INTER-AMERICAN CENTER OF TAX ADMINISTRATIONS CIAT 2012 PROGRAM RECOGNIZING INNOVATION IN TAX ADMINISTRATION

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Charles Spencer
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1 Annex A INTER-AMERICAN CENTER OF TAX ADMINISTRATIONS CIAT 2012 PROGRAM RECOGNIZING INNOVATION IN TAX ADMINISTRATION Kenya Revenue Authority Category: Effectiveness Name of the Innovation program: Geospatial Revenue Collection Information System (GEOCRIS) Implementation Date: December 2011 Summary One of the six strategic goals set under the fourth corporate plan is to ensure full automation of the Authority operations so as to have single view of the taxpayer and full utilization of Information Technology to promote compliance. The Kenya Revenue Authority currently faces a major challenge in collection of property based taxes in the Real Estate sector leading to lose of billions of shillings in form of taxes due to very high levels of non-compliance and tax evasion in this sector due to lack of a system to manage the same. The solution called Geospatial Revenue Collection Information System (GEOCRIS) merges key modern technologies synchronized in a web-based platform to largely enhance collection of Property taxes and thus boosting Kenya s domestic revenue base to about 50 billion shillings up from the current 5 billion shillings in the real estate sector alone. The solution uses Geographic Information System (GIS), Mobile Phone Technology (GSM), and information technology to enhance revenue collection. This solution eliminates the problem of different data sources, and

of the Authority operations so as to have single view of the taxpayer and full utilization of Information Technology to promote compliance.

2 inaccuracies in self declaration of taxes by integrating data from various government agencies to optimally track non-compliant taxpayers and track the physical locations of the said properties. GEOCRIS consists of three major components; 1. GIS Desktop Application 2. GIS web-based application 3. GIS mobile phone-enabled application The system is a synchronisation of the three applications into a taxation tool for Geo-spatial Collection of Property based revenue. Background The real estate sector (Property Taxes Section) is an important strategic sector in most economies, especially with its links to construction and investment portfolios. Kenya Revenue Authority relies heavily on the self-assessment returns from real estate sector players and it s very costly to perform an audit on each and every return from a taxpayer. It has also been noted that most Landlords are individual persons who do not employ the services of professionals in preparation of their accounts and returns. Another complication is that the records of ownership on land & development land and records of payment of taxes are not in a one comprehensive database. Due to some of this reasons and capacity constraints in Kenya Revenue Authority which most taxpayers are aware of the taxpayers end up giving wrong information in their declaration, since the chances of being selected for audit even with a wrong declaration is minimal. The Kenya Revenue Authority therefore has been losing revenue due, from this vital sector despite the fact that the authority needs to raise enough money in order to meet Kenya s growing needs.

GIS mobile phone-enabled application The system is a synchronisation of the three applications into a taxation tool for Geo-spatial Collection of Property based revenue.

3 Objectives GEOCRIS uses emerging technologies to optimally collect Rental Income by use of very minimal staff and also assist the Authority to spot audit cases and at the same time feeding the audit teams with key information of the targeted taxpayers. It involves mapping of all rental income generating premises and having them in the Geo-spatial enabled system. Then, once all the taxpayers have been tracked, it involves tracking their compliance in the system and timely following up on non-compliant cases through few officers who would use a motorcycle with a GIS enabled phone that directly sends information collected in the field directly to the web-connected system. The other major component of GEOCRIS is the mobile phone financial system payment interface of the system where taxpayers can use their mobile phones to pay taxes thus saving on time since they would not have to queue at the bank to pay taxes. Earlier Issues The real estate sector is an important strategic sector in most economies, especially with its links to construction and investment portfolios. Over the years, KRA has noted that the taxes from real estate (rental income) have been declining yet the real estate sector has grown three-fold between the year 2003 and Tax collection has not been proportional to the growth in the construction industry and KRA has been trying out various interventions in this sector without any meaningful results. Taxable rental declarations have been as follows: billion shillings billion shillings billion shillings There is a high level of non-compliance in real estate (contractors, professionals, developers, suppliers, and landlords) and it has not been easy to monitor their activities.

Then, once all the taxpayers have been tracked, it involves tracking their compliance in the system and timely following up on non-compliant cases through few officers who would use a motorcycle with

4 It has also been observed that this sector is vulnerable to abuse by money launders and tax fraudsters especially drug lords as well as pirates from Somalia. There is therefore need for a system to manage this critical sector so as to enhance tax administration by the Kenya Revenue Authority as well as boost security in Kenya. GEOCRIS offers the best solution to this problem. Achievements and Impact GEOCRIS has been year-marked as a key revenue project in the 2012/2013 financial year under the RARMP project and a budget of 330,000 USD allocated for the first phase. It is projected that taxes from the real estate sector shall increase from the current 5 billion shillings to about 50 billion shillings in the initial phase and hit about 100 billion shillings in the next 5 years. Also, compliance levels are expected to reach about 80 % once the system is replicated in all of Kenya. Since the system is paper-less, it promotes environmental conservation by saving on paper, as well as reducing operational costs for the authority in terms of stationery costs. The mobile phone platform has a human resource management tool which will enhance integrity of revenue officers.

GEOCRIS offers the best solution to this problem.

5 It is expected that GEOCRIS will solve the revenue challenges that KRA has been facing in collection of property based taxes and thus achieve the core targets of maximization of revenue collection in order to meet Kenya s local and national development needs. Conclusion and Way forward The innovation can easily be implemented anywhere in the world since the technology running it is based on the global systems and therefore any country wishing to replicate the same can easily be able to do so. The key system components are; 1. Mobile phone technology (GSM), where users need a Java enabled phone. 2. Global positioning system (GPS), where the phone named above needs to be having a GPS application so as to synchronize with the system. 3. Geographic Information System (GIS), where the system requirements can be tailored to be compatible with any local GIS enterprise. 4. Internet connection in order to be able to login and access the system online

Conclusion and Way forward The innovation can easily be implemented anywhere in the world since the technology running it is based on the global systems and therefore any country wishing to replicate

REAL ESTATE AND RENTAL INCOME TAXATION WHAT YOU NEED TO KNOW

ISO 9001:2008 CERTIFIED The Law REAL ESTATE AND RENTAL INCOME TAXATION WHAT YOU NEED TO KNOW Rental income is taxable under Section 3(2) (a) (iii) of the Income Tax Act, Cap 470 Laws of Kenya. In addition,