SPEECH BY MR. M. G. WAWERU, COMMISSIONER GENERAL, KENYA REVENUE AUTHORITY DURING THE OPENING OF THE JOINT IMF EAST AFRITAC/KRA WORKSHOP ON THE CHALLENGES OF ADMINISTERING SMALL AND MEDIUM TAXPAYERS HELD AT THE KENYA SCHOOL OF MONETARY STUDIES ON 22 NOVERMBER TO 2 DECEMBER 2005 IMF Representatives, Fellow Revenue Administrators, Ladies and Gentlemen, I would like to begin by expressing my sincere gratitude to the East AFRITAC Centre of the International Monetary Fund (IMF) for partnering with Kenya Revenue Authority (KRA) to co-host this important workshop. The theme of the workshop, The challenges of administering small and medium taxpayers, is quite timely and topical. It is also a useful and logical follow up to another workshop we co-hosted last year on The establishment and operation of large taxpayer unit. May I also extend a very special welcome to those of you who have come from outside Kenya. Karibuni sana and I hope you will enjoy your stay and also do take some time off your busy workshop schedule to sample our diverse and hospitable culture. Ladies and Gentlemen, Before I move further, please allow me to present to you a brief overview of KRA. KRA was established 10 years ago to be the sole revenue collecting agent of government. The main reasons for the establishment of KRA were to enhance tax compliance through improvement of service delivery to Page 1 of 5
taxpayers, integration and harmonisation of revenue administration operations, and improvement of staff productivity. Over the last 10 years, KRA has effectively delivered on its mandate. Revenue collection has increased steadily from Kshs. 168 billion during the financial year (FY) 1999/2000 to Kshs. 274 billion during the last FY 2004/05. This represents a 63% growth in revenue over a period of five years and a contribution of 94% of total government revenue or 20% of gross domestic product. Indeed during the last financial year 2004/05, for example, KRA collected a total of Kshs 274,252 million against a target of Kshs 240,914 million, representing a performance rate of 113.8%. Compared to 2003/04, revenue grew by 19.6%, the highest growth ever achieved by the authority since its inception. These achievements were made against a background of an extremely challenging operating environment. Over the last five years, for example, the economy registered low growth in real GDP at an average rate of 2.5% per annum. KRA has also made significant progress in improving business processes and automation, including training and other capacity building initiatives. This in turn has improved the quality of service to our stakeholders. Over the last three years we have deliberately and aggressively embarked on implementation of a reform and modernisation agenda as contained in our three year corporate plan. Consequently, we have developed and implemented a comprehensive Revenue Administration Reform and Modernisation Programme (RARMP). The RARMP has four key goals: Page 2 of 5
1. To effectively and efficiently collect government revenue through adoption of compliance and enforcement strategies based on risk assessment. 2. To provide fast and efficient quality service to taxpayers through adoption of simple, transparent and up-to-date procedures that take a single view of the taxpayer. 3. To effectively enforce tax laws through implementation of simple, modern and integrated administrative processes. 4. To enhance staff competency and productivity. The RARMP comprises of seven key projects addressing different aspects of revenue administration specifically: Domestic Taxes Reform and Modernisation; The Customs Reform and Modernisation project; The Road Transport Reform and Modernisation project; The Investigation and Enforcement Reform and Modernisation project; The Infrastructure Development project; The KRA Business Automation project; The Training and Change Management Project. Of specific relevance to this workshop is the domestic taxes department reform and modernisation project. This project seeks to embrace best practice standards in domestic tax administration. A key initiative therefore has been moving away from a tax type administration to a function based organisation. In this regard we have merged the administration of all domestic taxes (that is, income tax, VAT and excise domestic) under one commissioner and established single functional units such as taxpayer services, taxpayer registration, return processing, collection and debt management, audit, etc. This has yielded efficiency gains and improved service delivery to taxpayers as a result of the harmonisation and Page 3 of 5
improvement of business procedures and the exchange of information. We are also in the process of acquiring an integrated Tax IT system, preparing a single tax procedures code and strengthening the large taxpayers office. Ladies and gentlemen, The hosting of this workshop is in recognition of the important role that small and medium size businesses play in our economies. They more often than not account for over 90% of the total business population, contribute significantly to gross domestic product (GDP) and provide employment opportunities to a large number of our population. However in terms of revenue contribution small and medium size businesses contribute less than 20% to total government revenue. While small and micro enterprises are characterised by non existent or poor record keeping practices, medium size enterprises have their own challenges and are not given the emphasis they deserve by revenue administrators because of low revenue prospects. Greater emphasis has been placed on strengthening large taxpayer units while very little has been done to develop and implement specific compliance and enforcement programmes for small and medium size business. Some of the administrative measures put in place to improve revenue collection from this sector such as withholding of VAT by appointed agents and advance tax may be distortionary, interfere with the proper functioning of tax administration and are therefore not sustainable. Ladies and Gentlemen At this point I wish to pose a challenge to you, that in your deliberations during this workshop, you come up with recommendation for adoption by the regional tax administration authorities especially but not limited to the Page 4 of 5
alternative strategies for improving compliance of the small and medium size taxpayers group, reducing cost of compliance and cost of collection, and improving service delivery to small and medium size businesses. I wish to conclude by reiterating that we, as revenue administrators, should recognise the critical role we play as the facilitators of economic recovery and in the process of shaping our respective countries future. We are the principal institutions charged with the responsibility of collecting government revenue and modern societies are built on taxes. Domestic financing will remain the only sustainable source of funding for government s development projects. We must therefore continuously embrace the best practices in revenue administration. I am therefore personally very enthusiastic about this forum. It is a great opportunity to tap rare and incisive information on the challenges of administering small and medium taxpayers in the African context. I look forward to fruitful and interactive discussions in the following couple of days. I wish to thank the IMF for partnering with KRA to co-hosting this event. I am certain that these forthcoming days will be very educative and useful in enhancing the administration of our small and medium taxpayers. With these few remarks, I wish to formally open this workshop and to thank you very much for your attention. - The End - Page 5 of 5