Page 1 of 11. Revenue Performance Report for FY 2008/09

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1 PRESS RELEASE For immediate release July 13, Introduction REVENUE PERFORMANCE REPORT The following is the revenue performance report for the Kenya Revenue Authority (KRA) covering the fourth quarter of 2008/09 Fiscal Year (April to June 2009) and cumulative performance for the fiscal year 2008/09. The fiscal year 2008/09 marked the end of the Third Corporate Plan period 2006/07 to 2008/09 whose strategic theme was to; Develop a dedicated professional team embracing modern processes and technologies to deliver customer focused services that enhance compliance and revenue collection. In the Fiscal Year 2008/09, the Authority had a target of Kshs billion representing a growth of 17.7% over the Kshs billion (excluding the one off payment of Kshs. 15 billion by Telkom Kenya Limited) collected in 2007/08 Fiscal Year. 2. Operating Economic Environment in 2008/09 During the FY 2008/09 the performance of the economy was affected by the ongoing global financial crisis, high fuel, and food prices, lagged effects of post- Page 1 of 11

2 election violence, and drought resulting from the failure of rains. Specifically, the operating economic environment during the financial year was characterised by: Slowed down economic growth momentum which started in 2003 with the GDP growth rate declining from 7.1 per cent in 2007 to 1.7 per cent in 2008, High month-on-month inflation rate rising from 26.5 percent in July 2008 to a high of 29.4 per cent in November 2008 before gradually declining to 26.1 percent in April 2009 and further to 17.8 percent in June The average inflation rate for the 12 months was 25.3 percent, Depreciation of the Kenya Shilling against the US dollar and the Euro from Kshs to the US dollar in July 2008 to Kshs at the end of June The Kenyan Shilling depreciated against the Euro from Kshs in July 2008 to Kshs in June averaging Kshs However, the Kenya Shilling appreciated against the Sterling Pound from Kshs in July 2008 to Kshs , an average of Kshs for the twelve months, The Treasury bill rate averaged 8.0 percent in July 2008 and decreased to 7.3 percent at the end of June For the year, the T- bill averaged at 7.8 percent, and The Stock Market fluctuated within the financial year with the Nairobi Stock Exchange (NSE) index declining from 4,868 points in July 2008 to 3,295 points at the end of June Over the 12 months form July 2008, the index averaged 3,449 points. The operating economic environment for FY 2008/09 thus recorded a below average performance with lower than expected growth, characterised by high inflation, a deprecating Kenya Shilling and a declining stock market. These adverse economic fundamentals were not optimal for achieving the set revenue targets. Page 2 of 11

3 3. Revenue Performance Fourth Quarter 2008/09 (April to June 2009) During the fourth quarter, the key elements of the operating environment were: Inflation: the month on-month inflation declined from 26.1 percent in April to 17.8 percent in June 2009, Interest rate: The Treasury bill rate averaged 7.4 percent in April declining marginally to 7.3 percent in June 2009, Exchange rate: the Kenya Shilling exchanged at Kshs to the US dollar in April, Kshs in May and Kshs in June 2009, NSE index: the index rose from 2,813 points at the end of April points to 3,295 points by the end of June The adverse economic environment experienced in the fourth quarter of FY 2008/09 impacted negatively on revenue performance during the period. However, despite these conditions, the Authority was able to realise a significant revenue growth rate of 18.1 % compared to a similar quarter in FY 2007/08. The revenue performance for the fourth quarter is summarised in Table 1 below. Table 1: Fourth Quarter Revenue Performance (April to June 2009) (Kshs million) Department Customs Services Domestic Taxes Road Transport % of forecast revenue Actual 4 th Quarter Target 4 th Quarter Performance Rate Actual 4 th Quarter 2007/08 Change over Quarter 2007/ % 45,024 43, % 38, % 67.8% 94,232 93, % 79, % 0.6% % % 4 th Total 100% 139, , % 118, % Page 3 of 11

4 During the fourth quarter of 2008/09 (April to June 2009), the Authority collected Kshs billion against a target of Kshs billion, thus registering an above target performance by Kshs. 1.8 billion. For the quarter under review the Authority collected an additional Kshs billion representing a revenue growth of 18.1 per cent over the corresponding quarter in 2007/08. During the quarter under review, Domestic Taxes Department collected Kshs 94.2 billion against a target of Kshs billion, while Customs Services Department collected Kshs billion against a target of Kshs billion. Road Transport Department realised a collection of Kshs. 0.6 billon against a target of Kshs. 0.8 billion. Domestic Taxes Department recorded the highest revenue growth of 19.3 per cent followed by Customs Services Department at 16.0 per cent. Road Transport Department recorded revenue growth of 9.2 per cent during the period under review. 4. Cumulative Revenue Performance 2008/09 (July 2008 to June 2009) In the FY 2008/09 cumulative revenue collection totalled Kshs billion against a target of Kshs billion. This represents revenue growth of Kshs billion or 14.7 per cent over Kshs billion collected in FY 2007/08. However, the overall result translates to a revenue deficit of Kshs billion and a performance rate of 97.5 per cent. All revenue departments registered significant growth in revenue collection compared to FY 2007/08. The highest growth rate was registered by Domestic Taxes Department (DTD) at 15.2 percent followed by Customs Services Department (CSD) at 14.0 percent and Road Transport Department (RTD) at 2.6 percent. The cumulative revenue performance for the Fiscal Year 2008/09 is summarised in table 2 below: Page 4 of 11

5 Table 2: Cumulative Revenue Performance: Fiscal Year 2008/09 (Kshs million) Department Percent of Forecast Revenues Actual FY 2008/09 Target FY 2008/09 Performance Rate Actual FY 2007/08 Change over FY 2007/08 Customs Services Domestic Taxes Road Transport Total 36.5% 179, , % 157, % 62.9% 298, , % 259, % 0.7% 2,409 3, % 2, % 100% 480, , % 418, % Customs Services Department Customs Services Department collected Kshs billion for the Fiscal Year 2007/08 against a target of Kshs billion, thus registering a performance rate of 99.8 percent. The department registered revenue growth rate of 14.0 percent compared to the previous year (2007/08). The performance of CSD was primarily driven by performance of the petroleum taxes which registered a performance rate of percent and revenue growth of 15.4 percent. Despite registering an impressive growth of 13.3 per cent compare to FY 2007/08, dry cargo was adversely affected by the waiver of import duty on maize to counter the food shortage in the country. During the FY 2008/09 a total of total Kshs 6.9 billion was foregone as tax waiver on maize. Domestic Taxes Department Domestic Taxes Department collected Kshs billion in the Fiscal Year 2008/09 against a target of Kshs billion, registering a performance rate of 96.4 percent and revenue growth 15.2 percent over the 2007/08 Fiscal Year. The persistent high inflation rates for the larger part of the year negatively affected consumption taxes performance (VAT and Domestic Excise). Page 5 of 11

6 Road Transport Department RTD collected Kshs. 2.4 billion for the Fiscal Year 2008/09 against a target of Kshs. 3.3 billion, registering a performance rate of 72.9 percent. The underperformance is attributed to the high target for the department that was not adjusted to reflect the removal of PSV licences and Classes B and C TLB licences during the 2007/08 budget. 5. Major KRA Achievements during the Financial Year During the year, KRA was recognised for a number of achievements. Some of the awards the Authority received include; Service Delivery: KRA was awarded a certificate of excellence in service delivery. KRA scooped the first prize in the public administration sector in recognition of excellence in showcasing public administration during the public service week, held in August Enterprise Resource Planning (ERP): KRA was honoured in appreciation of its contribution to adoption of an ERP system using the Free Open Source System (FOSS) during the first Kenya Open Source Award Ceremony held on 27 th May Implementation of Reforms The Authority continued to implement reform initiatives through the Revenue Administration Reform and Modernization Programme (RARMP). Key reforms and administrative measures put in place during the year included: Domestic Taxes Department Integrated Tax Management System (ITMS): The Authority implemented the first phase of the Integrated Tax Management System (ITMS. Among the services that have been rolled out include: Online registration of taxpayers (this include PIN application, and registration for a variety of tax obligations i.e. VAT, Excise Duty, PAYE and Corporation Tax) and Online filing of returns (VAT 3 and VAT 32). As at end of June 30, 2009, a total of 122,841 taxpayers had registered as users of online services. Page 6 of 11

7 Taxpayer Audits: A total of Kshs 3.6 billion was collected from audits in FY 2008/09, Debt Management Programme: During the financial year, tax arrears totalling Kshs. 9.4 billion was collected, Customs Services Department Kenya Revenue Authority Marine Unit: The Kenya Revenue Authority Marine Unit which is charged with the responsibility of surveillance of our water fronts was launched. Three patrol boats have so far been delivered for use by the unit. The establishment of the unit is expected to enhance KRA s surveillance ability along the coastline and in Lake Victoria and facilitate rapid intervention, and ferrying of arrested persons and confiscated goods. 24 hours a day operation at Mombasa and border points: The implementation of 24 hours, 7 days a week service delivery at the port of Mombasa and at land border entry points of Lunga Lunga, Taveta, Namanga, Isebenia, Busia and Malaba came into effect in August The Port of Mombasa previously closed for 12 hours at night and throughout the weekend. Simba 2005 System enhancement: Several Simba 2005 System enhancements were deployed, including modules such as bond cancellation, automatic computation of excise tax on cigarettes, conversion of C63 to form C17A (in compliance with the EACCMA) and calculation of newly introduced Petroleum Regulatory Levy among others. Authorized Economic Operator (AEO): The AEO scheme is aimed at expediting the processing of clearance of cargo by complaint traders. The AEO scheme is expected to expand coverage to taxpayers across board. Page 7 of 11

8 Passenger Declaration Form (F88): This is the advance declaration form for passengers on incoming flights. It was deployed during the period under review. The forms are issued to passengers on incoming flights while on board and are surrendered to customs officers at arrival. This is aimed at promoting compliance and hastening the clearance process. Road Transport Department Driving License Management System (DLMS): was implemented during the financial year to enhance efficiency in processing driving licenses, Integration of Motor Vehicles Registration with CSD Processes: Motor vehicle registration at the Container Freight Stations (CFSs) in Southern Region was integrated into CSD processes. Other Administrative Measures Contact Centre: In its endeavour to enhance the quality of service rendered to taxpayers, the Authority established and operationlised a state of the art Contact Centre. The centre facilitates communication with customers via a multiplicity of communication avenues which include: telephone, fax, and services. Incorporation of Short Message Service (SMS) in its communication menu is at an advanced stage. It also provides for a system of tracking taxpayer queries to ensure that they are dealt with within the time stipulated in the Taxpayers Charter. Common Cash Receipting System (CCRS): KRA began piloting the Common Cash Receipting System (CCRS). The system provides a common platform for payment of taxes. It will enable taxpayers pay their taxes at any of the KRA offices and provide a platform for integration with banks systems. Piloting commenced with payments of fees for transfer of motor vehicles and VAT. Tax Fraud: Dealing with tax fraud is a major challenge for Kenya Revenue Authority and other tax administrations worldwide for that matter. However, for our efforts to succeed, we need support of the public including clearing Page 8 of 11

9 agents, importers, and the media among others. So far we have signed an MOU with Kenya International Freight Forwarders and Warehousing Association (KIFWA) to help stem corruption among its members. Interestingly we have fully implemented the staff code of conduct. As a result 72 employees were seen off by the Authority over the past one year. On Thursday July , our Top Management will meet the Kenya Anti-Corruption Commission to discuss how the Integrity Testing Programme, which we have been running together, can assist further in curbing corruption. Our intention is run the programme in such a way as to enable us arrest corrupt stakeholders as well. These challenges not withstanding, we believe our efforts are bearing fruit as the 14.7% growth in revenue is partly attributable to sealing off the revenue leakage loopholes. The Next Steps The financial year 2009/10 marks the first year of the Fourth Corporate Plan whose theme is: Attaining international best practice in revenue administration by investing in a professional team, deepening reforms and quality service delivery to enhance compliance. During the first year of the Fourth Corporate Plan (2009/ /12), KRA will continue with implementation of reforms and administrative measures to enhance revenue collection. Integration of KRA systems: The Authority will enhance integration of ITMS, VMS/Integrated RTD system, Simba 2005 system, CCRS, and other systems. These systems will be available through KRAOnline, Enhancement of RTD and CSD systems to incorporate registration of transit motor vehicles: To avoid diversion and fraudulent registration of transit and over age vehicles in the local market, unique identifiers will be assigned to Page 9 of 11

10 transit motor vehicles and the CSD systems will be enhanced appropriately to enforce this control, Modernisation of support departments: Implementation of the Enterprise Resource Planning (ERP) system to support administrative support functions in the Authority; a corporate e-learning facility; knowledge management; and introduction of enterprise architecture while promoting use of Enterprise Resource Planning system. The pilot stage of the system commended on July 1, Enhance functionality of other IT systems: Simba 2005 System will be enhanced to incorporate the functionalities of various sub systems of the Simba system and any other emergent Customs Service Department sub-systems. In addition the functionalities of existing IT applications will be enhanced. ISO 9000 certification: KRA will continue to implement measures aimed at retaining the ISO certification with special emphasis on improving facilities, records management, and adherence to timelines and standards in the Taxpayers Charter. 6. Conclusion In spite of adverse economic fundamentals that prevailed during the FY 2008/09, the Authority still managed to realise an impressive revenue growth of Kshs 61.7 billion or 14.7 per cent over collections of Kshs billion realised in FY 2007/08. The revenue target for the financial year, 2009/10 is Kshs 545,228 million, of which Kshs. 515,792 million (95 percent) is Exchequer revenues and the balance of Kshs. 29,597 million (5 per cent) represents the various agency revenues that KRA collects. This represents a growth of 13.5 per cent over the actual revenue collected in FY 2008/09. With the support of the Government and taxpayers, the Authority is optimistic of meeting the set target for the Financial Year 2009/10. Page 10 of 11

11 KRA will continue to improve quality, efficiency, and service delivery through a wide range of initiatives and improved business processes. Towards this end, I once again urge all our esteemed taxpayers to fully embrace online services. These services are meant to enhance efficiency in service delivery to taxpayers apart from reducing their cost of compliance. For those who may not have computers of their own, they can conveniently access these services through the existing network of cyber cafes available countrywide. I wish to thank the Board of Directors, our Principal, the Ministry of Finance, Management, and Staff of Kenya Revenue Authority for their continued support as we discharge our mandate. I would like to extend our gratitude to all our stakeholders and taxpayers, without whose support the impressive performance could not have been achieved. M. G. WAWERU, EBS COMMISSIONER GENERAL July 13, 2009 Page 11 of 11