been adjusted downwards by 5% -7% except for the current fiscal year.

2 Agency income is provided at 1.5% of the adjusted collection targets. Figure for all

Financial years

3(a) A I A projection to grow at projected revenue growth rate adjusted for impact of interest and rental income on staff houses.

4(a) Staff costs are expected to grow at the current rate of 5% annually.

In the corporate plan an extra 456 staff will be recruited while 275 are expected to leave due to natural attrition. See Sch. VI.

5 Recurrent expenditure is inflation indexed. Refer to Sch. I for projected expenditure for

the plan period.

6 Special projects relate to systems and equipment designed to modernise the internal processes of the organisation over the plan period. See Sch. II, III, IV,V and VII

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CHART 3: CORPORATE PLAN MONITORING & EVALUATION FLOW CHART

STRATEGIC CORPORATE PLAN

STRATEGIC BUSINESS PLAN

DEPARTMENTAL MONITORING COMMITTEE

R&CP EVALUATION TEAM

TOP MANAGEMENT

EVALUATION REPORT

Feedback system

Re-focus

Joint Monitoring

Targets & Measures

BOARD OF DIRECTORS

Feedback

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FINANCIAL PROJECTIONS- SUMMARY SCHEDULE I. 2003/4 2004/5 2005/6 TOTAL

Schedule

Kshs Kshs Kshs Kshs

Staff Costs Human Resources & Admin VI 100,000,000 100,000,000 100,000,000 300,000,000

Recurrent Expenditure Customs & Excse Duty II 47,400,000 53,300,000 59,300,000 160,000,000 Income Tax Department III 26,400,000 24,400,000 24,400,000 75,200,000 Value Added tax IV 24,650,000 21,650,000 21,600,000 67,900,000 Road Transport Department V 14,510,000 10,260,000 10,260,000 35,030,000 Human Resources & Admin VI 110,500,000 110,500,000 108,000,000 329,000,000 Management Information Systems

VII 8,200,000 10,100,000 10,200,000 28,500,000

Other service departments VIII 16,100,000 12,500,000 12,600,000 41,200,000 247,760,000 242,710,000 246,360,000 736,830,000

Capital Expenditure Customs & Excse Duty II 30,000,000 20,000,000 10,000,000 60,000,000 Income Tax Department III 300,000 300,000 400,000 1,000,000 Value Added tax IV 26,850,000 - - 26,850,000 Human Resources & Admin VI 200,000 200,000 200,000 600,000 Other service departments VIII - - - -

57,350,000 20,500,000 10,600,000 88,450,000 Special Projects

Road Transport Department V 617,500,000 1,792,500,000 20,000,000 2,430,000,000 Management Information Systems

VII 2,363,500,000 150,500,000 41,000,000 2,555,000,000

2,981,000,000 1,943,000,000 61,000,000 4,985,000,000 3,386,110,000 2,306,210,000 417,960,000 6,110,280,000

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SCHEDULE II CUSTOMS & EXCISE TOTAL

2003/4 2004/5 2005/6 Operating Expenses E-recruitment 10,000,000 10,000,000 5,000,000 25,000,000 Customs laboratory 9,000,000 12,000,000 14,000,000 35,000,000 Post Clearance Audit Office 10,000,000 15,000,000 25,000,000 50,000,000 Effective Queue Management 10,000,000 10,000,000 10,000,000 30,000,000 Petroleum biocoding and tracking 5,000,000 3,000,000 2,000,000 10,000,000 Valuation 3,400,000 3,300,000 3,300,000 10,000,000

47,400,000 53,300,000 59,300,000 160,000,000

Capex Electronic cargo tracking system 30,000,000 20,000,000 10,000,000 60,000,000

30,000,000 20,000,000 10,000,000 60,000,000 77,400,000 73,300,000 69,300,000 220,000,000

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SCHEDULE III

INCOME TAX DEPARTMENT 2003/4 2004/5 2005/6 TOTAL Capex Computer terminals-Outstations 300,000 300,000 400,000 1,000,000

300,000 300,000 400,000 1,000,000

Operating Expenses Create 3 Mini-stations 5,000,000 5,000,000 5,000,000 15,000,000 Create 5 satellite stations 2,000,000 2,000,000 2,000,000 6,000,000 Train & Increase Audit staff 4,000,000 4,000,000 4,000,000 12,000,000 Audit working papers 1,000,000 1,000,000 1,000,000 3,000,000 Computerised risk profiling 4,000,000 4,000,000 4,000,000 12,000,000 Western Receipting centre 2,000,000 - - 2,000,000 Integrity Seminars 5,000,000 5,000,000 5,000,000 15,000,000 Tax payer education 3,400,000 3,400,000 3,400,000 10,200,000

- 26,400,000 24,400,000 24,400,000 75,200,000

GRAND TOTAL 26,700,000 24,700,000 24,800,000 76,200,000

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SCHEDULE IV

VALUE ADDED TAX 2003/4 2004/5 2005/6 TOTAL Operating Expenses Recurrent expenditure-staff travel 1,000,000 1,000,000 1,000,000 3,000,000 Vat law reviews 500,000 500,000 500,000 1,500,000 Interwork licensing Agencies 500,000 500,000 500,000 1,500,000 VAT on non-residential rent 500,000 500,000 500,000 1,500,000 Tax clinics 2,500,000 2,500,000 2,500,000 7,500,000 Taxpayer tools &Training 200,000 200,000 200,000 600,000 Amnesty & publicity 200,000 150,000 150,000 500,000 Compliance Visits 300,000 350,000 350,000 1,000,000 Inspectorate Unit 500,000 500,000 Audit - Recruit Drivers 4,000,000 4,000,000 4,000,000 12,000,000 Computer Audit training 500,000 500,000 500,000 1,500,000 Tax Audit reviews 350,000 350,000 300,000 1,000,000 Customer Care &Boxes 2,500,000 1,000,000 1,000,000 4,500,000 Simplification of forms 500,000 - - 500,000 Media notices 100,000 100,000 100,000 300,000 Integrity 500,000 - - 500,000 Acconts returns staff 6,000,000 6,000,000 6,000,000 18,000,000 SLA bank agreement 4,000,000 4,000,000 4,000,000 12,000,000

24,650,000 21,650,000 21,600,000 67,900,000 Capex Audit -(10 M/V & 5PC) 21,850,000 21,850,000 Record management Locker system 5,000,000 - - 5,000,000 GRAND TOTAL 51,500,000 21,650,000 21,600,000 94,750,000

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SCHEDULE V

ROAD TRANSPORT DEPARTMENT

2003/4 2004/5 2005/6 TOTAL

Special Projects Second generation driving licences 125,000,000 375,000,000 500,000,000 Second generation number plates 462,500,000 1,387,500,000 - 1,850,000,000 RTD- Integrated systems 30,000,000 30,000,000 20,000,000 80,000,000

617,500,000 1,792,500,000 20,000,000 2,430,000,000 Operating Expenses Recurrent expenditure- DC's take over

600,000 600,000

Decentralise Inspection 500,000 - - 500,000 Taxpayer education 2,400,000 2,400,000 2,400,000 7,200,000 Stakeholder seminars 1,200,000 1,200,000 1,200,000 3,600,000 Fleet owners' audit 210,000 210,000 210,000 630,000 Customer Care Desks 200,000 150,000 150,000 500,000 Queue management 2,000,000 2,000,000 2,000,000 6,000,000 Data Imaging 4,000,000 2,000,000 2,000,000 8,000,000 Integrity 1,000,000 300,000 300,000 1,600,000 Integrated Cash receipting 2,000,000 2,000,000 2,000,000 6,000,000 Link MSA - NBI 400,000 400,000

- 14,510,000 10,260,000 10,260,000 35,030,000

GRAND TOTAL 632,010,000 1,802,760,000 30,260,000 2,465,030,000

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SCHEDULE VI HUMAN RESOURCES &

ADMINISTRATION 2003/4 2004/5 2005/6 TOTAL

Staff Costs Additional staff 50,000,000 50,000,000 50,000,000 150,000,000 Internal promotions 50,000,000 50,000,000 50,000,000 150,000,000

100,000,000 100,000,000 100,000,000 300,000,000

Operating Expenses Team Building Initiatives 2,000,000 2,000,000 2,000,000 6,000,000 Management develop. 2,000,000 2,000,000 2,000,000 6,000,000 Technical Training programs 60,000,000 60,000,000 60,000,000 180,000,000 Culture Change 10,000,000 10,000,000 10,000,000 30,000,000 ABC Training 5,000,000 5,000,000 5,000,000 15,000,000 TQM & Sensitization 7,000,000 7,000,000 7,000,000 21,000,000 Customer Care Training 10,000,000 10,000,000 10,000,000 30,000,000 QWLM 5,000,000 5,000,000 5,000,000 15,000,000 Job Evaluation 2,500,000 2,500,000 - 5,000,000 HRP&D 2,000,000 2,000,000 2,000,000 6,000,000 Community projects/HIV 5,000,000 5,000,000 5,000,000 15,000,000

110,500,000 110,500,000 108,000,000 329,000,000

Capex Renovation of residential & offices

200,000 200,000 200,000 600,000

200,000 200,000 200,000 600,000

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SCHEDULE VII MANAGEMENT INFORMATION

SYSTEMS 2003/4 2004/5 2005/6 TOTAL

Operating Expenses IT security 200,000.00 100,000 200,000 500,000 IT Training 8,000,000 10,000,000 10,000,000 28,000,000

8,200,000 10,100,000 10,200,000 28,500,000 Special Projects Data Capture 3 mini - station 2,000,000 1,000,000 1,000,000 4,000,000 Capability Maturity Model Software

1,000,000 500,000 500,000 2,000,000

Mail Tracking 1,500,000 1,000,000 1,500,000 4,000,000 Income Tax Support System 170,000,000 170,000,000 ITD-Data Connectivity &exchange 4,000,000 3,000,000 3,000,000 10,000,000 ITD-graphic user interface 10,000,000 10,000,000 VAT-Integrated system 90,000,000 90,000,000 C&ED Scanner 900,000,000 - - 900,000,000 C & E- Integrated system 960,000,000 960,000,000 ERP system 215,000,000 - - 215,000,000 Computer increase 45,000,000 - - 45,000,000 HQS-KRA website 5,000,000 5,000,000 HQS-EDI system 10,000,000 10,000,000 20,000,000 40,000,000 HQS-EFT system 5,000,000 5,000,000 HQS- WAN /LAN 25,000,000 25,000,000 50,000,000 Disaster Recovery 10,000,000 10,000,000 10,000,000 30,000,000 In house IT Training 5,000,000 5,000,000 5,000,000 15,000,000

2,363,500,000 150,500,000 41,000,000 2,555,000,000 GRAND TOTAL 2,371,700,000 160,600,000 51,200,000 2,583,500,000

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SCHEDULE VIII OTHER SERVICE

DEPARTMENTS

Operating Expenses 2003/4 2004/5 2005/6 TOTAL Monitoring & evaluation 500,000 500,000 500,000 1,500,000 Research 2,000,000 2,000,000 2,000,000 6,000,000 Processes 10,000,000 10,000,000 10,100,000 30,100,000 Publicity 800,000 800,000 Customer care 2,800,000 2,800,000

- 16,100,000 12,500,000 12,600,000 41,200,000

Capex - - - - -

GRAND TOTAL 16,100,000 12,500,000 12,600,000 41,200,000

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BSC Model for KRA Second Corporate Plan 2003/4-2005/6: Corporate Level

Strategic Objective Initiatives Targets/Measures Cost Responsibility

1 1.1 Broaden the tax Base and

Widen the tax Net Develop and implement an integrated

taxpayer recruitment policy. Establishment of one Taxpayers Recruitment

Office at KRA. Nil

CG Commissioners

Develop and implement integrated taxpayer recruitment policies, methodologies, forms and procedures.

Documentation of appropriate rules and regulations and printing of necessary forms.

Recruitment of additional 10,000 new

taxpayers with a yield of Kshs 1 billion p.a.

Nil

Commissioners

Enha

nced

Rev

enue

Col

lect

ion

“Our

suc

cess

is to

sur

pass

the

reve

nue

targ

ets

set b

y th

e G

over

nmen

t”

Develop and implement policies targeting the informal sector and present concrete proposals to the Treasury for purposes of legislation.

Develop and implement initiatives

targeting revenue leakage/evasion. Enhance KRA’s capacity to generate

and disseminate intelligence.

Policy on Taxation of Informal Sector. Generation of additional Kshs 1 billion p.a.

from the sector Implementation of new-look Number Plates

and 2nd Generation Driving Licences; realise gross collection of Kshs 3.225 billion over the 3 year period.

Establishment of a specialised and well-

equipped intelligence unit at the Investigation Department.

Eliminate other taxpayer registration

numbers and adopt PIN as the sole taxpayer identification number

Nil Kshs 300 million p.a. Kshs 2.35 billion

Commissioners CM-R&CP RMV

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Strategic Objective Initiatives Targets/Measures Cost Responsibility Number of organisational transactions

reports submitted to KRA for purposes of supporting recruitment and enforcement efforts based on PIN information.

Production and dissemination to Top

Management of weekly intelligence reports.

Commissioners MIS CIA Investigations

Develop and acquire modern computerised risk assessment and risk management capabilities.

Acquisition of scanning equipment for imported goods with computerised risk assessment capabilities.

Preparation and dissemination of monthly

risk assessment reports to all stations. Implementation of risk assessment

techniques for processing and analysis of returns and selection of cases for audit and investigation purposes.

Documentation of procedures for allocating

cases for audit and investigation.

Kshs 900 million

Commissioners MIS Investigations

1.2 Improve Voluntary Compliance

Enhance the Effectiveness of the Taxpayer Education Programme through, for example, use innovative measures for taxpayer education, including:

TV commercials, local languages Publishing periodic list of top

taxpayers by category, highlighting usage of tax revenues use of provincial administration

Increased number and coverage of taxpayer education programmes with particular emphasis to regional stations.

Establishment of effective Help Desks as

One-stop-facilities for assistance of taxpayers.

Introduction of Taxpayer Clinics.

All the above measures are targeted to

Part of systems enhancement budget Nil Nil

Taxpayer recruitment, registration and services Unit Commissioners PR

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Strategic Objective Initiatives Targets/Measures Cost Responsibility Provide Taxpayers with Consistent and

Good service.

increase compliance by 5% per year and realise an additional Kshs 3 billion p.a

Nil

1.3 Enhance and improve assessments/audits

Implement a holistic approach to audit. Integrate the audit function.

Develop and implement a KRA –wide

audit plan and selection system. Upgrade the skills of auditors.

Increase audit coverage.

Recruit additional auditors with skills

lacking in KRA.

Establishment of system for Joint Audits. Establishment of Integrated Audit office.

Standardized KRA-wide audit plan.

Conduct 4 specialised Training for auditors

on computer-aided audits and post clearance audit.

5% increase in audit coverage p.a.

Yield Kshs 3 billion p.a.

Recruitment of 10 additional auditors with

specialised skills p.a.

Nil Tax Assessment/Audit Unit Commissioners

1.4 Improve Debt & Arrears Management

Develop an integrated Debt/Arrears Management function.

Develop and implement a debt

management policy. Conduct a comprehensive Review of

the current debt/arrears portfolio.

Establishment of a Debt Arrears Management unit.

Documentation of Debt Management Policy.

Reduce the stock of debt by 20% p.a.

Reduce the maximum age of debt to 7 years

in the medium term with a view to reducing it further to 3 years in the long-term.

Generate additional Kshs 3 billion p.a.

Nil Debt Management Unit Commissioners

1.5 Exemptions Management Develop a transparent and accountable Development of Liaison mechanism with all Nil Commissioner-

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Strategic Objective Initiatives Targets/Measures Cost Responsibility framework for exemption/remission

procedures, eg empower KRA to be the first point of call in processing of exemptions/remissions.

Institute a computer based system for

tracking exemption/remission.

stakeholders in exemptions /remissions. Detailed monthly report on Exemptions

/Remissions. Monthly reconciliation report on Exemptions

/Remissions. Reduce the level of exemption/remission by

Kshs 1 billion p.a.

General Commissioners CM_MIS

1.6 Effective Enforcement

Develop and implement an integrated enforcement policy, clearly specifying the appropriate reporting structure.

Increase the prosecution capability.

Develop an enforcement risk

assessment mechanism.

Establishment of an Integrated Enforcement Unit.

Enforcement Policy.

Gazettement of KRA prosecutors.

Nil Integrated Enforcement Unit Commissioners CLO

2

Fina

nce

“O

ur p

olic

y is

to im

plem

ent

effe

ctiv

e an

d ef

ficie

nt

expe

nditu

re c

ontro

l m

easu

res”

2.1 Activity-based budgeting/costing

Effective and efficient expenditure control procedures.

Identification of tax administration

activities and cost drivers. Centralized procurement procedures.

Limit the cost of revenue collection to approved levels.

Implementation of activity-based

budgeting/costing. Formation of a Central Procurement Unit in

KRA..

Nil

FC

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Strategic Objective Initiatives Targets/Measures Cost Responsibility 3

3.1 Implementation of a Tax Administration Quality Assurance programme

Provide timely service to all stakeholders.

Work towards ISO 9000 certification.

Recruitment of quality assurance manager. Training of quality assurance auditors.

Carrying out of quality review audits.

Report on status of progress towards.

achievement of ISO 9000 certification. Training of staff on quality service delivery.

Achieve at least 70% of the standards set in

Taxpayers Charter. Achieve 100% of the targets set in the

Internal Standards. Achieve 100% implementation of internal

audit reports.

Kshs 10 million p.a.

Commissioners CIA CHR&AM

Qua

lity

Serv

ice

Del

iver

y

“Our

aim

is to

pro

vide

qua

lity

serv

ices

at t

he le

ast c

ost

with

max

imum

sat

isfa

ctio

n to

our

sta

keho

lder

s ”

3.2 Development and implementation of simplified compliance procedures

Modify and simplify all forms, returns and entries.

Reduce the cost of taxpayer compliance by 50%. Simplification of forms.

Nil Commissioners

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility 3.3 Implementation of

effective Queue Management/Paperless Office

Develop and implement a queue management framework including review of possibility of outsourcing some of our functions such as licensing through banks or post offices.

Actively pursue the enactment of the

law on electronic documents.

Implementation of a queue management system.

Provision of electronic-based tax payment

facilities to taxpayers. Reduce time taxpayers spend in our banking

halls by 70%.

Kshs 5 million Commissioners PR

4

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility 4.1 Revitalization of Human

Resources

Review of organizational structures/establishment.

Introduce modern and innovative HR

practices and methodologies. Review terms and conditions of service.

Develop and implement scheme of

service for all drivers, secretaries and support staff.

Uphold the principles of merit and equal

opportunity in recruitment and promotions.

Implementation of continuous

professional and personal development.

Approved organisation structure/establishment.

Implementation of Modern HR practices

such as mentoring, counselling and performance-based rewards.

Annual report KRA status on remuneration.

Scheme of service for drivers, secretaries

and support staff. Preparation of annual training programs.

Annual report on recruitment and

promotions. Preparation of Competency profiles and key

performance indicators. Annual report on KRA-wide Skills Audit.

Nil CHR&AM

Rev

italiz

atio

n of

Hum

an R

esou

rces

“K

RA

will

deve

lop

a w

orkf

orce

resp

ecte

d fo

r te

chni

cal

com

pete

nce,

obj

ectiv

ity, p

rofe

ssio

nalis

m a

nd c

ourt

esy”

4.2 Communication Strategy Develop and implement a clear and concise communication policy for administration and revenue collection.

Comprehensive communication policy. Achieve 100% awareness for all KRA

communication.

Nil CHR&AM

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility 4.3 Development of Singular

Corporate Culture across KRA

Develop an integrated teambuilding initiatives.

Formation of Authority-wide social

activities/events.

At least 6 team building initiatives p.a. Formation of sporting clubs, family events,

etc.

Kshs 5 million p.a.

CHR&AM

5

Inte

grity

Ass

uran

ce

“KR

A w

ill ad

opt z

ero

tole

ranc

e to

Cor

rupt

ion

and

Frau

d ”

5.1 Reduce Tax Evasion & Deter Corruption

Uphold high ethical standards by adopting zero tolerance on corruption and fraud.

Implement fully the provisions of the

Anti-corruption and Economic Crimes Act.

Implement fully the provisions of the

Public Officers’ Ethics Act.

Get out of list of corrupt institutions. Nil Commissioner General’s office CHR&AM/

6

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility 6.1 Business Process

Improvement and Integration

Development of function-based organizational structure to create ‘one-stop facility’ tax administration encompassing:

Taxpayer recruitment, registration and services office

Audit function Return processing and

payments Debt management Enforcement Support services

Approved organization structure.

Nil KRA Management

Establishment of single units for each of the major tax administration functions such as:

Taxpayer recruitment, registration and services office

Audit function Return processing and

payments Debt management Enforcement Support services

Establishment of the integrated units.

Nil KRA Management

Mod

erni

ze In

tern

al P

roce

sses

“O

ur i

nter

nal p

roce

sses

sho

uld

allo

w th

e Au

thor

ity to

take

a ‘s

ingl

e vi

ew

of th

e ta

xpay

er’ a

nd s

uppo

rt E

ffect

ive

and

Effic

ient

reve

nue

colle

ctio

n ”

Integration of domestic taxes administration.

Develop and Implement an integrated administration for domestic taxes (ITD/VAT-domestic/Excise-domestic).

Nil KRA Management

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility 6.2 Enhance the

Effectiveness of LTO Restructure the operational and

reporting structure of the LTO into a full service Office with own staff and budget and with clearly spelt out terms of reference.

Approved and revamped LTO structure reporting to the CG initially and to the Commissioner for the integrated administration of domestic taxes.

Nil KRA Management

6.3 Enhance the effectiveness of the preventive service

Highlight the increased role the Preventive service plays in KRA operations. Restructure the operational structure of the Customs Preventive service to be compatible with international requirements.

Approved structure for the Preventive service.

Number of seizures arising from preventive action.

Nil Commissioner-C&ED

6.4 Computerization Implementation of “Quick

Wins” under KREISA Increased Level of Automation. Increase the No. of computers to No. of staff

ratio to 1:4, 1:3 and 1:2 during the Plan period.

Conduct annual audit on usage of computer

facilities.


CG/Commissioners/MIS

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility Audit current usage of computer resources and increase application of IT-based Solutions.

Undertake data and systems security review.

100% LAN and WAN coverage for computerised stations.

Installation of internet-based technologies for

electronic filing, payment, return processing and registration.

Move computer development personnel

offsite. Report on data and systems security

architecture and backup methodologies.


CG/Commissioners/MIS

Audit and computer-based Controls. Use of computerized and audit based control procedures for: bonded warehouses oil installations excise manufacturers transit monitoring

Nil CG/Commissioners/MIS

Implementation of KREISA Development and implementation of enterprise-wide integrated system.

Report on review of operational processes. Installation of replacement system for

Customs administration.

Kshs 960 million

MIS Commissioner, C&ED

Systems enhancement to support Income tax function (PAYE, Withholding tax).


MIS Commissioner, ITD

Systems enhancement to support VAT function.

Kshs 5 million p.a.

MIS Commissioner, VAT

Acquisition of system to support domestic taxes function.

Kshs 150 million

KRA Management

of 61

Strategic Objective Initiatives Targets/Measures Cost Responsibility Acquire and implement a suitable information

system to support business operations in RTD.

Kshs 80 million RMV MIS

Acquire and implement enterprise resource

planning (ERP) system capable of supporting all administration functions of all support departments.


KRA Management

7

Cor

pora

te S

ocia

l R

espo

nsib

ility

7.1 Expand corporate social responsibility profile

Community visibility through managing relationships. Participate in charity/community development projects.

Undertake 5 community projects p.a. Spend Kshs 5 million p.a.

Kshs 5 million p.a.

KRA management

volume i second corporate plan - kenya revenue · pdf file · 2015-09-284.2 quality...

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