CHALLENGES AND OPPORTUNITIES OF MODERNISATION IN TAX ADMINISTRATION: THE EXPERIENCE BY KENYA REVENUE AUTHORITY

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CHALLENGES AND OPPORTUNITIES OF MODERNISATION IN TAX ADMINISTRATION: THE EXPERIENCE BY KENYA REVENUE AUTHORITY PRESENTATION TO THE ICPAK ANNUAL TAX CONFERENCE 23/09/ 2016 1 www.kra.go.ke 26/09/2016

Why Reforms? Content Realization of Opportunities: Challenges in Modernising tax Administration 2 www.kra.go.ke 26/09/2016

About KRA Mission Building Trust through Facilitation so as to Foster Compliance with Tax and Customs Legislation Vision To facilitate Kenya s transformation through innovative, professional and customer focused Tax Administration. Core Values Trustworthy, Ethical, Competence and Helpful. Our Reform Agenda is focused towards achieving our mission, vision and core values. 3 www.kra.go.ke 26/09/2016

Mandate KRA s key mandate is to assess, collect and account for taxes generated locally, educate taxpayers, and ensure boarder control. Taxes collected include:- Income Tax and Payroll Taxes Value Added Tax (VAT) Withholding taxes ( Income Tax and VAT) Domestic Excise Import Duties Agency Revenues etc 4 www.kra.go.ke 26/09/2016

. Why Reforms in Tax Administration? 1. Enhanced customer service 2. Reduced cost of collection 3. Efficient business processes 4. Transparency in tax administration 5. Increased tax compliance levels 6. Increase revenue collection 5 www.kra.go.ke 26/09/2016

THE REFORM AGENDA KRA commenced its reform agenda as far back as 1995. Main objective Create operational efficiency, through re engineered business processes and leverage on technology to drive revenue collection. Focus the reform programme puts more focus on the CUSTOMER i.e the Taxpayer Is the taxpayer Happy? What? Create an enabling environment conducive to enhance taxpayer compliance through simplified processes. Output - Enhanced customer satisfaction which translates to willingness to comply without any intervention from the revenue authority enhanced revenue collection at least cost possible 6 www.kra.go.ke 26/09/2016

OPERATIONAL EFFICIENCY PRE-/ POST REFORM PERIOD BEFORE Manual registration Manual filing Manual Payment Manual applications Data capture errors AFTER Online registration 100% Online Filing Online payment Online applications Minimal errors Customer Satisfaction Enhanced Taxpayer Compliance Enhanced revenue at least cost possible. 7 www.kra.go.ke 26/09/2016

OPPORTUNITIES Partnership with both international and National bodies (ATAF, CIAT, CATA, OECD etc) Linkage with other systems Information sharing Collaboration with other institutions e.g. SARS, Swedish Tax Authority (STA) Use of unique identifier Leveraging on best practice not re-inventing the wheel Upcoming technological advances Mpesa simplified the payment process for small enterprises Innovative initiatives Broaden tax base & Enhanced revenue 8 www.kra.go.ke 26/09/2016

BENEFITS/ OPPORTUNITIES OF MODERNIZATION BENEFITS 1. IMPROVED QUALITY OF THE HUMAN RESOURCE Staff have benefit from training opportunities and redeployments to new sections 2. BETTER SERVICE EXPERIENCE Use of automated services requiring less of taxpayers visiting our offices 3. IMPROVED REVENUE COLLECTION Through reducing revenue leaks, better intelligence reports generated, ease of compliance and deterrents e.g. system audit trails 4. PLATFORM FOR INTER-GOVERNMENT AGENCIES CO-OPERATION Various govt agencies can now link databases, share information and capitalize on synergies whose net effects include improved security for the nation, financial independence, improved living standards etc 9 www.kra.go.ke 26/09/2016

KEY OUTCOMES Improved organizational capacity Improved business processes through automation Enhanced customer satisfaction Enhanced compliance level Rapid growth in revenue collection 90% contribution of the National Recurrent Expenditures Budget Cost of collection - below 2% 10 www.kra.go.ke 26/09/2016

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IMPLEMENTATION CHALLENGES Challenges Mitigating Factors 1 Resistance to change from internal & external stakeholders 2 Inadequate resources (funds & human resources) 3 Systems vulnerabilities:- Power failures, Cyber crime, Data theft, System performance challenges Undertaking change management programmes Sensitization Re-assurance Adequate budgeting Seek additional sources of funding to fill gaps Power backup facilities Invest in cyber security. Optimize system performance 13 www.kra.go.ke 26/09/2016

IMPLEMENTATION CHALLENGES CONT D... Challenges Mitigating Factors 4. Inadequate skills & limited network coverage 5. Lengthy procurement processes 6. Data integrity (especially for 3 rd party data) Training Reward IT innovations. IT infrastructure Better procurement planning Timely monitoring of procurement processes Seamless integration of relevant IT systems Data cleaning 14 www.kra.go.ke 26/09/2016

IMPLEMENTATION CHALLENGES CONT D... Challenges/Risks 7 High cost of modernization Mitigating Factors/ Corrective Actions Proper research, Prudent Tendering/Negotiations, Trainings, Knowledge Transfer and monitoring of projects. 8 Enabling legislation Ensure change being made is supported by law... Resistance to have KRA have access to data on mobile money transfer. 15 www.kra.go.ke 26/09/2016

Challenges in Modern Tax Administration Automation of processes in a dynamic environment: Change is inevitable, yet Tax is sensitive. How flexible should you be? Culture Change: adoption to new ways of business for staff and taxpayers (including long-serving auditors) User capacity: adoption of users to a technology platform in a population of relatively low computer literacy. How much is enough education? What are the channels for awareness Data challenges, data migration, dirty data, lack of capacity to clean data Integration challenges with OGAs and other stakeholders arising from procurement process, system maturity 16 www.kra.go.ke 26/09/2016

Critical Success Factors in Implementation of Reforms Senior Management Support Funding & Resources Strategic Plan Government Support Committed Team Stakeholder Consultation Legislative readiness Clear Corporate Vision 17 www.kra.go.ke 26/09/2016

LESSONS LEARNT Project sponsor/owner - power, authority, strong will Stakeholder engagement. (internal & external) in all stages of the project. Undertake change management exercise Business process re-engineering.- What should be automated? 18 www.kra.go.ke 26/09/2016

LESSONS LEARNT CONT D... Effective communication strategy Phased implementation approach Political goodwill is crucial in implementing reforms Balance between simplicity and information required by the tax administration 19 www.kra.go.ke 26/09/2016

Conclusions Modernization programmes (efficiency, better service delivery, enhanced customer satisfaction.) Satisfied taxpayers comply with minimal interventions. Leads to enhanced revenue collection at the least cost possible. 20 www.kra.go.ke 26/09/2016

Conclusions Bottom line What is it that we have to do differently? New business model that reflects where we want to be. Mission - Building Trust through Facilitation so as to Foster Compliance with Tax and Customs Legislation 21 www.kra.go.ke 26/09/2016

Mission: KENYA REVENUE AUTHORITY Building Trust through Facilitation so as to Foster Compliance with Tax and Customs Legislation We grow Tax revenues while optimizing the cost of collection Taxpayers are satisfied with services that we deliver and the way we interact and engage them Taxpayer processes and operations are driven by advances in technology and our taxpayers are compliant with the tax laws and provisions. KRA has motivated & professional staff and we leverage technology to drive tax collection processes

Thank You