Esau

Revenue Administration Reforms in Kenya:
Experience and Lessons
Kenya Revenue Authority

Nairobi, Kenya
2010
Published by Kenya Revenue Authority
Times Tower, Nairobi
P O Box 48240-00100
Nairobi, Kenya
www.kra.go.ke
First Edition (2010)
Kenya Revenue Authority
ISBN: 978-9966-7259-0-3
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise
without the prior express and written permission of the publishers.
Design & Layout

Marketing & Communication Department, KRA
Printed by
Kul Graphics Limited
P O Box 18095 - 00500
Nairobi, Kenya
Table of Contents
Preface....................................................................................................................................... ii
Foreword ................................................................................................................................... v
Abbreviations and Acronyms ............................................................................................... viii
Acknowledgements ............................................................................................................... xiii
Introduction............................................................................................................................. xv
Chapter 1: Historical Trends in Kenyas Fiscal Policy ............................................................... 1
Chapter 2: Formative Stage .....................................................................................................11
Chapter 3: Transition Phase: 1995 to 2002 ............................................................................. 21
Chapter 4: New Generation Reforms - 2003 to 2008 .............................................................. 37
Chapter 5: Lessons Learnt ..................................................................................................... .99
Chapter 6: Next steps - Future of Tax Administration .............................................................112
Bibliography ............................................................................................................................ 132

Index ....................................................................................................................................... 135
CASE STUDIES/INTERVIEW BOXES

Case Study 1 :Interview with Hon Musalia Mudavadi........................................................ 18
Case Study 2: Revamped Graduate Trainee (GT) Programme ........................................ 28
Case Study 3: The KRA retrenchment programme in 2000 .............................................. 29
Case Study 4: The impact of the KRA two-tier salary scale .............................................. 30
Information Box 1: Common features of revenue administration reforms ......................... 39

Information Box 2: Advantages of the integrated functional revenue administration ......... 80
LIST OF CHARTS
Chart 1: KRA Total Revenue Collection (1996-2009) ........................................................XV
Chart 2: GDP Growth Rate (1964-2008) ............................................................................. 2
Chart 3: KRA Organization Structure ................................................................................ 18
Chart 4: RARMP Governance Structure............................................................................ 43
Chart 5: CSD Revenue Performance (2003-2009)............................................................ 62
Chart 6: Domestic Excise Revenue Performance (2003-2009)......................................... 88
Chart 7: DTD Revenue Performance (2003-2009) ............................................................ 90
Chart 8: DTD Cost of Collection (2004-2009).................................................................... 91
Chart 9: RTD Revenue Performance (2003-2009) ............................................................ 96
Chart 10: RTD Service Delivery Performance (2004-2008) .............................................. 97
Chart 11: ITMS Implementation Stages........................................................................... 124
Chart 12: ITMS Single View ............................................................................................ 125
i
Preface
T
his book provides a historical account of the major tax
administration reforms that have been undertaken in Kenya
since independence in 1963. It gives insights into the
milestone reforms, challenges experienced during implementation,
and lessons learnt. Often in the public sector, such details of reforms
are contained in reports, journals and briefs filed in government
offices or sometimes in the minds of individuals who have had the
opportunity to serve as participants in the reform effort but never
shared their experiences with colleagues. The result has been an
endemic shortage of literature because there is no central reference
or repository for posterity to help appreciate why a reform measure
was initiated. This chronic lack of documentation has made it
difficult to establish mechanisms for knowledge management,
often leading to regular re-invention of the wheel every time an
organization plans to undertake new reform measures. This book
mitigates such challenges. It has six chapters, each of which flows
seamlessly into another connected in a historical fashion by a
common thread of tax administration reforms.
Chapter one begins with a discussion on the historical account of

fiscal reforms that have taken place in Kenya since independence
in 1963. The chapter divides the 47 years of independence into
six distinct epochs on the basis of major macroeconomic currents
that prevailed in each era. It begins with 19641973, a period
characterised by high and stable economic growth. This is followed
by 19731980, which captures a period where Kenya suffered a
series of macro-economic set-backs occasioned by international oil
shocks; third is 19801989 when structural adjustment programmes
were rolled out in an attempt to restructure Kenyas economy;
fourth is 1991-1997, a period of accelerated economic reforms and
the advent of multi party democracy; fifth 19972002 notable for
economic stagnation; and finally 2003 to 2007 that represents the
advent of a new political dispensation.
Chapter two describes the formative stage of Kenya Revenue

Authority in 1995, including the legislation, events and personalities
involved in the background work and negotiations that led to the
formation of KRA through the KRA Act (Chapter 469, Laws of
Kenya) in July 1995. The chapter delves into the thought processes
by the principal actors behind the formation of KRA. Excerpts
from interviews with key personalities who played a pivotal role
ii
in the early stages of establishing KRA are also included. These
excerpts are aimed at assisting the reader to appreciate the issues
that the concerned personalities had to grapple with before and
immediately after the creation of KRA. The chapter also captures
the development of the semi autonomous revenue agency model
in the world and how it has steadily gained currency across nations
in the African continent and the Commonwealth.
Chapter three covers the tax administration reforms that were

implemented in what is referred to as the transition phase
covering the period 1995 to 2002. This period was overseen by
several Commissioners General who came in and exited in quick
succession. This led to administrative uncertainties, which slowed
the momentum to drive the reform agenda. The reforms that
were implemented were mainly small scale and ware motivated
by the need to fix immediate short term problems rather than
serve longer term strategic aims. The management also adopted
a conservative approach towards organizational reforms. The
reforms were therefore substantially reactive rather than proactive.
The transition phase also captures the tenure of office of the
various Commissioners General who served during the early years
of KRAs existence (1995 2003).
Chapter four is dedicated to the new generation reforms, which

cover the period from 2003 to 2009, and represents the era when
the bulk of tax administration reforms were undertaken. During
this time, a comprehensive proactive reform programme was
established. A unique aspect of this reform era is that reforms were
implemented in a structured and formal programme approach
under the framework of the Revenue Administration Reform and
Modernization Programme (RARMP). It is during this period
that KRA became renowned for its outstanding commitment to
reforms in a quest to enhance service delivery and performance in
general. Although the period covers only about five years, the new
generation reforms have covered wide areas of tax administration.
Chapter five captures in detail the major lessons learnt at various

stages of the tax administration reform process. Indeed, the process
of introducing and implementing reforms in KRA was not without
falter and there were many challenges. Some of the administrative
measures introduced were new and had never been tested before.
iii
There were many setbacks and challenges in the process from
which vital lessons were drawn. The lessons and their implications
for tax administration have been covered in this chapter.
Finally, Chapter six-Entitled Next Steps concludes by taking the

reader through the outlook of the future of tax administration in
Kenya. It covers the steps that KRA has taken to ensure continuous
improvement and sustainability of the reforms, key among them
being Integrated Tax Management System (ITMS) in Domestic
Taxes Department and Revenue Authority Digital Data Exchange
(RADDEx) in Customs Services Department. The chapter also
takes the reader through the ideal tax administration system for
Kenya in the longer term and links the reforms to the national Vision
2030.
Throughout the text, the reform phases are interlaced with interviews
and case studies that highlight actual episodes and firsthand insights
into the challenges and successes that the organisation faced in
the reform process. The case study boxes include, the campaigns
by traders against the introduction of the Electronic Tax Register
(ETR) gadgets in 2006, resistance by Clearing and Forwarding
Agents over the introduction of the Customs Simba 2005 system,
among others. The intention is to give a detailed account of the
various episodes of the reform experience, the text will provide
a reference handbook from which policy makers, especially in
developing countries, can draw lessons from, when introducing tax
administration reforms. The book also gives the Kenyan taxpayer
an opportunity to understand the reforms implemented and their
ramifications for business. Finally, it is important to note that the
reforms KRA has undertaken have also been implemented in other
countries. However, the reforms detailed in this book are only those
that KRA as a tax administration has chosen for itself and, as such,
can only be used as a lamp-post to illuminate rather than a pillar to
lean on.
iv
Foreword from the
Commissioner General
T
ax administration reforms in Kenya have been going on since
independence albeit at different scales and pace. The need
for reforming tax administration is rooted upon the need
to protect domestic revenue, achieve financial sovereignty, and
ultimately national pride. Since 1995 however, such reforms have
gained prominence among the public as Kenyans have increasingly
realised the precious value of domestic revenue. Indeed, every
Kenyan would be comforted that their education, medical cover or
any other public utility is funded by their government. As a nation, we
do not have to endure the indignity of pleading for assistance from
development partners for our national budget. It is for this reason
that tax reforms are a necessary tool to ensure that our domestic
revenue base is regularly protected and nurtured. From the creation
of KRA in 1995 to the inception of Revenue Administration Reforms
and Modernisation Programme (RARMP) in 2004, reforms have
sought to achieve this objective by increasingly demanding more
efficiency and effectiveness in the tax system.
Implementing these reforms has taught us valuable lessons that

need to be shared. Usually and unfortunately so, such experiences
and lessons remain untold and undocumented, leading to lack
of first hand reference on reforms in many public sector bodies
in Kenya. The result has been that most views on public sector
reforms emanate from pundits, spectators and observers who
comment only on aspects of the reforms that interest them. There
are numerous books, journals, articles and reviews written on
the KRA experience by many well-meaning writers and we fully
commend these efforts. However as technical implementers of the
reforms, our side of the story remains untold only to be found in
management reports, board room briefs and memos.
Consequently, over the years our views regarding tax administration

have been limited to responses to a public crisis after a reform or
a query. As a result of this reactive approach, there has not been
a collaborated effort to authoritatively tell the entire KRA reform
M.G. Waweru, CBS story. Indeed, at the start of the new generation reforms phase in
Commissioner General, 2003 we set out to learn from our peers and we quickly noticed
Kenya Revenue Authority.
how difficult it was to get the experiences of fellow public bodies
or other African countries due to lack of literature. I hope that this
v
publication will prompt other public bodies in Kenya to consider
developing materials for repositories on implementation of large
scale reforms. I want to emphasise that this book does not seek to
trumpet our achievements but rather to inform on what we did and
how we did it. It weaves together stories and views on KRA reforms
from interviews with staff, stakeholders, internal researchers and
relevant literature.
This book begins with a historical account of fiscal policy and the
impetus behind policy shifts in various macro-economic epochs.
It is followed by the Formative Stage of KRA where a detailed
account on behind-the-scenes discussions that led to the creation
of KRA are captured. The activities included the choice of the first
Commissioner General, Chairman and the organisational structure.
Also interesting to read are the reservations of politicians with
regard to creation of a semi-autonomous revenue agency and how
their fears were allayed. This is followed by a discussion on the
Transition Stage (1995 2002) which captures the early years
after formation. The core of this book covers the New Generation
Reforms (2003-2008) when KRA rolled out ambitious programmes
under the Revenue Administration Reforms and Mordernisation
Programme (RARMP). All the reform initiatives are discussed in
detail, and what they sought to achieve and how we performed.
This manuscript also discusses the challenges faced during
implementation and concludes with a discussion on where we feel
the future of tax administration lies.
I wish to recommend this book to policy makers interested in

understanding the environment within which we as technocrats
operate as we implement policy decisions. The public sector bodies
and other Revenue Authorities considering adopting reforms will
find its contents to be a good precursor of what to expect in terms
of challenges in implementation. The academic community will
also find it a useful reference and we hope that it will ignite interest
in further research in tax administration. We have also received
numerous compliments and criticism from the private sector and
other stakeholders along the reform process and we hope that this
book provides them an opportunity to understand the reasoning
behind each reform. Last but not least, this text will make a good
vi
read for the Kenyan taxpayer, current and potential, who appreciates
that interaction with the tax system is a necessary component of
modern society and that we should reform it regularly to ensure it
operates optimally for the good of the current and future generation
of taxpayers. I am therefore very pleased to present to you the first
edition of Revenue Administration Reforms in Kenya: Experience
and Lessons.
M G WAWERU, CBS
vii
Abbreviations and Acronyms
ACL Audit Command Language
ACV Agreement on Customs Valuation
AEO Authorised Economic Operator
AITO Anti Counterfeit and Illicit Trade Office
AKI Association of Kenya Insurers
APIS Air Passenger Information System
APTC Administration Police Training College
ATC Annual Training Calendar
BDV Brussels Declaration of Value
BIVAC Bureau Inspection Valuation Assesment Control
BIO Business Intelligence Office
BOFFIN Bishops Gate Office Freight
Forwarders Infrastructure Network
BPI Business Process Improvement
BSC Balanced Score Card
CAAT Computer Aided Audit Techniques
CAMIS Cargo Management Information System
CATA Commonwealth Association of Tax Administrators
CBCS Customs Border Control Services
CBK Central Bank of Kenya
CBS Central Bureau of Statistics now KNBS
CCA Customs Clearance Audit
CRS Cash Receipting System
CCRS Common Cash Receipting System
CCTV Closed Circuit Television
C&ED Customs and Excise Department
CEO Chief Executive Officer
C&F Clearing and Fowarding
CFS Container Freight Stations
CG Commissioner General
CIAT Inter-American Center for Tax Administrators
CIC Complaints and Information Center
CID Criminal Investigations Department
CLMM Customs Ledger Management Module
COMESA Common Market for Eastern and Southern Africa
COSIS Customs Oil Stock Information System
CPC Customs Procedure Code
CPCs Corruption Prevention Committee
CPP Corruption Prevention Plan
viii
CPS Customs Preventive Services
CRAM Customs Revenue Accounting Module
CRF Clean Report of Findings
CRM Customs Reform and Modernisation Programme
CRS Cash Receipting System
CSD Customs Services Department
DfID Department for International Development
DLMS Driving License Management System
DPC Document Processing Centre
DRBCP Disaster Recovery and Business Continuity Plan
DTD Domestic Taxes Department
DTRM Domestic Tax Administration Reform and
Modernisation
EAC East African Community
EACCMA East African Community Customs Management
Act
EACFFPC East Africa Customs and Freight Forwarders
Practising Certificate
EATTF East African Trade and Transport Facilitation
ECTS Electronic Cargo Tracking System
EFT Electronic Funds Transfer
EMU Efficiency Monitoring Unit
EPZ Export Processing Zone
ERP Enterprise Resource Planning
ERS Economic Recovery Strategy
ESA Eastern and Southern Africa
ESAMI Eastern & Southern Africa Management Institute
ETR Electronic Tax Register
FMV Foreign Motor Vehicle
FTA Free Trade Area
GATT General Agreement on Trade and Tariff
GBHF Grain bulk Handling Facility
GDP Gross Domestic Product
GPRS General Packet Radio Services
GT Graduate Trainee
HDO Head Declaration Officer
HSC Head of State Commendation
IARMD Internal Audit and Risk Management Department
I&ED Investigations and Enforcement Department
ix
ICD Inland Container Depot
ICPAK Institute of Certified Public Accountants of Kenya
ICT Information Communication Technology
IDF Import Declaration Form
IMF-FAD International Monetary Fund- Fiscal Affairs
Department
IMF International Monetary Fund
ISO Internal Standards Organisation
IT Information Technology
ITMS Integrated Tax Management System
IVR Integrated Voice Response
JICA Japan International Co-operation Agency
JKIA Jomo Kenyatta International Airport
KACC Kenya Anti Corruption Commission
KAM Kenya Association of Manufacturers
KANU Kenya African National Union
KCB Kenya Commercial Bank
KEBS Kenya Bureau of Standards
KEPHIS Kenya Plant Health Inspectorate Services
KIFFWA Kenya International Freight Forwarders and
Warehousing Association
KIPI Kenya Intellectual Property Institute
KNBS Kenya National Bureau of Standards
KNCCI Kenya National Chamber of Commerce and
Industry
KOVIS Kofile Visual Information System
KPA Kenya Ports Authority
KRA Kenya Revenue Authority
KRATI Kenya Revenue Authority Training Institute
KREISA Kenya Revenue Authority Enterprise
Integrated System Architecture
KSHs Kenya Shillings
LCL Loose Container Load
LDCs Least Developed Countries
LTO Large Taxpayers Office
LTU Large Taxpayers Unit
MAST Mombasa Anti-Smuggling Team
M&C Marketing and Communications
M&E Monitoring and Evaluation
x
MDG Millenium Development Goals
MoU Memorandum of Understanding
MPB Marine Patrol Boat
MPRO Mombasa Port Release Order
MTEF Medium Term Expenditure Framework
MUB Manufacture Under Bond
MVMS Motor Vehicle Management System
NARC National Rainbow Coalition
NBK National Bank of Kenya
NSIS National Security Intelligence Services
OSBP One-Stop Border Post
PAYE Pay As You Earn
PCA Post Clearance Audit
PDA Personal Digital Assistant
PDL Petroleum Development Levy
PFM Public Financial Management Programme
PIN Personal Identification Number
PMBO Programme Management & Business Analysis
Office
PS Permanent Secretary
PSC Public Service Commision
PSI Pre-Shipment Inspection
PSV Public Service Vehicles
QMS Quality Management System
R&CP Research and Corporate Planning
RADDEx Revenue Authorities Digital Data Exchange
RARMP Revenue Administration Reforms
and Modernisation Programme
RAs Revenue Agencies
RML Road Maintenance Levy
RPS Revenue Protection Services
RRA Rwanda Revenue Authority
RTD Road Transport Department
S2005S Simba 2005 System
SAGA Semi Autonomous Government Agency
SAPs Structural Adjustment Programmes
SARA Semi Autonomous Revenue Agency
SARS South Africa Revenue Services
SBMU Security Bonds Management Unit
xi
SED Single Entry Document (C63)
SGDL Second Generation Driving License
SGS Societe Generale De Surveillance
SII Servicio De Impuestos Internos (Internal
Revenue Services)
SMS Short Message Service
SSD Support Services Department
TLB Transport Licensing Board
TMP Tax Modernisation Programme
TMU Transit Monitoring Unit
TOT Turnover Tax
TPC Tax Procedure Code
TPS Taxpayer Services
TRA Tanzania Revenue Authority
TREO Tax Remission for Export Office
TRS Time Release Study
UK United Kingdom
URA Uganda Revenue Authority
VAT Value Added Tax
WCO World Customs Organisation
WTO World Trade Organisation
xii
Acknowledgements
P
ublishing of this book would not have been possible without
the generous support of different individuals and institutions
in resources, advice and guidance over the duration of the
project.KRA wishes to express its appreciation for the funding
accorded by the Public Financial Management Reform Programme
(PFMR)
The Commissioner General, M.G Waweru and the top management

of KRA provided solid support throughout the writing exercise. Mr.
Wawerus personal insights in spearheading the new generation
reforms was vital in our understanding of the difficulties that
reformers face in the course of introducing change in a modern
public sector environment. The interviews granted by the different
commissioners namely Wambui Namu (Customs Services),John
Njiraini (Large Taxpayers Office),Joseph Nduati,Fidelis
Mulei(Domestic Revenue),Simeon ole Kirgotty(Road Transport)
and Mumo Matemu(Support Services) provided valuable knowledge
and historical perspectives on the departmental experience in
implementing reforms.
The Project Oversight Team also provided valuable guidance and

resources in steering the book to completion. We reserve a special
mention of thanks to the three heads of the oversight team Kennedy
Onyonyi, Adhan Haji and Joseline Ogai who were exceptionally
supportive and ensured the writing exercise was concluded.
KRA would like to thank the project managers in the Revenue

Administration Reforms and Modernisation Programme (RARMP)
and members of the editing team who actively participated in the
numerous brainstorming workshops. The workshops were an
excellent platform to share the experiences and challenges faced
during the reform implementation. In this regard we appreciate
contributions by Elizabeth Meyo, Peter Nguru, Jonah Cheruiyot,
Maureen Njongo, Karen Ngida, Ezekiel Maru, Alfred Nthiwa, Levy
Mukhweso, Agatha Munyaka, Jonah Ogaro, Peter Iraki, Rosemary
Muriithi, Julius yiega, Monica Kuyo, Alice Ndungu, Wendy Ongayo,
John Karani, Vincent Kiptalam, Lillian Andia, and Happiness Siagi.
Special thanks are due to Daniel Kagira for his zeal in assembling
and cross-checking facts in the book.
xiii
KRA also appreciates work done by the project secretariat
comprising Maximilla Onyango, Rahab Lintari, Damacrine Masira,
Wycliffe Swanya, Victor Midam, Philip Daku, Stella Mitine, and
William Tiren Moreso for the logistical support that they accorded
over the duration of the writing project.
This book was also enriched by the experience of two Ministers

and a Permanent Secretary who provided us with rich historical
insights into the rough and tumble of initiating large scale revenue
administration reforms. KRA is thankful to the former Ministers of
Finance ,Hon Musalia Mudavadi(current Deputy Prime Minister and
Minister for Local Government)and Hon. Amos Kimunya(Current
Minister of Transport) who generously shared their views on the
history of reforms and the future of tax administration.
We also benefited immensely from the years of experience of the

Permanent Secretary, Ministry of Finance, Joseph Kinyua who gave
us a detailed account of the prevailing currents at the Treasury on
formation of the KRA and thereafter.
Interviews with former top management staff of KRA, and in

particular former Commissioner Generals, Edgar Ivan Manasseh,
Yusuf Nzibo and John Msafari were an eye opener to the challenges
faced by CEOs when implementing reforms. Former commissioners
Levi Wendo, Kepha Tande and Andrew Okello also provided first
hand insights into the turbulent world of introducing reforms in the
Kenyan Public Sector. The book was enriched by interviews with
key stakeholders from the private sector namely: Manu Chandaria
(Kenya Private Sector Alliance) and Joseph Otieno (Mbaraki Port
Warehouse) who gave first hand accounts of the impact of reforms
on the investment climate in Kenya.
Last but not least, KRA wishes to thank the lead writers Eutychus
Kariuki and Vincent Ongore,PhD for their dedication and effort in
coordinating, conducting interviews, assembling facts and compiling
literature over the duration of the project.
However any errors and omissions herein should be attributed to the Kenya Revenue Authority and
any comments should be addressed c/o KRA Marketing and Communication Department.
Kenya Revenue Authority 2010
xiv
Introduction
K
RA has emerged as one of the visibly successful public sector
bodies in terms of meeting its core objective of revenue
collection. Since its inception in 1995, the Authority has on
average maintained a commendable record of performance, often
exceeding revenue targets. Revenue growth averaged over 11 per
cent between 1995/96 and 2008/09 as depicted in the chart below.
These achievements have been realised under sustained

reforms involving reengineering business processes, large scale
computerisation, revitalisation of human resources and focusing on
taxpayer service delivery. The success of the reforms are attributed
to the unrelenting commitment by management and staff over the
period in focus and particularly under the framework of the Revenue
Administration Reform and Modernisation Programme (RARMP)
that begun in 2004. Reforms involve hard and sometimes unpopular
decisions and as a result the KRA Board and management have
had to overcome internal inertia, resistance, and skepticism using
ingenuity and a mixture of managerial tactics to steer the process.
Whereas the reforms implemented are documented in various

reports and briefs, there is no reference text where this information
is consolidated. In addition, although the fruits of the reforms are
visible, the thought processes and considerations of the principal
actors and the role of stakeholders and staff are likewise not on
record. As such, a historical all-encompassing record of the reform
xv
Chapter 1 - Historical Trends In Kenyas Fiscal Policy
processes and their impact on revenue administration has been

lacking. This book remedies this situation by documenting the
reform path taken from conceptualizing to completion. It explains
the rationale behind the reform initiatives and presents an insiders
perspective of the experience, including hurdles, quick wins and
challenges encountered and how they were dealt with.
The issues discussed in this book delve more on tax administration

than on tax policy. Tax administration is the tool with which tax
policy is implemented and the means with which governments
raise revenue to finance spending on public goods and services.
It has more to do with the framework that supports day-to-day
management of revenue administration or the nuts and bolts of
the revenue collection machinery. It covers systems, structures,
management, leadership, and organisational processes that
enable a tax agency to meet its core mandate. Administrative
reforms often focus on the efficiency and effectiveness of enforcing
a certain tax policy measure and are usually under the control of the
revenue administration while policy reforms are under the control
of the Ministry of Finance. Therefore, the objective of this book is
to highlight the administrative reform measures that have been
undertaken since the formation of KRA. Further, it also sheds light
on the initiatives that have made KRA a model state corporation.
It also explains the rationale behind each reform, reliving the
challenges that were faced, the lessons learnt and concludes with
a discussion of the future outlook of tax administration in Kenya.
xvi
Historical Trends
in Kenyas Fiscal Policy
Taxes are dues that we pay for the privilege of membership in an organised society.
Franklin D. Roosevelt
Chapter 1
U
Introduction nderstanding trends in Kenyas fiscal policy is important in
shedding light on the salient drivers of the various revenue
reforms. This will help in appreciating the underlying
macroeconomic environment that prevailed in each phase. This
chapter highlights the key macroeconomic trends in Kenya since
independence with emphasis on fiscal policy. At independence,
Kenya, like many other countries inherited a tax system whose
principal features were founded on the colonial administration. The
objective of the tax system in the colonial era was mainly to raise as
much financial resources as possible from the territory to finance
the colonial administration, with very little resources devoted to
uplifting the well being of the indigenous population. For instance
hut tax was imposed on all households irrespective of the level
of income. Since then, numerous changes have been introduced
into the Kenyan tax framework. Many of the tax policies in Kenya
have evolved and the instruments of tax have increased. While the
rationale for raising revenue to finance government still remains, the
objectives have expanded and changed. Today, the tax system is
used as a fiscal policy tool to attract investment, redistribute wealth,
and protect the countrys borders, among others. This has been
necessitated by an increasingly complex economy. Further, the tax
administration environment has evolved in many dimensions over
time.
This chapter traces the trends since 1963 and is accordingly divided
into distinct epochs. At independence the tax system comprised
mainly of Income Taxes, Customs Duty and Excise Tax. The period
between 1964 and 1973 represented a period of rapid economic
growth. The economy was hard hit by two international oil shocks
1
between 1973 and 1980. The period between 1980 and 1990
represents the era of Structural Adjustment Programmes introduced
by the Bretton Woods institutions, while the period between 1991
and 1997 represents a period of accelerated reforms. The period
between 1997 and 2002 is associated with general economic
decline. Finally, the post 2003 period represents the period of
political transition that ushered in significant economic progress.
Chart 2 below traces the prevailing economic growth rates from
1964 - 2008.
4
Rapid Growth The period 1964 to 1973 was characterised by high and stable
1964 - 1973 economic growth rates. In these early years of independence,
Kenya achieved impressive economic growth rates, averaging
6.6 per cent between 1964 and 1973. This was a prosperous
era for many other African nations that were gaining political
independence. Before independence, the economic management
of the country was largely a preserve of the colonial administration.
With independence, there was a discernible pattern that maintained
structural continuity in the management of economic affairs, general
civil service and armed forces. There were marked similarities
between the systems and structures left behind by the colonial
administration and those in subsequent years. The period 1964 to
1973 therefore largely maintained the status quo in economic policy
management. It was, therefore a decade of political change and
administrative conformity - change in terms of independence and
2
continuity in the bureaucratic legacy. During this period, revenue

administration underwent minimal reforms. Tax functions were
based in distinct departments that oversaw tax affairs in the entire
East African Community (EAC). The departments charged with the
responsibility of revenue collection were: Income Tax and Customs
& Excise, both anchored on British Common Law. For this reason,
the country enjoyed uninterrupted calm in tax administration
throughout the 1960s, with minimal problems, if any, associated
with mobilisation of tax revenue. The economy was also growing
at an impressive rate averaging over 6 per cent, which further
buttressed revenue performance. Revenue performance was
healthy with the country able to finance the domestic expenditure
and reduce external dependence.
Era of Shocks, Revenue administration did not, however, move in tandem with
1973 - 1980 the emerging economic changes. There was pressure to ensure
that indigenous Kenyans enjoy the fruits of independence and
effort was made to ensure equity and raising of revenue to finance
various social programmes.
This period was conspicuously marked by two severe economic

shocks caused by the oil crises of 1973 and 1979. The 1973 shock
was more severe and resulted in a five-fold increase in oil prices in
1974. The upward spiral in oil prices weakened Kenyas capacity to
fully finance her budget and induced heavy concessionary foreign
borrowing that was granted without much conditionality, as this was
the Pre-structural Adjustment (SAP)Phase. The economic policy
that followed resulted in a shift of thought in tax policy formulation
with the imposition of additional controls and an expansionary fiscal
policy. As the burden of external debt and reliance on donor support
begun to weigh heavy, policy makers gradually began to pay more
attention to domestic revenue.
Another shock factor during this period was the boom and burst
cycle in coffee and tea prices in 1976-1979. It sparked a ratcheting
of consumer and government spending, which resulted in inability
by the government to reduce spending sufficiently once the boom
3
ended. The economy also suffered a set back in August 1977 with
the break up of the East African Community (EAC), which ended
preferential access for Kenyan exports to Uganda and Tanzania.
This included the break up of the EAC revenue bodies, and each
countrys tax administration was now wholly managed domestically.
In less than a decade, Kenya had suffered a series of economic
shocks that were far more severe than any problems previously
confronted in the post-independence era.
In terms of the tax system, the country faced a serious dilemma

with regard to attaining equity, efficiency and savings. For example,
in an attempt to address fiscal crises, Kenya replaced the existing
consumption taxes with a sales tax in the fiscal year 1972/73. Sales
tax was introduced with the aim of taxing specific types of goods
to raise additional revenue. While it can be argued that this was
in response to the emerging fiscal crisis caused by the high oil
prices at the time, the sales tax was also used to set the stage for
the change in policy in early 1980s to de-emphasise direct taxes
and give prominence to the less intrusive indirect taxes. The policy
shift was crucial as it enabled savings and investment to increase,
with reduction in direct taxes. The differentiation between local and
foreign-owned companies also lends support to the argument that
an equity objective was in built into the corporate tax policy at the
time. The tax system was also geared to support an inward-looking
industrialisation policy that was being pursued at the time.
Structural By the early 1980s, the shortcomings in the macroeconomic policies

Adjustment that the country was pursuing were evident. The debt problem that
Programmes arose in the 1970s continued to worsen into the 1980s. Rising
(SAPs) 1980 - budget deficits, an unsustainable current account and spiraling
1990 inflation heralded the beginning of an economic downturn with many
state-owned enterprises burdening the Treasury with requirements
for regular financial bail-outs. Most macroeconomic indicators had
begun to waver and as the economic woes deepened without
respite, donors proposed economic liberalisation as a soft option
for borrowing from abroad. This led Kenya to reluctantly embrace
reforms under the Structural Adjustment Programmes (SAPs) in
the early 1980s as it was faced with high levels of external debt,
4
shaky finances and a weak domestic revenue generation capacity.

SAPs were imposed by the Bretton Woods institutions where under
the framework the affected countries were required to tighten fiscal
and monetary policy and liberalise their economies. The rationale
was that liberalisation would resuscitate the economy and enhance
efficiency in service delivery. As the government sought financial
support, the importance of domestic revenue became increasingly
pronounced. The government was feeling the pressure of being
forced to implement difficult and unpopular decisions under the
ambit of SAPs.
There was external pressure with the government being forced to

reaffirm a commitment to tax reforms to satisfy loan conditionality
agreements and maintain a flow of aid. Changes in fiscal policy over
the period were, therefore, a result of a combination of three factors:
(i) donors who demanded change as a conditionality to provide
funding to cover the deficits; (ii) an unfavourable macroeconomic
environment that necessitated a change of business as usual in
management of fiscal policy; and (iii) a realisation of the critical
importance of a nations financial sovereignty. Therefore, the
changes in fiscal policy have not all been at the behest of donors
and, in the case of Kenya, it is likely that pressure from IMF and
World Bank to liberalise came with a realisation within government
that the then prevailing economic situation was untenable and,
thus, the need for fiscal reform.
By 1982, the lowest and highest tax brackets were widened in a

move towards maintaining real incomes of households, particularly
the more vulnerable low income households. This was an attempt
to address the glaring income gap between the rich and the poor.
There was, however, the issue that the level of top marginal
personal income tax rate was higher than the corporate income
tax rate, thus served as an incentive to encourage individuals to
register corporate entities for the implicit purpose of tax avoidance.
A good tax policy would have been to have a tax system where top
Hon Arthur Magugu,
a former marginal personal income tax rate does not differ significantly from
Finance Minister the corporate income tax rate. There was, therefore, a systematic
5
lowering of corporate income tax (from 45%) to enhance the

countrys competitiveness for investment finance. Consumption tax
regimes were also streamlined with initiatives such as introduction
of Value Added Tax to replace Sales Tax with effect from January
1990 in order to: 1) reduce the prominence of direct taxes, which
were considered intrusive; 2) to make the tax a lot easier to
administer and enhance compliance levels by rationalising the tax
rates; 3) to broaden the tax base by applying the tax at various
trade levels. The coverage of VAT was also gradually broadened to
include the service industry, and the band rates were reduced from
fifteen to the current three.
The major turning point in reforming the Kenyan tax system came
in 1986 with the launch of the Tax Modernisation Programme
(TMP). TMP was triggered by five key factors that showed that tax
administration needed to be addressed namely: (i) Ratio of total tax
revenue to GDP was relatively low compared with countries with
similar economic and tax structures. This pointed to ineffectiveness
in revenue mobilization as Kenya tended to collect from traditional
compliant sectors such as, employment income. (ii) The ratio
of actual tax revenue to budgeted tax revenue in the annual
government budget, was low as Kenya was then not able to raise
sufficient taxes to meet the revenue targets set in the successive
budgets, leading to regular donor dependency in the first three
decades after independence; (iii) the large tax revenue gap due to
noncompliance and tax evasion, indicated that there was a large
unexploited scope to curtail tax evasion and non-compliance; (iv)
The ratio of additional revenue collected to the number of cases
audited showed the weakness in the tax administration in detecting
concealment of tax liabilities and enforcement capabilities. The
number of tax assessors, inspectors and collectors was inadequate
to effectively discharge this responsibility, which explained the low
ratio of tax revenue arrears collected compared to total tax revenue
arrears; and (v) Cost of collection was relatively high, an indication
that tax administration was not optimally deploying its resources.
6
Overall, TMP aimed to raise the tax-GDP ratio from 22 per cent
in 1985/86 to 24 per cent by 1999/2000. This would be achieved
by enhancing reliance on self-assessment system of taxation
supported by selective audit; improving administrative efficiency
through automation; reducing compliance and administrative costs;
improving economic efficiency of the tax system by lowering and
rationalising tax rates; establishing tax analysis capacity to help
implement organizational reforms; and sealing existing revenue
loopholes.
Accelerated The repeal of Section 2A of the Constitution in 1991 heralded

Reforms From the advent of multi- party democracy in Kenya was a turning
1991 to 1997 point in fiscal policy management. Although expected to enhance
checks and balances in government, political pluralism intensified
pressure for economic liberalisation, which weakened internal
controls and supervision leading to increased financial scandals.
This led to intensified calls by the donor community for deepening
fiscal reforms to seal revenue leakages as donors tightened
conditionalities. Calls for economic liberalisation coincided with an
intensified agitation for return to political pluralism. Kenya, unable
to meet the conditionalities, faced a sharp decline in donor funding.
The 1990s were characterised by a very cold relationship with
donors. There were regular reversals of aid conditionalities
and aid freezes were regularly applied as a way of pressurising
the government to implement reforms. Inevitably, most of the
reforms undertaken were designed to meet immediate donor
requirements rather than address long-term goals. The result was
weak local ownership of the reforms, which negatively affected
their commitment, sustainability and effectiveness. The frustration
resulted in a number of bilateral donors avoiding the central
government by channeling funds directly through nongovernmental
organisations. Declining aid flows caused external debt arrears
for the first time in the 1990s. As the economic performance
deteriorated and budgetary crisis deepened, the need for financial
resources to support the budget became critical. The government
was financially very weak. This experience nurtured a realisation
that a strong domestic revenue mobilisation capacity was the
7
most viable option for the country. The proposal to form the Kenya
Revenue Authority (KRA) in 1995 as an autonomous revenue
collection agency that can mobilise domestic revenue was,
therefore, largely a manifestation of the pressure from within and a
realisation that it is only through internally generated revenue that
Kenya would solve the predicament that it faced. The most notable
tax reforms included the formation of KRA, reflecting a realisation
of the need to enhance the domestic revenue mobilisation capacity.
Other notable reforms included introduction of the self assessment
system, which came into effect in 1991/92, effectively transferring the
responsibility of assessment from the tax department to taxpayers.
This enabled the tax administration to conduct in-depth audits
based on risk assessment, thereby enhancing revenue yield. The
automation of income tax processes such as taxpayer registration,
cash receipting, assessments, PAYE processes, debt management
and document control tremendously improved data capture and
management. The introduction of Personal Identification Number
(PIN) streamlined maintenance of computerised accounts and
exchange of information across revenue departments. The excise
tax regime was changed from specific to ad valorem to raise
additional revenue and ensure equal treatment for all excisable
goods and to rationalize the number of tax rates. Tax incentives
for domestic manufacturers were introduced to promote exports
and a phased approach to reduce high tariff bands of imports was
implemented with import licensing requirements abolished in 1993.
It was generally a period of economic liberalisation.
Economic This half decade represented the second five year political term
Slow Down since the advent of multi- party democracy in 1992. It was a
1997 - 2002 period of economic slow down with stunted GDP growth levels as
can be seen in Chart 2. The slow down was occasioned by the
pull out by donors as Kenya had fallen off track in meeting the
set conditonalities, which largely involved governance-related
concerns. Revenue performance was therefore weak due to the
under performing economy and unfavourable political climate.
8
However, a major breakthrough in fiscal policy came in the year

2000 with the adoption of the Medium Term Expenditure Framework
(MTEF) in budgeting. MTEF replaced the previous forward
rolling budgeting system by introducing a balanced approach
that matched government revenue to expenditure thus achieving
greater fiscal discipline. A balanced budget was, however not
Retired President Daniel going to be achieved in the absence of proper tax administrative
Toroitich arap Moi,
C.G.H. measures to effectively mobilise sufficient financial resources. The
importance of tax administration reforms was therefore recognised
as a mechanism to enhance revenue mobilisation.
New Political The year 2002 ushered in a new political dispensation with the
Dispensation, election of the National Rainbow Coalition (NARC) government
2003 - 2007 after about 40 years of KANUs rule. Owing to the fact that the new
government was elected on a reform platform, donors warmed up
to Kenya and indeed the new administration instituted significant
changes in the governance structure. These reforms deepened
with the implementation of the NARC economic blue print dubbed
Economic Recovery Strategy for Wealth and Employment Creation,
which took centre stage beginning from 2003. The government
fully recognised that the success of the countrys development
objectives depended on a robust and innovative private sector that
is profitable to generate sufficient tax revenue. A robust and efficient
revenue mobilisation capacity was therefore central to the strategy.
Consequently the government, set out to allocate budgetary
resources to priority areas such as infrastructure, agriculture,
education and health. The government sought to deepen trade
facilitation through the removal of administrative barriers in order to
reduce the cost of doing business. The reforms in KRA, including
reducing Customs red tape, introducing modern techniques, and
harmonising trade procedures with the neighbouring countries
were therefore aimed at reducing transaction costs and improving
economic competitiveness.
The appointment of a new Commissioner General was a

consequence of reforms that the new government embarked
on instituting. These changes among others, demonstrated the
favourable political climate that prevailed and the importance that
9
the new regime attached to revenue mobilisation. These factors

set the stage for an ambitious reform programme dubbed as
Revenue Administration Reforms and Modernisation Programme
(RARMP). RARMP thrust tax administration to the forefront of
national development as Kenyans increasingly became aware
of the importance of internally mobilising resources to fund
His Excellency President development. RARMP was buttressed by the bold economic reform
Mwai Kibaki, C.G.H., M.P.
initiative to pull the economy out of a recession on the journey
towards a broad-based equitable economic recovery contained in
the Economic Recovery Strategy (ERS). The ERS measures were
covered under three main pillars, namely: (i) restoration of economic
growth within the context of a stable macroeconomic environment;
(ii) infrastructure development; (iii) enhanced equity and poverty
reduction; and (iv) improvement in governance to ensure efficiency
and effectiveness in the public sector. Tax administration reforms
were founded under the first pillar, which set the stage for the new
generation reforms implemented in the period 2003 to 2008.
10
The Formative Stage
of KRA: July 1995
KRA should be like a bee; extracting nectar from flowers without hurting them.
John P. Munge
Chapter 2
W
Introduction hile tax statutes create a framework for mobilisation of tax
revenue and dispute resolution, actual taxes collected
depend to a large extent, on efficiency and effectiveness
of revenue administration. Inefficiency and ineffectiveness often
lead to low levels of compliance and poor revenue collection.
Revenue deficits compromise governments ability to implement
programmes and provide public services. This affects the countrys
budget and in the long term can damage the effectiveness of public
expenditure management.
A major objective of revenue administration reform is to enhance

efficiency and effectiveness of the taxation system that is, improve
the compliance rate and reduce the cost of tax administration and
compliance. The reforms also assist in attracting foreign exchange
earning through direct investment and private sector development.
Investors are not only concerned with the quantitative aspects of
taxation for example tax rates, tax bands, types of taxes among
others, but also about the soft issues of the tax system, including
how it works and its predictability. Therefore, a revenue agency
that is perceived to be too intrusive or arbitrary in the application
of tax laws discourages investors. Hence, revenue administration
reforms aim at simplifying tax procedures, addressing incidences
of corruption and enhancing the integrity of a countrys tax system.
Moreover, in a fast changing business environment, revenue

administration must keep pace with the changes and support
11
Chapter 2 - The Formative Stage of KRA: July 1995
development endeavours. Reforms enable the revenue agency to

adapt and respond to a fast changing environment and complexity
in revenue administration. For example multinational corporations
operate in many tax jurisdictions, presenting opportunities to avoid
tax. Tax havens and e-commerce also pose challenges that require
continuous reforms.
Emergence The Semi Autonomous Revenue Authorities (SARAs) is a

of Semi governance model where revenue collection is detached from
Autonomous the Ministry of Finance providing a degree of autonomy from the
Revenue rigid civil service structures. SARAs are more independent than
Authorities government departments especially in respect of funding, budget
(SARAs)
flexibility and application of human resource policies (hiring and
firing, promotions, remuneration etc). SARAs are modelled to give
autonomy on the vital issue in integrating tax operations. It involves
restructuring and integrating revenue functions so as to capitalise
on economies of scale and information sharing. The model has
been implemented in many developing economies in the last three
decades. It addresses two major constraints: political interference in
day-to-day operations and management bureaucracy. It decreases
such interferences and ensures management autonomy.
First established in Indonesia in the early 1980s, today SARAs have

found their way into many Latin American countries - Argentina in
1988, Bolivia (1987), Columbia (1991), Guatemala and Guyana
(1999), Mexico (1997), Peru (1988) and Venezuela in 1994. There
were two establishments in Southeast Asia - Singapore in 1992
and Malaysia (1994). In Africa it was first introduced in 1985 in
Ghana, followed by Uganda in 1991, Zambia in 1993, Kenya in
12
1995, Tanzania in 1996, South Africa in 1997, Rwanda in 1998,

and Malawi in 2000. Gambia, Botswana, and Zimbabwe have also
recently established their own respective SARAs. The primary
objective is to improve revenue performance and facilitate trade in
the face of challenges posed by the traditional tax administration
systems.
From the experiences of these countries the creation of SARAs

in, developing countries, has a promising outlook and potential.
However, the performance of the revenue authorities will depend on
a number of issues ranging from political goodwill, to management,
board performance and continued support by development
partners.
In keeping with international best practice, Kenya Revenue

Authority (KRA) was set up as an independent revenue agency
to collect and account for all government revenue under a semi-
autonomous arrangement bringing together the previously
independent revenue collection departments. The focus of the
government was to improve revenue administration and enhance
mobilisation of domestic resources. The objective therefore of
forming KRA was to improve effectiveness, efficiency and equity in
revenue administration.
KRA is one of the few revenue agencies that has been able to
sustain superior revenue performance since inception. KRA is
credited with achieving a steady revenue growth averaging about
eleven percent from its creation in 1995/96 to 2008/09.
Benefits The proponents of SARAs have justified the establishment of

of a Semi- these agencies. It is perceived that SARAs increase effectiveness,
Autonomous efficiency and equity. In the first few years, the SARA is likely to
Revenue benefit from the taxpayer perception that it is more competent
Agencies and therefore motivate taxapayers to voluntarily comply. This has
(SARAs) increased voluntary compliance and tax revenue.
13
There is also greater flexibility in human resource management

including competitive salaries for management and highly skilled
staff, greater freedom to hire and fire in response to performance
and improved skills base. In many developing countries, the
public service regulations often impose serious constraints and
bureaucracy on human resource management. The autonomy
affords greater freedom in the decision making process, protection
from political interference, sufficient discretion to resolve taxpayers
issues and managing operations including the ability to take
sanctions against taxpayers.
The Creation of The basis for the creation of KRA was laid in 1986 through the Tax
Kenya Revenue Modernization Programme and Sessional Paper No. 1 of 1986 on
Economic Management for Renewed Growth. During this period,
Authority
the government as explained in the previous chapters, recognised
that the countrys fiscal position was placing serious constraints on
the achievement of the targeted renewed economic growth and
development goals. From 1984/85 to 1988/89 revenue grew at 3.8
per cent a year net of inflation. The slow growth in tax revenue
placed considerable constraint on Government expenditure and
it became necessary to consider revisions to the tax structure in
order to raise revenue levels towards 24 per cent of GDP through
revenue administration reforms.
The creation of KRA was further precipitated by the macro-
economic realities prevailing in the early 1990s. By 1993, Kenyas
economy was at its lowest ebb, economic growth was negative,
inflation topped 100%, the currency had lost value against the
major trading currencies, interest rate averaged 40-60%, foreign
exchange reserves had been depleted to almost one month import
cover and unemployment was at an all time high. This was the
period when the Goldenberg scam that cost Kenyan taxpayers
billions of shillings took place. These factors led to poor relations
with development partners who insisted on a more accountable
macro-economic management.
In August 1993, Micah Cheserem was appointed Governor of the

Central Bank of Kenya (CBK). He immediately came to terms with
the reality of macro-economic disarray, where both the monetary
Micah Cheserem, and fiscal aspects were not operating properly. In a bid to institute
former Governor, Central appropriate policies to mitigate the challenges, he assigned a
Bank of Kenya
team of senior CBK officials to different countries for purposes of
14
benchmarking. The team led by Joseph Kinyua, then Director of

Research at the CBK, visited Uganda and Tanzania to study the
management of monetary and fiscal policy. The team was impressed
by the fiscal management in Uganda, where the ratio of revenues
to GDP had soared after the creation of Uganda Revenue Authority
(URA).
Although Kenya had better revenue performance in East Africa,

the team felt that Kenya had the potential to do much better if
the resources were properly harnessed. They thought this could
be achieved with the creation of a Semi-Autonomous Revenue
Agency (SARA), designed around similar models as other
members of the Commonwealth. It prepared a policy brief in this
line and forwarded it to the Governor, who recommended it to the
then Finance Minister, Hon. Musalia Mudavadi and Permanent
Secretary, Benjamin Kipkulei to create a SARA to be known as
Kenya Revenue Authority. The Minister briefed the then President
H.E. Daniel Toroitich Arap Moi H.E.C.G.H, M.P, on the proposal.
The President accepted it, giving way to the formation of KRA
despite opposition from various quarters.
With the adoption, the Minister formed a taskforce under the

chairmanship of Nahashon Nyaga to oversee formation of the
Authority. The mandate of the taskforce included developing a
bill that would create the legal framework for the organisation.
To execute this, a sub-committee comprising officials from the
Treasury, CBK and revenue departments was set up to craft the
KRA Bill. The Bill was sent to the Attorney Generals office for
drafting and was subsequently tabled in Parliament. The foresight
of Governor Cheserem, to extend the mandate of the CBK team to
encompass fiscal affairs in their search for solutions to the countrys
macro-economic challenges and Hon. Mudavadis receptiveness
to new ideas paved the way for the formation of KRA.
The proposal was further reinforced by the group led by Edgar

Manasseh who was the Chairman of the taskforce and the then
Financial Secretary and Hassan Bagha, then Director of Fiscal
Affairs department. They visited New Zealand, Singapore, Zambia
and Ghana to study how the countries SARAs were operating. The
Joseph Kinyua reports of both teams formed a background to the understanding of
Permanent Secretary,
Ministry of Finance the need for a semi-autonomous revenue agency in Kenya.
15
The memorandum of objects and reasons of the Kenya Revenue

Authority Bill, 1995 states that,
The object of the bill is to provide for the establishment of a

central body to be known as the Kenya Revenue Authority to take
over the functions hitherto performed by the Customs and Excise
Department, the Income Tax Department and the Value Added Tax
Department as revenue collecting agencies of the government.
With the creation of the Kenya Revenue Authority, the bill seeks to
provide the desired motivation for efficient and effective machinery
for administration of revenue laws and for collection of revenue.
The Kenya Revenue Authority was finally established in July 1995

as a body corporate with an independent management board,
under the general supervision of the Minister for Finance. Its
primary purpose is to function as an agency of the government for
the collection of and accounting for all government revenue. The
objective for establishing KRA is to provide operational autonomy
Philip Ndegwa, in revenue collection and enable the evolution of a more modern,
first Chairman of KRA flexible, adaptable and integrated revenue collection agency.
Board of Directors
The first KRA Board of Directors comprised individuals drawn from

both the public and private sectors: Chairman, appointed by the
President; the Hon. Attorney General; the Commissioner General;
the Permanent Secretary, Ministry of Finance; the Permanent
Secretary, Ministry of Trade; and six other persons appointed by the
Minister by virtue of their knowledge and experience in accountancy,
law, taxation, business administration, or public administration. At
the inception of KRA the government was keen to have most of
the Ministries dealing with licenses represented on the KRA Board,
thus the inclusion of the Ministry of Trade. This structure has since
evolved over the years to bring on board more stakeholders from
the private sector. Currently, the KRA Board is composed of the
Chairman; the Hon. Attorney General; Permanent Secretary
Finance; the Commissioner General and six other members drawn
from the private sector.
16
Edgar Manasseh, a former Commissioner of Income Tax and

Financial Secretary, was named the first Commissioner General
and Philip Ndegwa, an economist, former CBK Governor and
Permanent Secretary for the Ministry of Finance became the first
Chairman of KRA Board of Directors in July 1995. Joseph Kinyua
was appointed Financial Secretary to replace Edgar Manasseh at
Edgar Ivan Mannasseh, the Treasury, while Nahashon Nyagah became the first secretary
First Commissioner to the KRA Board of Directors. The appointment of seasoned public
General of KRA
servants reflected the need for continuity and institutional memory.
The creation of KRA heralded the transformation of revenue
administration in Kenya from the traditional approach characterised
by poor partnerships and low levels of voluntary compliance, to an
era of shared information, enhanced compliance and high revenue
collection.
The funding of KRA was set at 1.5 percent of the estimated

revenue target for a fiscal year, plus an augmentation of 3 percent
of any revenue collected in excess of the estimate in any three-
month period, provided the combined funding did not exceed 2
percent of the actual collections in that quarter. According to the
former Commissioner General Edgar Manasseh, the 1.5 percent
was arrived at based on the average cost of running the revenue
departments that were previously based in the Ministry of Finance.
However, development funding would be financed directly by
the Treasury or development partners. KRA could also earn an
agency fees of 1.5 percent for collecting revenue on behalf of other
agencies.
17
On formation in 1995, the organisation structure of KRA was

largely a tax-type based institution (see Chart 3) and it has since
been transformed into a functional-type not only to support the
on-going reforms, but also respond to environmental realities and
international best practices.
3
Case Study 1:
Interview with Hon. Musalia Mudavadi on
the passage of the Bill that created KRA
According to Hon. Musalia Mudavadi, who was the then Minister
for Finance, the Bill received significant resistance from the political
establishment that existed then. In fact, it took several cabinet
Hon. Musalia Mudavadi
Minister for Finance in meetings to win approval of the cabinet for the Bill to be tabled
1995 (oversaw creation in Parliament. There were spirited attempts by some legislators to
of KRA)
shoot down the KRA Bill, necessitating the Minister to hold private
discussions with President Moi to assuage his fears and those of
other influential parliamentarians regarding the role and autonomy
of KRA. The resistance and suspicion was attributable to the fear
that a taxman with autonomy would likely be used as a political
weapon to settle scores with opponents. The other source of fear
was the fact that KRA would have the muscle to vigorously pursue
non-compliant and recalcitrant taxpayers, many of who were
politically connected. The idea of introducing an agency fee for KRA
based on total collection was vigorously resisted as it was seen
to be introducing a group of superior public servants who could
18
determine their own salary structure. They argued that introduction

of agency fee for KRA would open a flood gate for all other public
service organizations to start demanding similar autonomy. In the
end, however, the Bill sailed through Parliament, with both the
government and opposition sides giving it full support, of course,
after successful lobbying by the Minister.
Challenges According to Edgah Manasseh, there were numerous inevitable

Faced During differences in approach at the formation stage. One notable
the Formation difference was particularly between himself as the Chief Executive
Officer (CEO) and the Board during the formative days. The
of KRA
Board led by the Chairman favoured consolidation of executive
powers in the operations of the departments under the office of
Commissioner General but he favoured a structure that gave
operational control to the respective commissioners and the
departments. His argument was that since the departments were
governed by their statutes, commissioners needed autonomy and
responsibilities over operational issues of their departments. This
issue continued to be contentious until the amendment of the KRA
Act that streamlined administration to make it more efficient. The
amendments strengthened and harmonised revenue administration
by providing that the term commissioner be interpreted to mean
the commissioner general. This allowed consolidated legislative
powers under the office of the Commissioner General in line with
international best practice.
Another major debate at the formative stage was whether the new
agency needed to make an abrupt break with the past leadership
by recruiting externally or embrace continuity by appointing a
Commissioner General from the departments. There were those
who felt strongly that recruiting the first Commissioner General from
any one of the then major revenue departments would not infuse the
Mr. John Msafari - desired magnitude of change. The proponents of gradual change,
Former Commissioner argued that there was need to draw from institutional memory and
General
appointing a Commissioner General without such a background
would pose a big challenge to operations.
With benefit of hindsight, it appeared the issue of balancing was

considered in the appointment of the first CEO. The appointment of
19
Edgar Ivan Manasseh as the first Commissioner General may be seen

as a win by the proponents of incremental transformation against those
who were rooting for a paradigm shift. A notable observation however,
after Manassehs tenure at the helm of KRA, is that all subsequent
Commissioners General have been drawn externally from the private
sector. Manassehs work was enormous as he was tasked to put in
place structures and frameworks for a modern revenue agency from an
outfit associated with bureaucracy and lack of innovation.
This early era was characterised by a wait-and-see attitude among

some bureaucrats who did not think that KRA was a big idea after
all and that it was one of those experiments of the development
partners. The first CEO of KRA is credited for putting together the initial
structures of a consolidated revenue agency upon which, subsequent
developments have been premised. The tenures of the first four
Commissioners General were not long enough to have any meaningful
reforms initiated and implemented but their efforts laid the foundation
for what is now commonly referred to as the second generation reforms
whose implementation begun in earnest in 2004.
Another challenge during the formation process was the staffing

procedure that was used in recruitment. From its inception in July 1995
to June 30, 1996, KRA relied on staff seconded from the Treasury and
were therefore not KRA employees in the exact sense. With effect from
July 1, 1996, KRA hired its select staff from the pool that it had inherited
from the Treasury. Those who did not make it to the list of preferred staff
were returned to the Treasury for redeployment. But since the revenue
collection function had henceforth been transferred to KRA, the staff
who were not absorbed into KRA opted for retirement.
For the rest of the staff, there was an obvious lack of loyalty and
commitment to KRA emanating from the fact that they were seconded
and not employed by KRA. All cases of indiscipline, including
recommendations for dismissal had to be sent to the Permanent
Secretary Treasury for direction. This cadre of staff were therefore,
answerable to two masters, leading to increased cases of indiscipline
and corruption. The major lesson learnt during this period was that
hand-over should be managed carefully with clear reporting channels
to ensure discipline and maintain loyalty.
20
Transition Phase:
1995 to 2002
If you do not know where you are going, any road can take you there.
M. G. Waweru
Chapter 3
T
Introduction he transition phase focuses on the period following the
inception of KRA in July 1995 as an umbrella agency
responsible for the collection of and accounting for government
tax revenues to the end of 2002. This time frame is chosen to
encompass the period of legal creation and transformation from
individual civil service departments to an integrated Revenue
Authority. KRA brought together revenue departments, which
previously operated as separate entities under one umbrella body,
which posed an immediate challenge of harmonising the different
cultures into a single structure. In addition, the newly created KRA
relied on staff seconded from the Treasury as well as the Treasury
payroll system - a situation that prevailed until 30thJune 1996. The
secondment system, which in effect was a dual reporting system,
complicated the reporting structure and posed challenges with
respect to enforcing discipline. The staff secondment ended when
the KRA staff requirements were established after which staff were
formally absorbed into the employment of the Authority with effect
from 1st July 1996.
The transition phase was also notable for the relatively high turnover
of the first four Commissioners General. Mr. Edgar Manasseh
begun as the first Commissioner General serving for seven months
from June 1995 to January 1996. Subsequent appointees were
drawn externally from the private sector namely Dr. Yusuf Nzibo
who served for two years from February 1996 to January 1998, Mr.
John Msafari who served from February 1998 to February 2001,
Mr. John Munge who served from March 2001 to February 2003
Dr. Yusuf A. Nzibo,
after which Mr. M. G. Waweru was appointed in March 2003. The
second Commissioner short tenure of office of the first four Commissioners General made
General of KRA
it difficult for them to complete significant reform initiatives.
21
Chapter 3 - Transition Phase: 1995 to 2002
Another milestone came in 2000 with the relocation and centralization

of Nairobi based staff to the newly acquired Times Tower building.
The move was aimed at harnessing synergies within departments
through information sharing and closer proximity. Prior to this,
staff were located in different premises in Nairobi. Relocation and
centralisation strengthened unity and organizational culture, which
was necessary at the time with the organisation being new. The
centralisation also promoted resource sharing and provided a one-
stop-shop for provision of KRA services at the head office.
The transition phase is discussed along three main reform

perspectives namely:
(i) internal process reforms
(ii) people centred reforms
(iii) Revenue enhancement reforms.
Times Tower: KRA Headquarters
It is important to note that there were very minimal reforms in the

area of customer service during this period. The lack of any notable
customer focused reforms in this phase reflects the civil service
process centred approach to revenue administration that did not
perceive taxpayers as customers.
John P. Munge - Former
Commissioner General, Over the transition period the following were the major reforms in
Implemented one roof
policy in KRA operations the area of internal processes:
Internal Process Expansion of KRA stations

Reforms KRA inherited the institutional structures from the civil service
at the time of its inception. The revenue departments absorbed
were located in different parts of the country offering Income
Tax, Customs and Excise, Value Added Tax and Road Transport
services. As demand for KRA services increased, there was a
deliberate policy to bring services closer to customers by opening
additional stations. However, integrated service delivery was lacking
since the departments operated as autonomous units, yet their
integration was key to stimulating revenue growth. The demand for
prompt services and the need to set up one-stop centres to offer
integrated tax services accelerated the requirement to expand the
stations based on business growth requirements. Consequently,
KRA established additional stations to accommodate the diverse
22
needs of taxpayers and offer services closer to their locations

and thus reduce their compliance cost. By mid 2002, KRA had 45
service points in urban centres and a total of 84 points around the
country.
Review of Organisational Structure

Some of the reforms implemented over the transition period
involved a review of the organisational structure and the two
notable initiatives among these were the formation of the Revenue
Protection Services (RPS) and the Research and Corporate
Planning (R&CP) Departments in 1996. They came into existence
with formation of KRA. Prior to that, their functions were carried out
by the Commissioner of Police and the Treasury, respectively.
Establishment of Research and Corporate Planning

Department (R&CP): The other measure was the formation of the
Research and Corporate planning (R&CP) Department in 1996 to
provide research, statistics and planning support to the Authority.
The department laid the foundation for the commencement of
formal corporate planning practice, which began in 1999. Since
then, the department has produced four editions of the Corporate
Plan and has also been the driving force of the implementation
of the Balanced Scorecard (BSC) as a performance management
tool.
Formation of Revenue Protection Services Department (RPS):

The formation of RPS was undertaken through an amendment in
the 1998/99 Finance Act as a police unit set up to enhance the
enforcement function. The unit was staffed with officers seconded
from the Criminal Investigations Department (CID) of the Kenya
Police and established as a fully-fledged department reporting to
Munyenyi Muteti, First
Head of Revenue
the Commissioner General. It was aimed at protecting government
Protection Services revenue by monitoring movement of transit cargo, establishing
surveillance points, cracking down on tax evasion and corruption.
It was also mandated to carry out investigations and prosecute
revenue related offences. The department operated independently
until 2003 when it was consolidated as a component of the
Investigations and Enforcement Department (I&ED).
23
Adopting a Formal Strategic Planning Approach

In the early years of formation, KRA relied on systems and structures
inherited from Treasury for performance management until June
1999 when the first corporate plan was launched. The plan was
a significant milestone in introducing best practice in strategic
management. It was introduced during the tenure by the third
Commissioner General, Mr. Msafari and supervised by the Chief
Manager of then, the Research and Corporate Planning division,
Jacob Makau. The plan laid the foundation for the development of
subsequent plans.
The 1999 plan clearly identified tasks and set objectives that were
ranked using a risk-based approach in order to optimise on the
use of limited resources available. Being the first corporate plan,
it broke new ground in a number of areas, including: providing a
basis for management to give strategic direction for future corporate
planning; identifying and selecting areas in the organisation that had
potential to improve transparency, accountability and administration;
providing a platform for communication with all its stakeholders;
producing future corporate plans that could be achieved with limited
resources; and understanding the management of risks in the
planning process. The plan assisted management make focused
and consistent decisions taking cognizance of the resources that
were available at the time. Although the plan had been developed,
a challenge still remained in terms of actualising it into measurable
targets, which was later to be addressed with the implementation
of the BSC approach.
KRA Enterprise Integrated System Architecture (KREISA)

From an early stage, KRA identified the use of Information and
Communication Technology (ICT) as a major factor for success
in revenue administration reforms and particularly for improving
service delivery. The Authority however faced the challenge
of identifying a suitable ICT platform that would address the
automation needs of the organisation including service delivery,
reduction of lead times to cut costs and reduce interaction between
tax officials and the public. The rationale for the last goal is that
KRA wanted to reduce opportunities for integrity challenges that
thrived on frequent interactions between officers and customers.
24
Many alternatives were pursued as KRA sought to identify a

suitable system particularly one that would:
(i) allow integration of additional functionalities as and when the
need arose;
(ii) enable individual systems to be integrated with existing systems
in the Authority;
(iii) yield benefits worth the cost of implementation, and;
(iv) promote efficiency of business operations within the Authority.
It is against this backdrop that KREISA was conceived as a

corporate-wide Information Technology project with the objectives
of:
(i) acquiring and implementing an Enterprise Integrated
Information System capable of facilitating seamless sharing of
information across KRA;
(ii) providing a single view of a taxpayer across all functions; and
(iii) enabling data-matching in order to detect non-compliance and
facilitate combined enforcement actions.
It was envisaged that KREISA would facilitate inter-connection with

other government agencies, including usage of external systems
and service-providing agencies, shipping agents, Kenya Ports
Authority, customs agents and commercial banks so as to facilitate
real time electronic exchange of information.
KREISA was not implemented as one project due to its wide scope
and high capital cost. Management decided to adopt a modular
approach by phasing the implementation of various inter related
components. The inter relationship of the components allowed for
prioritisation while simultaneously ensuring that each component
fitted within the overall objective and direction of KRA. Priority
was given to ensuring that the modular approach avoided rework
and further sunk costs while focusing on the macro KREISA
requirements. Each module was designed to promote the use of
Personal Identification Number (PIN), intelligence databases and
provide a seamless interface for the desired technological platform
architecture.
25
This approach prioritized the automation of revenue departments

so as to address the administrative challenges of KRA in executing
its mandate. The Customs and Excise Department (C&ED)
component of KREISA was identified as first priority. Key in this
component was the acquisition of an IT system to replace the
Bishops Gate Office Freight Forwarders Infrastructure Network
(BOFFIN) system. The BOFFIN had a limited level of flexibility
and scalability and posed numerous operational challenges. It
was imperative that the C&ED system enabled the department
to meet the requirements of the principles outlined in the revised
Kyoto Convention whose main objective is harmonisation and
simplification of Customs procedures. The other components of
KREISA were to be implemented in the following order of priority:
(i) Integrated Tax Management System (ITMS) for domestic

taxes;
(ii) Vehicle Management System (VMS) for Road Transport
Operations; and
(iii) Enterprise Resource Planning (ERP) system for Support
Service functions.
This prioritisation laid the foundation for the implementation of

RARMP, which was the key driver of the next phase of reforms that
begun in 2003. During the transition phase, studies were carried
out but the implementation of the system was delayed by lack of
funding and inadequate support. Instead, existing systems were
enhanced as a stop-gap measure.
People Centred KRA being a new institution that had been hived off from central
Reforms Government, it was expected that substantial efforts would be
needed in the area of human resource development and reform.
The following are major initiatives undertaken during this period:
Recruitment of Top Management

With the exception of the first Commissioner General Edgar
Manasseh who was recruited internally from the Ministry of
Finance where he was formerly Commissioner of Income Tax and
subsequently Financial Secretary to the Treasury, all subsequent
Commissioners General have been drawn from the private sector.
26
The recruitment of top management such as Commissioners also

followed a similar path with most of them being recruited directly
from the private sector.
Graduate Trainee Management Programme

Prior to 1996, recruitment and training of technical staff was undertaken
independently by each department under the Public Service
Commission (PSC). Each department in turn had its specialised
training programme addressing the tax covered. For example,
Income Tax
Department had a
Income Tax Training Session in the Late 50s
structured system
( Picture: Courtesy E.A. Standard)
of staff comprising
of two cadres of
technical staff,
namely tax officers
and assessors.
Likewise, Customs
and Excise
Department had
collectors and
examiners while the
VAT Department
had inspectors.
Given these diverse
training systems,
it was difficult to
transfer officers across departments and to integrate them into a
unitary corporate culture. In November 1996, a new integrated
approach to recruitment and training of staff was introduced under
the Graduate Trainee (GT) Management programme, which
enhanced the integration of the curriculum. The programme was
tailored as a comprehensive training, encompassing modules on
Customs, Income Tax and Value Added Tax and later incorporating
a module on road transport operations. The programme nurtured a
skilled and flexible work force that was all-rounded and equipped to
handle all technical areas of business and enhanced the integration
of departmental cultures.
27
Case Study 2: Graduate Trainee Programme
In 1996, KRA introduced an integrated Graduate Trainee (GT)

course, which combined technical aspects of Income Tax, Value
Added Tax and Customs operations. This was later expanded to
include issues of road transport. The main objective of the course
was to keep pace with international best practice in revenue
administration, where revenue officers are equipped to tackle all
taxes administered by revenue agencies. The programme made
it easier for KRA to transfer staff from one department to another.
The programme has also helped enhance regional cooperation in
revenue administration through harmonisation of the curriculum in
training of GTs in Kenya, Uganda and Tanzania, particularly with
regard to Customs administration. The GT programme targets
young university graduates for a career in tax administration
and has brought on board graduates from different academic
and professional backgrounds, including engineering, law,
mathematics, chemistry and social sciences, to be trained as
revenue officers. This multidisciplinary approach has improved
service delivery standards and enabled staff mobility across
revenue and support departments. Besides, the programme has
nurtured a reservoir of trained managers who can easily be utilised
across departments and regions. Since inception the number of
staff that have participated in the programme has increased.
Retraining of Technical Staff and Relaunch of Training Facilities

Management also introduced a system of retraining low level non
revenue staff into revenue officers under the conversion course
programme. These conversions were provided for all revenue
departments and benefited a large number of non-revenue staff
inherited from the Ministry of Finance. Other similar conversion
courses for medium and skilled officers were also introduced namely
the Assessor Conversion Course and the Assistant Revenue Officer
Course, which facilitated career progression of lower and middle
management across departments. Finally, the Customs training facility
in Mombasa was re-launched as a corporate training centre. The
relaunch was the beginning of a series of measures that were taken
to enhance the centre culminating in its being designated a regional
training facility in the next phase of reforms that begun in 2003.
28
Staff Retrenchment
At the inception of KRA in 1995, staff in the three main revenue
departments were brought together and later joined by more
employees from the Road Transport Department. They totalled
approximately 4,500 in June 1995 and reduced to 4,002 in June
2000 as a result of a combination of natural attrition, disciplinary
measures and resignation, although recruitment was still on
going. However, although the departments were now under one
organisation, they continued to operate autonomously. There
was therefore the need to rationalize and inculcate performance
management practice in the Authority. Coupled with pressure from
development agencies to right size, the Authority embarked on a
retrenchment exercise in 1999/2000. The retrenchment resulted in
reduction of 830 jobs in December 2000 leaving the organisation
with a staff force of approximately 3,140 by 2001. Although, the
retrenchment plan had been discussed since 1995, opposition
from the government and inadequate funding from Treasury
resulted in the postponement of the plan for several years. Of the
retrenched officers, over 550 were support staff. The programme
cost approximately Kenya Shillings, Kshs 360 million and was
fully funded by the Ministry of Finance. 60 per cent of staff were
retrenched involuntarily while 40 per cent left the organisation
voluntarily under the same programme.
Case Study 3: The KRA Retrenchment Programme in 2000
A staff down sizing programme was implemented in the year

2000, four years after the staff had been absorbed into KRA from
Treasury, where they had previously served as civil servants. The
staff rationalisation programme affected 830 employees who lost
their jobs and received a standard amount of Kshs 150,000 plus one
months basic salary for each completed year of service, which was
higher than the civil service package. Through the retrenchment
programme, KRA lost 40 per cent of skilled staff who opted to
leave, a situation that was later addressed through the introduction
of the annual recruitment of graduate trainees, re-introduction of
conversion courses and enhanced recruitment of new employees.
29
Harmonisation of the two-tier Salary Scales

As earlier noted, the formation of KRA in 1995 involved takeover of
staff and structures based in the respective ministries of Finance
and Transport. The practice at the time was for staff to continue
earning similar salaries to those they had been receiving in their
former civil service positions. However, new staff employed from
the public and private sector joined the Authority at negotiated
salary scales. This was the genesis of the existence of a two-tier
salary scheme. With time the problem escalated and begun to
negatively affect staff morale. The management noted the problem
and embarked on a three year strategy to harmonize salary scales
in a quest to eliminate the two-tier system through gradual pay
increases. Using the salary scales of similar state corporations as
benchmarks, the management established a new salary scale but
funding constraints prevented its wholesale adoption. The new
scale was applied to top management and the rest of the staff
received several annual across-the-board salary increments over
the years. Budgetary constraints have however impeded KRAs
capacity to improve staff salaries over the years.
Case Study 4: The Impact of the KRA Two-tier Salary Scale
Recruitment of Commissioners General from the private and

public sectors also brought in a new system of direct recruitment
of middle management staff into the Authority. A number of staff
were, therefore, hired to help with the establishment of new
departments and structures, among them, Human Resources and
Administration, Research and Corporate Planning, Finance, Internal
Audit, Management of Information Systems, Public Relations and
Legal Affairs. Staff from the private and public sector entered at
a higher scale earned higher salaries than their counterparts who
were inherited from the Ministries of Finance and Transport despite
being on the same grade. This was the origin of the infamous two-
tier salary scale, which was a source of discontent in KRA for a long
period.
As the Authority expanded its support functions, and more people
recruited, the salary disparity worsened and so did staff morale. The
exercise of harmonising salaries begun in 2001 and was phased
over a four year period, ending in 2005.
30
The anomaly of the two-tier salary structure, notwithstanding,

subsequent staff policies were well thought out leading to recruitment
of personnel with suitable qualifications; routine development and
training; preparation of manuals and other written guidance and
instructions; support of skills and experience that was available
within the organisation and identification of lacking skills; review
of the organisations internal standards and procedures; among
others. The introduction of KRAs Code of Conduct and the Board
disciplinary committee also played an important role in ensuring
staff adhered to professional practices.
Revenue Implementation of the Customs Single Entry

Enhancement Document (SED)
Reforms Most customs and excise duty transactions are entry-based and
prior to reform, taxpayers were required to prepare different paper-
based entries depending on the transaction. There were a total of
19 different forms for various transactions, which caused duplication
and wastage of time in the preparation of documents.
To address this and benchmark Customs services to international

best practice, various options were considered. KRA turned to a
solution that had been implemented in other countries known as
the Single Entry Document (SED), commonly referred to as C63.
The SED was an initiative of the Common Market for Eastern
and Southern Africa (COMESA) in line with the Kyoto Convention
Francis Thuranira - on harmonisation of procedures. It was aimed at facilitating
Former Commissioner of international trade through reduction of time and costs in filling
Customs Services
the Customs entries. SED captured all the required fields and
replaced the various entries including import, warehousing, export
and transit entries that existed at the time. The declaring agent/
importer/exporter was required to declare goods and ensure that
the fields in the entry were correctly filled depending on the type of
transaction. SED therefore cut down on paperwork and the cost of
clearance. The major challenges faced here included the fact that
some KRA stations were not automated and secondly that there
was resistance from both internal and external users who were
hesitant to adjust from the old system. To counter these challenges
the Customs Department undertook internal and external training
on the SED and developed a manual on the usage of the same.
31
The department also embarked on an aggressive automation

programme. Despite the initial slow start, the SED has over the
years become a well accepted document under Kenyas customs
procedures.
Computerisation of Customs Entry Processing

As already alluded to, a key reform measure in this phase was the
operationalization of a new automation system known as BOFFIN,
developed in the United Kingdom (UK). The system was first installed
in 1989, although it became operational in 1996. It was used in six
Customs stations that were inter-connected through a Wide Area
Network (WAN). The stations were Mombasa Long Room, Kilindini,
Nairobi Long Room, Jomo Kenyatta Airport Long Room, Kisumu
and Malaba. Over time the system became vulnerable due to age,
unreliability and associated institutional weaknesses coupled with
bureaucratic and discretionary procedures. Further, its operational
costs were relatively high due to its proprietary nature. The software
also ran on outdated hardware whose production was ceased.
Furthermore, the system did not cover all the customs processes
hence 80 per cent of the processes were done manually thereby
encouraging red tape.
Formation of the Large Taxpayer Unit

The Large Taxpayers Unit (LTU) was formed as a specialised
section in May 1997
Leading taxpayers in a meeting with tax officers (left) during the to deliver services
colonial era. (Picture Courtesy of E.A. Standard)
relating to the admini-
stration of Income
Tax, Value Added Tax
and Customs and
Excise Acts for large
business enterprises.
The forerunner to LTU
was known as the
Special Unit, which
delivered services
exclusively relating
to the Income Tax
Department.
32
The Special Unit was formed in 1994 with the sole purpose of
carrying out audit programmes on large enterprises, including
companies in the financial and insurance sectors of the economy
so as to enhance the level of compliance. It was answerable to
the Commissioner of Income Tax. It enjoyed an excellent working
relationship with the leading audit firms and Chief Executives of
large corporations, which contributed to a stronger and more client-
focused revenue administration. This was evidenced by the Units
results in the first year of operation when it was mandated to audit
construction companies, banks and insurance companies. The
positive results realised in terms of compliance and tax collection
prompted the establishment of LTU, which was subsequently
transformed into the Large Taxpayers Office (LTO).
The LTO was re-established as successor to the former LTU in

2000 to address the unique needs of large tax payers. It aimed
at strengthening tax administration in order to achieve increased
control; improve the audit and compliance among large taxpayers.
The LTO targeted income tax taxpayers with an annual turnover
in excess of Kshs 500 million, all banks and insurance companies
and loss making companies with turnover in excess of Kshs 250
million. The top 200 VAT taxpayers over a two-year period were
also selected into the LTO for purposes of VAT while for Excise
Duty, any taxpayers paying amounts in excess of Kshs 1.2 million
was recruited into the LTO.
Strengthening of the Instalment Tax Payment System

The strengthening of the instalment tax system in the transition
period was another key milestone in the transition phase. With the
new instalment system, corporate and personal income taxes were
to be paid in four instalments based on the higher of the previous
years actual taxes or current years expected taxes enhanced
by 10%. It streamlined revenue flow by ensuring that tax liability
for taxpayers and revenue for government is evenly distributed
through out the year as well.
The system was introduced smoothly with the exception of the

Information Technology (IT) system, which experienced problems
adjusting to the changes in the accounting period for taxpayers. It as
well systematically reduced the debt portfolio of tax administration.
33
Incorporating Road Transport Department

As part of the government revenue centralisation strategy, one of
the early measures taken on formation of KRA was the incorporation
of the Road Transport Department (RTD) into KRA in 1996. The
RTD was formerly a department in the Ministry of Transport
responsible for licensing and registration of motor vehicles, drivers
and the operators in Kenyas transportation sector among other
functions. Despite the integration, the overall policy control over
RTD was in the Ministry of Transport while revenue collection and
administration was under KRA. The main legislations administered
by RTD include; the Traffic Act (Cap 403), Second Hand Motor
Vehicle Purchase Tax (Cap 484) and Transport Licensing Board
(Cap 404). The integration of the RTD into KRA was also motivated
by the increased revenue leakage, poor service delivery and
rampant corruption that was associated with the department while it
was based in the Ministry. The immediate impact of the integration
was easily discernible with increased growth in revenue from traffic
operations.
The integration process was not without challenges. Among the
most difficult challenges was the merging of cultures of the RTD
staff with the KRA corporate culture and change of operating
procedures. Integration became a challenge as the department
joined the Authority with a substantial number of junior officers
undertaking critical tasks. The transition phase also experienced a
series of policy reversals. In terms of operation, there was also a dual
reporting system to the Ministry of Transport for policy and KRA for
administration purposes. This was further exacerbated by the fact
that the Registrar of Motor Vehicles was legally appointed by the
Minister of Transport. The Registrar was also initially appointed at
a lower hierarchical level than other departmental Commissioners.
Finally, the operations in the RTD were entirely manual in nature,
which made the integration with other automated processes in KRA
difficult to implement.
The transition phase was thus an era where considerable changes
took place mainly dealing with internal processes and people
issues. As a result of the reforms carried out during this era, KRA
was able to enter the next phase of its reforms with a solid platform
to build on. The next phase of the reforms are reviewed in the next
chapter titled New Generation Reforms.
34
KRA Board Chairmen 1995 - 2010
Philip Ndegwa, Peter Nyakiamo,

first Chairman of KRA August 1995 - February
Board of Directors 1998
June 1995 - July 1995
Hillary Ngweno, Mr. B. K. Kipkulei,

March 1998 - October November 1999 -
1999 December 2003
Mr. Leonard J. Mwangola, Major rtd. Marsden

January 2004 - January Madoka, March 2010 - to
2010 date
35
BOARD OF DIRECTORS FROM MARCH 2010
Major (Rtd) Marsden Madoka

Chairman
Mr. Joseph Kinyua Mr. M. G Waweru Hon. S. Amos Wako Mr. Wanjuki Muchemi
PS. Finance Commisioner General Attorney General Solicitor General
Alternate to Attorney General
Dr. Geoffrey Mwau Amb. Hassan M. S. Bagha Mrs. Phyllis Kandie Mr. Samuel K. Gichigi
Alternate to PS. Finance Director Director Director
Mr. Kibuga Kariithi Dr. Kitiabi R. Kiti Mr. Zabedeo J. Opore Ms. Wairimu G. Nganga
Director Director Director Board Secretary
36
New Generation Reforms
Effecting reforms is not as pleasant as it may look, but grievous; no person can
carry out reforms without suffering and hard work. Thomas Carlyle
Chapter
4
I
Introduction n the period 1995-2003, KRA did not achieve major reforms
especially in automation. However, one of the key achievements
in the period was the development of the first corporate plan
1999/00-2001/02. The implementation, monitoring and evaluation
framework of the first corporate plan was poor since it did not have
clear verifiable performance indicators. In spite of lack of clear
monitoring and evaluation framework, the plan provided an avenue
for development of future corporate plans. Key achievements
during the period were as follows:
Single premises and open office approach, which was

implemented in Nairobi, Mombasa, Nakuru, Kisumu,
Eldoret and Malindi. This enabled integration of all KRA
departments;
Development and implementation of the Taxpayers Charter
during the period was the beginning of improved service
delivery to taxpayers;
Decentralisation of motor vehicle registration to the port of
Mombasa and opening additional offices country wide to bring
services closer to the people;
Implementation of the Single Entry Document (C63) at
Customs & Excise Department;
Implementation of annual recruitment of graduate trainees
to cater for manpower needs caused by natural attrition,
retrenchment, and dismissals;
Development and implementation of the Internal Standards
Manual;
37
Chapter 4 - New Generation Reforms
Despite the above achievements, there were a number of

shortcomings experienced during the period:
The planned computerisation, through KREISA was not

implemented due to lack of funding from the Government.
Therefore, in most cases the operations were still manual and
repetitive;
There was lack of total commitment towards the implementation

of the goals set out in the Taxpayers Charter, Internal
Standards and strategies set out in the first corporate plan;
Lack of integrity was still a big challenge in the Authority

due to systemic weaknesses. This was corroborated by the
Transparency International bribery index report of 2002;
There was no scheme of service for KRA support staff such as

secretaries, drivers, clerks and messengers;
Due to poor tax administration measures and the manual

nature of operations, KRAs revenue performance was
consistently below its target from 1995-2003. However,
revenue yields increased by 20 percent in the period, inspite
of declining economic growth.
The year 2003 was a defining period in Kenyas history as it

marked the beginning of new governance in Kenya, following
the election of the NARC government. Coupled with the fact
that KRA had identified reforms which were not very well
entrenched, it laid the ground for the momentum of the new
generation reforms in the Authority, covering the period 2003
- 2009. This formed the basis of the second Corporate Plan
whose implementation commenced in July 2003.
Reforms From year 2003 to date, major revenue administration reforms have
in Other Tax taken place in both developed and developing countries including
Australia, Canada, Chile, Hungary, Jordan, Lebanon, New Zealand,
Jurisdictions Philippines, South Africa, Sweden and the United States of America
among others.
38
In Eastern Africa, Uganda, Rwanda and Tanzania were early

reformers. These reforms were aimed at strengthening revenue
administration, establishing a function based structure that integrated
tax administration and a taxpayer segmentation approach.
Revenue Information Box 1: Common Features of

Administration Revenue Administration Reforms
Reforms in
Kenya (2003- Implement simple and transparent tax and trade legislation that
provide an environment that supports voluntary compliance
2009)
and international agreements;
Implement simple and up-to-date procedures to reduce
taxpayer burden, improve controls and promote transparency
in processes;
Rationalise organisation and management structures (e.g.
design, layers of management and spans of control);
Promote voluntary compliance of taxpayers with respective
tax laws in their jurisdictions;
Employ the use of risk management techniques that enhance
the efficiency in revenue collection;
Develop holistic approaches to taxpayer services and their
behaviours in an integrated manner that requires examination
of all taxes;
Employ post-clearance controls in Customs to identify and
correct inconsistencies in the application of legislation and
procedures and assist the identification of potential fraud;
Ensure effective protection and surveillance functions in
Customs;
Effective use of automated systems to: collect, collate and
share information using reliable databases and a common
identification number; standardize payment processes
and accounting requirements; provide assurance that the
legislation and procedures are applied uniformly; and provide
timely information to support management decision making
and tax policy formulation;
Increase autonomy to recruit, retain, train and motivate high
calibre staff; measure performance and remove corruption;
and pay competitive salaries.
Source: IMF Fiscal Advisory Division
39
Objectives In Kenya, the Economic Recovery Strategy (ERS) Paper (2003)

of Revenue highlighted areas that required reforms in revenue collection such as
Administration removal of suspended import duties and all remaining discretionary
Reforms duty exemptions in order to reduce the scope for tax evasion;
consolidation of all tax collections through the KRA; expansion of
the tax base in order to create space for the Government to reduce
some of the tax rates; harmonisation of Kenyas tax regime to bring
it in line with those of other member countries of the East African
Community; and rationalization of personal income tax by raising
tax threshold and reducing the number of tax brackets.
The main objectives of the reforms were to enhance the

organisation and management of revenue administration and
improve regulatory framework and completion of reforms rolled
forward from the previous period. With these broad objectives in
place, the organisation expected to achieve its revenue targets,
streamline internal processes, uphold professionalism among staff
and improve service delivery to its customers.
From the Governments point of view, tax reforms were geared

towards raising revenue to support its development agenda and
reduced foreign borrowing.
Introduction of VAT in 1990 was a step towards improvement of tax

administation. (Picture Courtesy of E.A. Standard)
40
In implementing tax reforms, the Authority took steps to undertake

a comprehensive reform and modernisation initiative known as
New Generation Reforms under the then Minister of Finance Hon.
David Mwiraria, KRA Board Chairman, Leonard Mwangola and
Commissioner General M. G. Waweru.
The new generation reforms were launched under a programme

referred to as The RARMP. The RARMP was pioneered after
the lapse of the first Corporate Plan period and in preparation
for the second one (2003/04-2005/06). The plan was formulated
to consolidate the gains from the first one of (1999/00-2001/02),
the revenue aspect of the ERS and the recommendations of
international consultants such as IMF. To incorporate all these
features, the strategic theme of the second corporate plan was;
to enhance revenue collection through quality service to
stakeholders, modernisation of internal processes and
revitalisation of the workforce.
RARMP therefore was, a vehicle to steer revenue reforms with

the goal of transforming KRA into a modern and fully integrated
revenue administration agency by 2008/09. The RARMP approach
had seven projects and a monitoring and evaluation function.
It is important to note that RARMP covered most but not all reforms
in KRA. Some reforms arose outside the corporate plan framework
and were necessitated by exogenous factors. However RARMP,
was the main reforms approach in the organisation.
As envisaged through the RARMP framework, KRA has been

transformed into an integrated revenue agency. Revenue collections
increased by a margin of 5 per cent of GDP from Kshs 202 billion
in 2002/03 to Kshs 481 billion in 2008/09, representing a growth of
over 100 per cent in five years. This has enabled the government
meet over 93 per cent of its budget using domestic resources, thus
significantly reducing dependence on donor support.
41
Implementation From the onset, managing the reforms and associated changes was
Strategy of the not easy. During implementation, disruptions to operations were
to be avoided, while maintaining service delivery and protecting
Reform
revenue. The task required delicate balance of operations and
Programme reforms, political commitment and strong leadership.
Based on international experience and activity schedules, the reform

and modernisation programme was estimated to take five years. To
enhance accountability and ownership, Commissioners and some
Heads of Department were made Project Owners responsible for
providing guidance in implementing the reform initiatives. However
the day to day running of the reform initiatives in each department
is overseen by a Project Manager supported by a team, on full or
part time basis.
In the initial stages, before an independent monitoring and evaluation

mechanism was put in place, project managers were responsible
for both implementation and monitoring and evaluation functions.
This dual role resulted in variances where progress reports and
implementation realities were different. There was therefore need
for an independent Monitoring and Evaluation (M&E) unit.
Thus the Project Management and Business Analysis Office

(PMBO) was created in 2006 under the Office of the Commissioner
General to provide programme coordination, monitoring and
evaluation, hasten progress and decision making, undertake
business analysis and conduct business process mapping. This
enabled the management to take early corrective measures and
keep the projects on track.
PMBO ensured that aspects such as project planning and

implementation, project communication, risk planning and
monitoring and evaluation, which are critical to the success of any
programme, were put into practice for the guaranteed success of
RARMP. It monitors the success of the programmes by maintaining
and reporting on key performance indicators.
42
4
Commissioners Domestic Taxes (Domestic Revenue and Large Taxpayers),

Commissioner Road Transport,
Treasury, DC
Commissioners Domestic Taxes (Domestic Revenue and Large Taxpayers),
6. 8. 9.
Project Owner
43
Taxes Business
Automation
Finance
etc.
To facilitate the M&E function, PMBO developed a project

management structure (refer to Chart 4) that defined how all
reform projects should be structured and managed ensuring that all
stakeholders are involved and a proper communication structure is
in place.
PMBO also developed a project management handbook, which

outlines project management guidelines to ensure a professional
approach to managing projects.
Components With support of the Government and KRA Board of Directors, the
of RARMP Authority was able to prepare a reform strategy integrated into the
planning process. The strategy covered the goals, objectives and
expected benefits; key deliverables and time frames. It also covered
funding and stakeholder engagement arrangements. A Steering
Committee incorporating internal and external stakeholders was
created to oversee project implementation under the RARMP
framework.
The New Generation Reforms strategy was based on seven

components of RARMP namely: (i) Customs reform and
modernisation; (ii) Domestic Taxes reform and modernisation; (iii)
Road Transport reform and modernisation; (iv) Investigations and
enforcement reform and modernization; (v) Business Automation;
(vi) Human Resources revitalisation; and (vii) Infrastructure
Development.
(i) Customs Reform and Modernisation (CRM) aimed at

modernizing and enhancing service delivery in Customs
Services Department. The focus was to adopt approaches
that facilitate trade, improve border protection and enhance
revenue collection, in line with international best practice in
Customs administration. The objectives of this component
were to develop and implement Customs systems based
on principles of clear legislation, simple and up- to- date
procedures and risk based controls, including effective post
clearance audit; develop and implement structures, procedures
Wambui Namu, HSC and proceses that can support the functions and roles of the
Commissioner - Customs
Services
department; and develop a compliance and enforcement
44
strategy that would guide risk management, deployment of

scanners, electronic tracking and other enforcement tools.
(ii) Domestic Tax Reform and Modernisation focused on

restructuring domestic tax administration and integration of
all domestic revenue responsibilities such as income taxes,
VAT and domestic excise. It also involved segmentation of
taxpayers into large, medium and small taxpayers the latter,
to be managed by designing a turnover tax regime that would
bring on board small businesses and the ever-expanding
informal economy. It also involved improving tax operations
and developing integrated procedures with a view to improving
taxpayer services, returns aimed at modernising processing,
and harmonisation of audit procedures and coverage.
(iii)Road Transport Reform and Modernisation aimed at

modernizing operations in motor vehicle registration, driver
and motor vehicle licensing and records management.
(iv)Other Reforms: Investigation and Enforcement Reform and

Modernisation, Business Automation, Human Resources
Revitalisation and Infrastructure Development components
focused on integration of departmental investigation branches
to form the Investigation and Enforcement Department (I&ED),
corporate level initiatives such as; implementation of KRA-
level organizational changes in support and shared services,
capacity building, development of an ICT strategy to promote
integration and provide a single window view of a taxpayer
and amend the KRA Act to support the operations of reform
initiatives.
The RARMP model for implementation of reforms was adopted in

line with international best practice. Whereas planning was carried
out by the Research and Corporate Planning division, it was the
responsibility of the respective Departments to implement initiatives
using the project management approach. Independent monitoring
and evaluation was later co-opted into the programme.
45
The reforms implemented under RARMP framework are discussed

under four categories; (i) Corporate-wide reforms; (ii) Customs
reforms; (iii) Domestic taxes reforms; and (iv) Road Transport
reforms.
Corporate-wide These initiatives covered the entire organisation and laid the
Reforms foundation for the smooth implementation of other reforms. The
initiatives included:
(i) The Definition of the Term Commissioner

The revenue Acts defined the term Commissioner with respect
to the respective statutes, namely: Commissioner of Income
Tax, Commissioner of VAT and Commissioner of Customs.
However, no reference was made to the Commissioner
General. The Commissioner General, therefore, had indirect
and sometimes limited control over operations within the
revenue departments. In mitigation, the KRA Act was
amended in 2004/05 when the term Commissioner was
redefined to mean Commissioner General. This effectively
vested executive authority on the Commissioner General who
became fully responsible for decisions and performance on
revenue matters by delegating the powers vested in his office
to the Commissioners.
(ii) Creation of a Support Services Department (SSD)

Before 2004, KRA Top Management comprised 18
departments with their heads reporting directly to the
Commissioner General. This made administrative controls
wide and cumbersome. The SSD was created in 2004
with the objective of reducing the wide span and improving
management. Initially the department comprised of: Taxpayer
Services (later merged into Marketing and Communication
Department (M&C), Research & Corporate Planning and
Legal Services Divisions. In 2006, the Quality Management
Programme and Laboratory services were also placed under
Mumo Matemu,
the SSD.
Commissioner-Support
Services
(iii)Enhancing the investigation and enforcement function
The establishment of an Investigations and Enforcement
46
A KRA officer with detector dog introduced to enhance

enforcement
Department (I&ED) began in 2003 by integrating the various

investigation branches in the revenue departments. The
Revenue Protection Services (RPS) was also incorporated to
strengthen the enforcement functions. I&ED also established
a Business Intelligence Office (BIO), Anti counterfeit and iIlicit
Trade Office (AITO) and Forensic & Prosecution units.
I&ED uses information from the national statistics office,

third parties, internal databases containing information
on compliance behaviour of taxpayers and information
received through complaints and intelligence operations.
The department also relies on the internal Complaints and
Information Centre that gathers unsolicited information and
then collates it for action.
The BIO was created in 2005 to gather, analyse, risk-profile

and disseminate information to assist in tactical and strategic
decision making and utilisation in risk-based audit selection.
The Unit networks with other government agencies including
47
the National Security Intelligence Services (NSIS), Kenya

Anti-Corruption Commission (KACC), Criminal Investigations
Department (CID), Efficiency Monitoring Unit (EMU),
Immigration Department, National Audit Office, among others,
for purposes of information data sharing.
BIO also comprises a Digital Forensic Unit, which was

formed in 2007. The Unit has established a computer forensic
laboratory for recovery and analysis of digital evidence.
The AITO was formed in 2005 to deal with the formulation

of policies and guidelines on the issues associated with
counterfeits and smuggling.
The Prosecution Office was set up in 2006 with a team of

lawyers to spearhead the enforcement function. The unit
formulated a prosecution policy to guide the exercise and an
enforcement policy to be administered by an enforcement
secretariat with membership drawn from the entire KRA. In
June 2009 the office of the Attorney General gazetted six KRA
officers to be prosecutors.
The need to expand the mandate and role of I&ED was

recognised and the department was subsequently upgraded to
be headed by a Commissioner from October 2007. This gave
it more powers and authority to deal with tax investigations
and evasion.
(iv)The Informer Reward Scheme

KRA initiated a system of rewarding informants to enable
compiling information on tax transactions from official and non-
official sources. The information, which is verified internally
and from other public sources (Registrar of Companies,
Joseph Nduati, HSC Commissioner of Lands, the Police, among others) supports
Commissioner- the risk analysis process and comparison of actual taxpayer
Investigation &
Enforcement transactions with declared returns.
This scheme was introduced in the Finance Act of 1997/98,

which amended the KRA Act by introducing Section 5A,
48
providing for rewarding of informants. The reward is payable

under two situations: (i) where KRA receives information
leading to the identification of un-assessed duties or taxes,
which attract a reward equivalent to 1 per cent of the duties
or taxes so identified or Kshs 100,000, whichever is less; and
(ii) where KRA receives information that leads to the recovery
of un-assessed duties that attract a monetary reward up to a
maximum of Kshs 1,000,000. The payment of the reward is
done at the conclusion of investigations and submission of an
appropriate report with supporting evidence.
The receipt of third party information and the reward scheme

for informants has faced several challenges arising from
the low calibre of information supplied by informants. These
challenges are being addressed through formulation of a
policy guideline on the informer reward scheme, which among
others will strengthen confidentiality.
(v) Establishment of Complaints and Information Centre

(CIC)
A hotline telephone number was set up under the office of the
Commissioner General in May 2003 to receive information on
tax evasion cases in what is known as the Complaints and
Information Centre (CIC). It gathers information on tax evasion
and complaints from members of the public on any matter
touching on tax administration operations, including issues
touching on KRA staff. The CIC complements the informer
reward scheme by providing a guaranteed confidential
channel where members of the public can report issues of
concern.
(vi)Alignment of Support Departments and Divisions Along

Functional Lines
In line with the revenue departments, support departments
were realigned along function based structures to enhance
the synergies and economies of scale inherent in the
approach. Broadly, support services were categorised into
two; headquarters and regional operations.
In headquarter operations, Human Resources, Finance and

ICT adopted a function based structure. The other support
49
functions under the Office of Commissioner of Support

Services adopted a similar structure. The role of Monitoring
and Evaluation (M&E), business analysis, process mapping,
project funding, CIC and audit follow-up were consolidated
under the Office of the Commissioner General.
(vii) Creation of Regional Structures (2003)

The offices of Regional Heads were created in October 2003
to consolidate and take decision making to the operational
level. The eight provinces in Kenya were categorised
along five KRA regional offices: Central (Nairobi & Central
Provinces), Southern (Coast Province), Western (Nyanza &
Western Provinces), Northern (North Eastern Province), and
Rift Valley (Rift Valley Province). Unlike in the past where KRA
had stations in the regions answerable to their respective
Commissioners, the Regional Heads are answerable directly to
the Commissioner General on administrative and operational
issues in their areas of jurisdiction. This approach created a
more efficient reporting system and brought services closer to
the taxpayer.
(viii) Formation of Marketing and Communication Department

The Public Relations Department was formed in 1998. It was
critical in responding to the numerous queries KRA faced from
the public. But KRA recognised that stakeholders needed to
be appraised on the numerous reforms, which were taking
place since they were aimed at enhancing service delivery.
Kennedy Onyonyi - Senior Further, the Authority appreciated the need to enhance public
Deputy Commissioner,
Marketing and
uptake of output of reform initiatives.
Communication
It is against this backdrop that the Marketing and
Communications Department was established in 2007. The
department was formed through amalgamation of public
relations, taxpayers services and marketing functions.
The new department is charged with the responsibility of
developing programmes to promote taxpayer education and
awareness on tax legislation and procedures. Re-branding
was a major initiative under RARMP charged to the Marketing
and Communication Department. It is also responsible for
50
marketing research, events management, communication,

and undertaking promotional activities, corporate social
responsibility, relationship management and customer care,
among others.
(ix) Infrastructure Development
The infrastructure development was incorporated as a
project within RARMP to ensure that the various reform and
modernization projects are given timely structural support
through acquisition and provision of goods and services.
It was also designed to: consolidate taxpayer services

programmes; co-ordinate integrity and accountability
programmes; oversee quality management systems in
the organisation; manage the KRA re-branding exercise;
implement integrated approach to asset and security
management; and improve infrastructure requirements of the
Authority.
(x) Enhanced Awareness

Various activities have been undertaken to make potential
taxpayers aware of their rights and obligations under the
different revenue Acts. Taxpayer Services (TPS) Division was
created to conduct awareness campaigns using television and
radio broadcasting, sponsorship of drama and music festivals
with tax themes, sensitization seminars for newly registered
Former Finance Minister Hon. Amos Kimunya (R), Commissioner

General M.G. Waweru (C) and Director Nathaniel Kangethe join
traditional dancers during the launch of the taxpayers week in 2007
51
taxpayers and partnerships with Institutions of Learning and

Ministry of Education to develop and implement tax curriculum
initiatives.
KRA also implemented initiatives to make compliance easier

through publishing pamphlets, creating a website, organising
sector-based seminars and workshops, providing assistance
in filling tax returns and keeping tax offices open for longer
hours on due dates. Efforts were made to reduce compliance
costs through simplification of tax forms, tax clearance
procedures and re-engineering of business processes.
The Authority as well introduced the Taxpayers Charter,

which is treated as a social contract with the taxpayer. The
charter stipulates the rights and obligations of taxpayers and
performance standards to guide the Authority as it discharges
its duties. Further, KRA introduced internal standards, to guide
internal customer relationships. This would in turn enable it to
meet its commitment to taxpayers.
(xi) Introduction of Taxpayers Week and Top Taxpayers Awards

Like all corporate entities, KRA required to demonstrate
Corporate Social visibility by giving back to society in
appreciation of its support. The first Taxpayers day was held
in 2003 and the first Taxpayers Week in 2004. In this regard,
a Taxpayers Week has been held as a major annual activity
since the year 2004/05. Top taxpayers in various categories
are awarded and feted for their exemplary performance in
terms of compliance and the amount of revenue paid.
(xii) Improve Integrity and Zero Tolerance to Corruption

An integrity division was also formed under the Office of the
Commissioner General but reports administratively to the
Commissioner of Support Services (CSS). In 2005, the Integrity
Division developed the Integrity Development Guide and
Integrity Action Plan. The instruments enhanced self evaluation
and peer review mechanisms thereby inculcating a culture of
integrity within the Authority.
52
A major milestone was realised in 2006 when KRA, for the first
time, exited the Transparency Internationals bribery index (BI).
The major challenge is for the Authority to stay out of the (BI)
KRA embraced and implemented the Public Service Integrity
Programme. The following integrity initiatives were put in
place: Training of Integrity Assurance Officers; establishment
of Corruption Prevention Committees (CPCs); review of the
KRA Code of Conduct, preparation of operational manuals for
all functions; development of Corruption Risks Assessment
and Corruption Prevention Plans; sensitization of all staff
on integrity issues; and preparation of Integrity and Whistle
Blowing Policies.
An internal Affairs Unit was set up in 2007 under the

Commissioner Generals office as an independent office to
deal with staff integrity and disciplinary matters. The unit was
later moved to Investigation and Enforcement Department,
with the aim of providing the unit with the requisite investigative
support required to collect and collate integrity related
information. It was also in recognition of the fact that most
corruption incidences were related to tax evasion.
(xiii) Assets Register

KRA initially lacked proper asset records. It was therefore
difficult to identify what belonged to the Authority. The RARMP
introduced an Assets Register which lists all property, both
movable and fixed like land and buildings, fixtures and fittings,
and motor vehicles, among others. The introduction of the
register facilitated the acquisition of title deeds to corroborate
ownership.
(xiv) Quality Management and ISO Certification

KRA is committed to provide quality service delivery through
implementation of a Quality Management System (QMS). This
involves documentation of processes, procedures and practices
to meet the requirements and expectations of its customers,
thereby improving its management system. The establishment
of the QMS led to the attainment of ISO 9001:2000 certification
in September 2007. With ISO certification, KRA embraced
continuous improvement as a way of ensuring that it meets
customer expectations. KRA is among the first revenue
53
The Vice President Hon. Kalonzo Musyoka (L) presents an ISO

Certificate to M.G. Waweru during the certification ceremony in 2008.
administration in the world to attain ISO certification. This is in

conformity with its vision of being the leading revenue Authority in
the world respected for professionalism, integrity and fairness.
(xv) Corporate Identity and Re-branding

Following reforms undertaken by KRA, attributes associated
with the Authority changed significantly for the better
necessitating re-branding. The logo, colours and taglines
were changed to reflect the new brand identity of KRA, which
come with new expectations.
The 3rd Corporate Plan highlighted the need to mark the birth
of new KRA with a new logo, corporate colours and identity
following the successful implementation of RARMP. This is
expected to endear the reformed KRA to its customer.
The newly formed Marketing and Communication department

was thus mandated to spearhead corporate re-branding and
corporate identity.
(xvi) Human Resource Revitalization

The initiative under this component aimed at rejuvenating
the workforce by fostering technical competence and
professionalism. The initiatives undertaken included;
development of a Scheme of Service for support staff,
54
harmonisation of remuneration, capacity building through

training, revamping of the Kenya Revenue Authority Training
Institute (KRATI), introduction of a performance management
system and the BSC, initiating change management and
change communication programmes to enhance ownership
of the reform initiatives.
(a) Harmonization of Job Titles Across Support and Operations

Staff
As part of restructuring, the management harmonised job
titles. Prior to this exercise, there were different job structures
and titles in support and revenue departments complicating
the Authoritys responsibility relationship. The old structure
can be traced to the days when the tax collection function
was handled by the Income Tax, VAT and Customs & Excise
departments under the supervision of the Permanent Secretary,
Treasury. The support functions such as human resources,
finance, planning and payroll were handled by the Ministry.
The harmonisation exercise was completed in 2004/05 and
has contributed significantly to integrating KRA into a unified
corporate entity.
(b) Embracing Performance Management

KRA introduced the Balanced Scorecard (BSC) and
performance appraisal as performance management tools
from 2003. The BSC approach differs from the traditional
approach to performance management in that it considers all
four perspectives in evaluating performance namely: internal
processes, customer, people and financial perspectives. KRA
adopted performance contracting from 2006 on a positive
note having implemented the Balanced Scorecard model. To
enhance performance amongst staff, KRA introduced a staff
recognition and awards scheme. This scheme recognizes and
rewards top performers.
(c) Human Resources (HR) Policies

For clarity and transparency, the Human Resource
Department developed several HR manuals, which acted as
communication tools to enhance awareness among staff on
55
HR matters. The manuals include; KRA Code of Conduct,

Medical Policy, Career Path Development Policy, Training
Policy and the Pension Scheme Manual, among others.
(d) Kenya Revenue Authority Training Institute (KRATI)

KRATI was established as an internal training facility for
Graduate Trainee Courses, Refresher Courses, East Africa
Customs and Freight Forwarders Practising Certificate
(EACFFPC) training programme for Clearing Agents and
other new courses. KRATI is an accredited Regional Training
Centre for World Customs Organization (WCO) for Eastern
and Central Africa. The institute also uses an e-learning
platform to enhance knowledge.
To enhance its capacity, the institute has entered into

collaboration with other higher learning institutions such
as the Eastern and Southern Africa Management Institute,
Jomo Kenyatta University of Agriculture and Technology and
University of Canberra.
(xvii) Adopting ICT and Modern Business Systems

KRAs capacity to receive access and process data in a
seamless and integrated manner, is reliant on the automation
of revenue administration at all levels. This is aimed at providing
efficient services to stakeholders thereby achieving high levels
of taxpayer compliance. Information and communication
technology (ICT) is, therefore, critical to KRAs overall goals
and objectives. The legacy systems had been developed with
little thought given to the advantages of integrating them for
purposes of information sharing. They did not support efficient
data processing, could not provide adequate management
information and lacked requisite supporting infrastructure.
56
(a) Business Process Automation

The Business Automation Project embarked on a
comprehensive automation initiative to modernise and
integrate business systems. The objective was to promote
efficiency and effectiveness and enhance tax compliance.
Ezekiel Saina, Senior Business Automation started with the development of the
Deputy Commissioner-ICT ICT strategy articulating the road map to integrated business
architecture. It also aims at providing service to both internal
and external stakeholders, enabling Single View of the
Taxpayer across all KRA functions and facilitating operational
excellence. The initiatives include: Customs System,
Integrated Tax Management System, Vehicle Management
System, Enterprise Resource Planning System, Data
Warehousing and Revenue Portal, Disaster Recovery and
Business Continuity Plan, improvement of IT infrastructure,
enhancement of IT security, implementation of a Common
Cash Receipting System (CCRS), Performance Dashboard,
and e-learning systems, among others.
(b) Launch of the KRA Website as a Source of Information

The launch of the KRA website in 2000 effectively signaled
a change in the mode of information access, making it
easier and cheaper for taxpayers to access vital information
conveniently. The website domain address was later changed
to www.kra.go.ke from www.revenue.go.ke to reflect KRAs
corporate identity. The website has enabled the organisation
to provide several online services being an effective medium
of communication. It has significantly reduced the enquiries
and physical visits to KRA premises.
In addition, the website allows users to download updated

legislation on revenue Acts, public notices, Taxpayers Charter
and corporate plans, among other documents. It also provides
current information for advertised tender and job opportunities.
The website has been made interactive to allow taxpayers to
forward questions, which are responded to by appropriate
KRA departments within the defined time limits.
57
Customs The role of Customs has expanded from the traditional revenue
Administration collection function to facilitation of international trade and
ensuring security and protection of society from restricted
Reforms
and prohibited goods. Most of customs reforms are guided by
international conventions, agreements, and frameworks like
the Kyoto Convention 2000, which addresses harmonisation of
Customs procedures, World Customs Organization (WCO) Safe
Framework of Standards, which addresses relations among
Customs administrations and business to facilitate trade.
The Customs Reform and Modernization (CRM) programme aimed

at changing the way the department operates by injecting vibrancy in
revenue administration. The CRM began with the establishment of
a new organisational structure with the aim of addressing structural
inefficiencies and gaps identified as a result of reforms. Domestic
Excise also had to be hived off and placed under Domestic Taxes
in line with global best practice. CRM involved simplification of
procedures and introduction of a self assessment system, which
placed the burden of correctness of declarations made in the hands
of traders and /or their appointed agents.
The next key feature of CRM was the implementation of risk

management techniques to govern the extent of document checks,
physical inspections and audits. The approach is governed by
compliance record, level of risk associated with players in the
transaction and the type source of goods. In this approach, stringent
enforcement measures including use of intelligence reports, patrol
boats, sniffer dogs, x-ray scanners and other modern techniques to
counter criminal activities.
This component also includes initiatives under the ambit of the East
African Trade and Transport Facilitation (EATTF) project. They
are aimed at ensuring the integration of the East Africa Customs
Union and trade facilitation within the region. The main initiatives
under EATTF project include: procurement of ICT infrastructure;
procurement of x-ray cargo scanners; refurbishing of border
stations along the Northern Corridor, implementation of a One Stop
Border Post (OSBP) in selected border stations and provision of
consultancy services on capacity building. Also under this initiative
is the Port Community Based System, which is being implemented
58
by KRA and Kenya Ports Authority (KPA). This initiative will ensure
access to information from a wide cross section of stakeholders.
Review of the Customs Organizational Structure

Review of the organisational structure begun with the transfer of
the Domestic Excise function from the department. Before 2004,
the department was known as Customs and Excise Department
and was charged with the responsibility of collection of import duty
as well as excise duty. In year 2004, the Excise Duty function of
the department was transferred to Domestic Taxes. Since then, the
department was renamed Customs Services Department (CSD).
The rationale for removing domestic Excise Duty was that; firstly,
it is largely a domestic tax and therefore should operate under
the domestic taxes framework. Secondly, it aimed at addressing
East African Customs Management Act (EACCMA) requirement,
which created uniform legislation for imports in the region but never
covered domestic excise tax regime. Each member state was
therefore expected to develop and accommodate its domestic excise
function within their respective tax jurisdictions. To accommodate
these changes, the departmental structure was reviewed to create
seven divisions namely:
(i) Trade division: to oversee management of exemptions,
security bonds, waiver applications, Tax Remission Export
Office (TREO), manifest reconciliation and the Document
Processing Centre (DPC);
(ii) Operations Division: Responsible for the cordination of the
Commissioners office and the regions; it also oversees
the user management functions of all the systems in the
department;
(iii) Policy and legislation: responsible for licensing, international
and inter-governmental affairs, statistics, legal and regulatory
affairs and quality assurance;
(iv) Post clearance audit: responsible for audit and verification of
entries after clearance of goods;
(v) Enforcement and compliance: to tackle diversion of transit
goods, smuggling control of importation and exportation of
restricted and contraband goods, and risk management;
(vi) Valuation and tariff: to provide guidance on valuation and tariff
classification. It also covers the IDF section and issuance of
certificate of origin;
59
(vii) Projects Management office: tasked with overseeing

Customs reforms initiatives by ensuring that all projects are
run to their conclusive end and within the specified timelines
at minimal cost. The reform projects have been clustered
into four, namely: Business automation, Client Services, and
Enforcement and Business Process Improvement.
Customs Services Business Automation

Reforms initiatives implemented under Business Automation were
aimed at introducing modern technology to assist in document
processing in the department. With this in place, the organisation
was able to introduce system checks and audit trails as well as
minimise interaction between customers and officers, which would
greatly reduce breaches in integrity in the organisation. These
initiatives include:
(i) Implementation of the Simba 2005 System

A central pillar of a reliable Customs administration is a stable
automated IT system that can facilitate rapid cargo clearance and
electronic exchange of data with the trading community. Prior to
2005, Customs maintained an outdated IT system known as
BOFFIN. In the time release study conducted in 2004, BOFFIN
was noted to be cumbersome for taxpayers. Recommendations
in various IMF consultancy reports by the Fiscal Advisory Division
had repeatedly cited the lack of a Customs system as a major
impediment to trade. Following this, the management of KRA
undertook to search for an automated system that would address
the bottlenecks in Customs operations.
Feasibility studies were undertaken to understand the various

systems that were in use in Singapore, Mauritius, Philippines
and Zambia. In each of the visits to these countries, there was a
requirements list against which each system was analysed and
compared. Most of the systems fell short significantly and the level
of frustration mounted since the team did not seem to find a system
that they would confidently recommend to Kenya.
The answer to the long quest for a system came from unexpected
quarters in May 2004 in an informal meeting between the
60
Commissioner General, M.G. Waweru and the then Country

Representative to the World Bank, Mohktar Diop. He proposed to
the Commissioner General a system that existed in Senegal, which
he thought could be useful for consideration by KRA management.
The Senegalese Customs department operated a system known

as GAINDE 2000, which was a flexible and compatible Customs
IT system that had proved to be successful for them. Following the
meeting, the Customs Reform and Modernization project team was
assigned to Senegal to study the system.
The study visit found that most of their requirements were addressed
by this system. Acquisition and customisation of GAINDE 2000
was initiated and finally came into use in July 2005. This marked
the introduction of an internet-based Customs IT system dubbed
Simba 2005 System (S2005S).
In the past, once documents were processed they would be counter-

checked by the officer in charge and then delivered to the release
points in a diplomatic bag. In the event that there was no transport
to deliver the documents, it resulted in delays, with cost implication
and hindrance to trade. This also provided an opportunity for
manipulation and/or substitution of documents in the bag.
The Simba 2005 System has been at the centre of Customs

modernization in Kenya and enabled the automation of about 90 per
cent of Customs operations and dispensed with the need for traders
to physically visit KRA due to the web-based characteristic of the
system. Today, traders can remotely lodge entries electronically if
they have access to the internet and pay Customs Duties directly
and other fees through local commercial banks.
The Simba system revolutionised the conduct of Customs business

by introducing online lodgement of manifests and entries, electronic
processing, automated reports and reconciliations, electronic
presentation of Customs entries, automated calculation of duties
and taxes and internal accounting. The system also provides audit
trails and eliminates many human interventions, which reduced the
possibility of error or inappropriate practices.
61
As a result, over the recent years, a lot of gains have been realised,
with Customs revenue rising from Kshs 96 billion in 2003/04 to
Kshs 179 billion in 2008/09.
Chart 5 shows the growth in customs revenue from 2003/04 to

2008/09.
5
180
160
on
ue in Kshs Billion
140
120
100
179
80 157
142
60
Revenue
109 111
96
40
20
-
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
Financial Year
CSD Revenue Collections Linear (CSD Revenue Collections)
Interfacing the Road Transport Department System to the

Simba System
To facilitate clearance and registration of imported motor vehicles, in
April 2007, the Simba system enabled an interface with the Vehicle
Management System (VMS) of the Road Transport Department to
Customs processes. This allowed seamless flow of motor vehicle
details into the VMS. In October 2007, collection of registration fees
was incorporated into the Simba system.
The implication of this development is that once a car is imported,

the registration and clearance process are simultaneously carried
out and it leaves the port with a number plate. This process has
expedited the clearance of motor vehicles from the port and
simplified the revenue collection process.
Creation of a Document Processing Centre (DPC)

Another development that was facilitated and concurrently followed
the implementation of S2005S was the introduction of a 24-hour
centralised Document Processing Centre (DPC) in March 2006.
62
With the introduction of DPC, Customs clearance was revolutionised

and the so-called Long Rooms were replaced by a small group of
about 30 officers, based in Nairobi, to process Customs lodgements
(entries) from all over the country.
The DPC is located in Times Tower building, in Nairobi and its

administration falls under the Trade Division in CSD. It is based in an
ultra modern office environment with state of the art entertainment
equipment, which includes three 42-inch televisions, a music
system and all round CCTV cameras. This ensures comfort of the
officers who work on a 24-hour basis and process an average of
3,500 entries lodged daily from across the country.
As noted, the DPC replaced the legacy of Long Rooms, which were
synonymous with Customs operations in Kenya for over 30 years.
Long Room was a term used to describe a unit of Customs where all
paper-work necessary for the Customs clearance was undertaken.
The system was able to improve processes by eliminating lengthy
queues in long rooms, including tedious data capture processes.
The congestion in the longroom made it difficult for the revenue
officers to concentrate on their work. With the introduction of
the web-based DPC, customers can now lodge their Customs
documents from anywhere in the world.
Inside the DPC: Human intervention significantly reduced.
63
Implementation of Direct Banking for all Customs Payments

Another important reform in Customs that simultaneously came with
the implementation of S2005S was the introduction of electronic
banking to expedite payment of duties and taxes through a secure
electronic process. The payment modality has enhanced the
collection of revenue, expedited financial processing and provided
complete, accurate audit trails, thus greatly facilitating trade.
As part of the strategic direction, every effort is being made to bring

Customs processes for electronic banking to world standards.
Steps were taken to contract commercial banks to collect money on
behalf of CSD. Initial efforts began with contracting of the National
Bank of Kenya to collect Import Declaration Form (IDF) fees. As
this arrangement proved efficient, it was expanded to include the
collection of all other duty payments.
Previously, the bank received payments from traders and

transmitted payment data via their system to Customs terminals.
The Customs cashiers used the data to confirm payment once
the documents were processed and duly numbered. This has
now been expanded such that, currently, importers directly pay
duties at National Bank and Cooperative Bank. Importers/agents
present duly authorised numbered entries to bank cashiers, who
are connected to the S2005S. The cashiers input the payment after
verification of correct data capture and validation from the Customs
system.
Currently, KRA is promoting the use of Electronic Funds Transfer

(EFT) by implementing a Common Cash Receipting System (CCRS)
by developing a separate application dedicated to banks only for
direct revenue collection; integrating the current bank collection
used by CSD in S2005S; and interfacing the new application to
relevant business systems.
Orbus System
The Orbus System is the document collection component of
S2005S, which brings together external stakeholders who are
major players in trade facilitation including transporters, insurance
companies, banks and various government agencies. They all play
a major role in the process of goods clearance. The system allows
64
importers and agents to lodge their pre-clearance documents online.

The applications are then processed online by the stakeholders.
Currently, only the IDF is being processed in the system. Other
stakeholders are yet to be incorporated in the system. The
facilitation centre processes about 1,000 IDF applications daily.
Challenges Faced During Implementation of Simba
There were major teething problems in the initial implementation
stages of the system, with various cases of malpractices. Customs
revenue tumbled significantly in the first months of implementation
as a result of abuse by the traders and clearing agents. For example,
due to the confusion during the introduction of the electronic bank
payment system, there were a lot of underpayments of duty on motor
vehicles, resulting in significant revenue losses. Following this, a
Motor Vehicle Task Force unit was formed under the Investigations
and Enforcement Department.
One other key challenge was the language barrier given that the
system was rolled out with the assistance of the French-speaking
Senegalese government while Kenya is an English-speaking
country.
The other major challenge that was encountered during

implementation includes resistance from external stakeholders.
KRA had offered to train clearing and forwarding agents before
roll out of the Simba system. However, inspite of various publicity
and press advertisements in the print media by KRA for training,
very few clearing and forwarding (C&F) agents turned up. When
the grace period lapsed, those C&F agents that had not undergone
the training found themselves out of business. In an attempt to
stop the implementations of Simba, the Kenya International Freight
Forwarding and Warehousing Association (KIFFWA) instituted court
action alleging that S2005S imposed unfair and costly requirements,
such as the need for computerization and trainings. With, the court
ruling in favour of KRA, the C&F firms agreed to undergo the
Simba training. KRA and KIFFWA later signed a memorandum of
understanding that governed the design and provision of training
for freight forwarders and clearing agents among other issues.
65
There was internal resistance to S2005S, causing the dismisal

of several senior officers in the department, to address these
challenges change management programmes were introduced.
A lot of resources have gone into ensuring that the security of the
system is at its best, by ensuring there is no misuse of passwords
or impersonation of the users. S2005S is currently available to all
users provided they have been trained by KRA before being issued
with access rights.
A crane lifting a container at the Port of Mombasa
(ii) Cargo Management Information System (CAMIS)

Customs Services has undertaken to review and simplify business
processes in Kilindini Port, Jomo Kenyatta International Airport,
and all the land border posts.
The objective of the Cargo Management Information System

(CAMIS) is to monitor and account for all un-entered cargo
destined for Container Freight Stations (CFS), Inland Container
Depots (ICD) and the Grain Bulk Handling Facility (GBHF), thus
minimising revenue loss; facilitate reconciliation of manifest and
data entry; ensure easy identification of goods to be moved to the
Customs warehouse; automate calculation of warehouse rent;
reduce diversion and loss of cargo; and enable real time generation
of management reports.
66
The system was necessary since most cargo is now being cleared
at the CFSs and not at Kilindini. It is characterised by its simplicity
and user friendliness as it allows completion of a transaction on a
single interface. It also is a first step towards eradication of manual
registers and duplicated efforts, thus ensuring optimization of the
departments resources.
(iii) Customs Oil Stocks Information System (COSIS)

The COSIS which is a web based ICT system, monitors and
reconciles oil stocks per oil marketer and was another milestone
in Customs.
It has greatly enhanced compliance and revenue collection from the

sector. The oil sector has also benefited from technological reforms
introduced through COSIS, which can also be described as a stock
management system designed to monitor and account for local,
transit and export oil products, reconcile oil stock imports into the
country and generate timely and accurate management reports.
(iv) Business Process Improvement (BPI)

Initiatives under this cluster are aimed at reducing time taken in
a process by re-engineering the process and removing redundant
and repetitive processes. Some of the initiatives include:
(a) One-Stop Border Post (OSBP)

In the past, border clearance procedures at the Kenya/Uganda
border stations were carried out independently by Customs
administrations in each country. Goods entering Uganda from the
Kenyan side were subjected to documentation and physical checks
at the Kenyan side of the border and vice versa. This duplicity in
procedures and documentation was not only time consuming but
also costly and a hindrance to trade facilitation.
The objective of OSBP was to address the above challenges by

implementing joint activities at the common border posts between
Kenya, Uganda and Tanzania to facilitate the entry process for
traders and reduce cargo clearance times. This concept has been
implemented at Malaba where joint verification is being carried out
for selected goods.
67
Japan International Cooperation Agency (JICA) offered technical

assistance to build capacity to implement the OSBP concept at
Namanga border through a consultant attached to Customs
for a period of two years. The expert developed a model for the
OSBP in building capacity through improvement of facilities and
equipment and enhanced technical knowledge in port operations,
risk management, post clearance audit, valuation, use of scanners
and intelligence.
The implementation of the OSBP includes the setting up of the

structures necessary to support the initiative. Besides technical
support from JICA, additional funding is provided by the World
JICA collaborates with KRA in capacity building for a One-stop

Boarder Post. The Commissioner of Customs Wambui Namu
receiving motorbikes and motor vehicles from JICA.
Bank to support the construction of infrastructure under the Ministry

of Roads and Public Works through the East African Trade and
Transport Facilitation (EATTF) Project. The African Development
Bank has also financed the development of infrastructure for this
initiative at the Namanga border post. Being a regional project
meant to be implemented jointly with partner states, it has faced
some challenges particularly in inter-country coordination, which
has delayed implementation.
68
In addition, Malaba and Busia border stations have commenced

24-hour clearance for both passenger vehicles and buses. These
measures led to remarkable decrease in clearance times and
improvements in service delivery and integrity levels.
(b) One-Stop Centre

The One-Stop Centre is an initiative that has been rolled out at
the Kilindini Port aimed at reducing clearance times by bringing
together under one roof all the stakeholders involved in the port
clearance process. The stakeholders include; Kenya Bureau of
Standards (KEBS), Kenya Plant Health Inspectorate Services
(KEPHIS), Port Health, Kenya Police, Clearing Agents , KRA and
KPA among others, which have been allocated space in a central
premise.
(c) Centralisation of the Management of Security Bonds

Bond execution was previously done at the various regional
headquarters, while the cancellation of bond was effected at the
various places of exit. These activities were centralised in June
2007 with the formation of the Security Bonds Management Unit
(SBMU), which falls under the Trade Division.
The centralisation in Nairobi of security bonds management has

improved bond execution and cancellation, enhanced surveillance
of bonds management and substantially minimised abuse of the
function of bonds maintenance in the Simba system.
(d) Post Clearance Audit (PCA)

PCA functions were formerly undertaken in a unit known as the
Jerquing branch. The Jerquing branch functions were limited to
desk audits and there were no field audits involved. Historically,
Jerquing was cumbersome and labour intensive and it involved
reviewing all entries to check for any possible mis-declaration and
hence revenue loss.
As part of modernisation within CSD, a Customs Clearance Audit

(CCA) Unit was established in 2001. CCA, unlike the Jerquing branch,
conducted verification of documents on goods after clearance but
before the goods left the port. Under CCA arrangement, cargo
69
is verified and documents subsequently dispatched to Records

Management Office.
In modern Customs administration, the process of verification is

carried out on the basis of advanced risk management techniques
in a post release environment. With this realisation, the CCA unit
was later transformed to the Post Clearance Audit in 2005 to move
towards international standards for carrying out audits of import and
export transactions. Audit teams dedicated to driving an effective
programme of PCA were put in place.
In PCA, field audits are carried out where there are suspicions of
possible misrepresentations, undervaluation and wrong declaration
of tariffs. The results of these audits are then used to enhance
profiles and the risk rating of the importers, clearing agents and
product origins.
KRA collaborates with regional revenue authorities in data

exchange.
It is KRAs intention to enhance PCA by training staff to work in

an automated environment, for example by using Audit Command
Language (ACL) and other Computer Aided Audit Techniques
(CAAT).
70
(e) Revenue Authorities Digital Data Exchange (RADDEx)

RADDEx is an electronic communication channel developed to
allow the seamless exchange of information between S2005S
and the systems used by the other revenue authorities within the
EAC region (i.e. the Asycuda++ system used in Uganda, Tanzania,
Rwanda and Burundi) without any human interface. It is meant to
greatly benefit traders in the region by reducing the time and cost
of cargo clearance. It also provides a secure means of confirming
transit and export goods and entry details to forestall the risk of
diversion to the local market.
Currently, the S2005S is able to transmit export data to the Uganda

Revenue Authority (URA) system and also receive information on
the import entries lodged on the other side of the border. KRA is
also able to transmit data to the Rwanda Revenue Authority (RRA)
and Tanzania Revenue Authority (TRA).
In future, the RADDEx is envisaged to become a key component

for managing trade within the East African Community (EAC).
(v) Client Services

Client Services are aimed at improving service delivery to customers
by simplifying procedures and transforming business operations.
(a) Takeover of Pre-Shipment Inspection Services (PSI)

The large scale adoption of the pre-shipment inspection (PSI)
concept in developing countries emerged with the support of
the IMF and the World Bank in the 1980s. It is an arrangement
where inspectors in an exporting country inspect the goods
destined for the importing country before shipment to verify
contents, tariff classification and price levels and ensure
that there is no under-valuation or under-invoicing. PSI also
helps to, prevent sub-standard goods from entering importing
countries territories and deflecting attempts by importers to
avoid payment of Customs duties.
Since 1994, Kenya relied on PSI services to ascertain the

quality, quantity and value of imported goods from the country
of consignment. PSI services enabled KRA to offload many
71
operations. The idea was to enable KRA focus on its core

business of revenue collection, while outsourcing other
services such as verification and valuation.
PSI was an avenue to facilitate the implementation of the

General Agreement on Trade and Tariff (GATT) method of
valuation known as Agreement on Customs Valuation (ACV10)
; liberalization of trade; building capacity for the transition
from Brussels Declaration of Value (BDV) to ACV; Building
a Valuation Database; and to minimise under-invoicing and
wrong declarations. The introduction of PSI brought with it
major benefits to Customs, such as quality control, capacity
building, implementation of the GATT valuation method, and
the acquisition of a database for international commodity
prices.
There have been four different PSI services companies

providing services to the Kenyan Customs since 1994,
namely Cotecna (May 1994-June 2005), Societe Generalle
de surveillance SGS (May 1994-June 2001), Bureau Veritas
Internationale Bivac (May 1994-June 2001 and July 2003-
June 2005) and Intertek (February 2001-October 2003). These
companies were allocated different international geographical
zones in which to provide their services until the termination
of the final contracts in June 2005, following takeover by
Customs, which begun undertaking local inspection of goods
to ascertain values.
To date, there are more than 45 countries in the Third

World that continue to utilize PSI services, 23 of which are
from Africa. However, there has been a gradual awakening
among these countries that Customs departments are just as
effective in undertaking the same. Many PSI service contracts
have subsequently been terminated in Uganda, Zambia and
recently Kenya in 2005.
(b) Authorized Economic Operator scheme (AEO)

Authorised Economic Operator (AEO) is a World Customs
Organization (WCO) standard concept, which involves giving
preferential treatment to traders and their clearing agents, who
over a period of time have proven to be reliable and compliant
72
A mobile x-ray cargo scanner at the Port of Mombasa.
with Customs procedures. CSD commenced implementation

of the concept in 2008. The programme is expected to cover
exporters, manufacturers, carriers and terminal container
freight service providers.
Customs Enforcement
Enforcement is a requirement of any modern customs organisation.
The following initiatives were implemented:
(a) X-ray Cargo Scanners

There is increasing global concern about the security of cargo
and the protection of society from the movement of weapons
and materials that can present serious security risks to
individual countries. In this environment of increased security
consciousness, the use of technology, particularly in the form
of cargo scanners, has become a feature of modern Customs
organizations. CSD has adopted the use of scanners to help
alleviate the security threats and to more effectively monitor
container contents for both imports and exports.
In keeping with the long term strategy of developing a
programme governing the use of scanner technology, CSD
has scanners at Kilindini Port, Mombasa, selected CFSs in
Mombasa, Jomo Kenyatta International Airport (JKIA), ICD
Embakasi, Eldoret Airport and Moi International Airport,
Mombasa.
73
Before the installation of scanners at Mombasa, 90 per cent of

the cargo underwent different levels of verification with 5 per
cent of the cargo being subjected to 100 per cent verification.
Personnel were trained in X-ray scanner maintenance and

operation. So far, 45 Customs officers have been trained in
China.
(b) Introduction of the K9 Unit to Enhance Anti-narcotic

Enforcement
In addition to traditional approaches to the detection and
interception of contraband and illegal substances such as
drugs, CSD introduced a Detector Dog Programme. A Dog
Unit was established in March 2005 and two detector dogs
were procured for operations of the unit to commence. The
objective of this initiative was to develop an enforcement
programme that uses dogs to detect drugs and other prohibited
imports and exports.
KRA officer (R) under training in dog handling in the USA KRA
collaborates with US Customs in Capacity Building for the K9 Unit.
The Dog Unit conducts most operations at JKIA. It also

operates at Nairobi Post Parcels Office, Moi International
Airport, Inland Container Depot at Embakasi and Wilson
Airport. Since its inception, the Dog Unit has made seizures
74
of Cocaine, Amphetamines and Cannabis Resin Hashish,

among other prohibited drugs at the ports of entry.
The initiative faced some challenges in its formative stages,

including lack of proper training for the handlers and
specialised care for the dogs. However, a number of officers
attended special training on dog handling in the United States
(US). Later the Authority acquired four additional dogs from
the US government to enhance the capacity of the unit.
(c) Revamping of the Marine Unit

The Marine Unit existed in Customs during the 1970s but due
to limitations in expertise to maintain and service the boats and
also due to funding constraints, this unit gradually grounded
to a halt. It had a trained workforce, including coxswains and
engineers.
A KRA patrol boat
In a bid to improve enforcement and enhancement through

detection and prevention of smuggling along the coastline
and Lake Victoria region, the Marine unit was re-established
in 2007 with a clearly defined mandate within the Customs
organisational structure. However it has since moved to the
Board Corporate Services and Administration Department.
75
The initiative entailed acquisition of four patrol boats, the

development of standard operating procedures and the
training and equipping of staff. So far, five high speed patrol
boats have been aquired and deployed in the Indian Ocean
and Lake Victoria.
(d) Customs Border Control Services

In the past, Customs relied heavily on a division that was
known as Customs Preventive Services (CPS). This division
was central to its operations but did not achieve its intended
objectives due to capacity constraints. It did not receive the
resources it required. The unit had a complex organisation
structure, which also comprised a specialised division
known as Mombasa Anti Smuggling Team (MAST) that was
responsible for the rummaging of ships.
This initiative was aimed at enhancing border checks and

strengthening enforcement capacity at the airports, border
crossing points and other international gateways. It entailed
re-branding the border control functions from the Customs
Preventive Service to Customs Border Control Services
(CBCS), increasing its border control staff by recruiting
university graduates and acquiring various modern tools.
Training for the officers has now been extended to include
training at the Administration Police Training College (APTC).
KRA Border Control Officers at a passing out parade.
76
So far, 360 Customs Border Control Officers have been

recruited and trained.
Domestic Taxes The implementation of Domestic taxes reform and

Administration modernization programme commenced in July 2004. The
programme was aimed at developing a fully integrated and
Reforms
modern domestic tax administration by 2008/09.
The key objectives were to fully integrate domestic revenue

administration, develop a holistic approach to taxpayer
services thereby providing a single view of the taxpayer, reduce
the administrative and compliance costs to both taxpayers
and KRA, simplify procedures and improve services to
taxpayers through taxpayer segmentation, enhance taxpayer
compliance through introduction of Electronic Tax Registers
(ETR), broaden the tax base by netting the informal sector
and enhance revenue collection.
(i) Transformational Reforms

These reforms were necessitated by previously existing
operations in the application of domestic tax systems, which
were not synchronised and would sometimes even work
antagonistically. It began with the formation of Domestic
Taxes Department (DTD), followed by taxpayer segmentation
and finally formation of the Large Taxpayers Office.
(a) Integration of Domestic Taxes

Globally, most countries that have introduced VAT have
integrated their direct and indirect tax administrations. This
approach has significant advantages.
First, integration of the revenue departments provides

for a more modern tax administration, where a function-
based organisation can be implemented in stages. Such an
organisation helps improve the effectiveness and efficiency
of tax administration. Second, this approach helps boost
the revenue performance through automatic cross-checking
of data within departments and implementation of effective
enforcement programmes. Third, integration provides for
77
improvement in income tax administration. For instance,

collection and enforcement systems designed for VAT can be
used for PAYE and corporate tax. In addition, the taxpayers
registered for VAT need to be closely monitored to maximize
income tax collection. Integrating VAT and income tax
administration also facilitates detection of non-compliance
with filing and payment and enables pursuance of under-
reporting of sales and use of fake invoices.
Lastly, close coordination with the Customs administration is

also required for effective administration of VAT and income
tax in terms of providing information on external trade (i.e
imports and exports), identification of persons liable for income
tax and detection of transfer pricing between multinational
corporations.
In July 2004, Income Tax and VAT departments were merged

to form DTD. In addition, DTD took over the administration
of Domestic Excise from Customs and Excise Department
in July 2005. The integration was aimed at improving
taxpayer services by providing: a one-stop shop for taxpayer
services; a common registration function; a single accounting
framework; enforced collection and audit across tax heads,
data processing and information sharing operations.
Overall, this approach reduced the compliance burden on

taxpayers, who only had to deal with a single contact point,
and permitted greater standardisation of work processes
across taxes, thereby enhancing productivity and revenue
performance.
The formation of DTD necessitated the harmonisation

and merger of the former VAT and Income Tax stations.
Consequently, a total of 18 new stations (excluding LTO) and
three satellite stations were created. The stations were: East
of Nairobi, West of Nairobi, North of Nairobi, South of Nairobi,
Mombasa North, Mombasa South, Nakuru, Thika, Kisumu,
Eldoret, Nyeri, Kakamega, Machakos, Bungoma, Kisii, Meru,
Embu and Malindi. The satellite stations were Voi, Kericho
and Garissa .
78
The various tax programmes in the former Income Tax and VAT
departments were also reviewed and harmonized in line with the
new DTD. Eight new tax programmes were created: Taxpayer
Registration and Recruitment; Returns Processing; Refunds;
Audit; Compliance and Collections; Debt Management; Policy
and Legislation/Technical Services and Taxpayer Education
and Information Services. The new department was able to
conduct joint taxpayer recruitment, returns processing, audit
and taxpayer education and information services.
Among the key initiatives was the improvement of the

management of audits. Before the merger of Income Tax
and VAT departments, tax audits were conducted under the
various programmes that existed in the two departments.
Therefore, a taxpayer would be visited for audit purposes by
different teams from different KRA departments. The audit
visits were uncoordinated, leading to duplication of functions
and resources, thereby inconveniencing taxpayers who
were forced to devote a lot of resources to comply with KRA
requirements.
To address this challenge, DTD introduced and commenced

joint audits in August 2004. This meant that a taxpayer was
to be visited by one team to perform audit covering all tax
obligations at the same time. This led to efficiency in the conduct
of the audits, thereby saving the taxpayer valuable time and
resources to focus on their business. The initiative also led to
reduction of the cost of administration and compliance to the
taxpayer and KRA respectively.
(b) Taxpayer Segmentation

While the functional approach to revenue administration leads
to better utilization and deployment of resources than the
fragmented tax-type organization, it also needs to be borne in
mind that different taxpayer populations have unique needs,
risk levels and contribution to overall revenue. For example,
the large taxpayers are typically distinct legal entities; are
few but often with many employees; have high turnover; are
often involved in complex international transactions, perhaps
through their subsidiaries or affiliates; may wield political
79
and economic influence within the government and business

circles; usually maintain proper books and records; and
can afford to hire the services of professional accountants,
tax planners and legal advisors to interpret the law to their
advantage.
In contrast, a moderate number of medium-size businesses

such as sole proprietorships or partnerships may have less
formal structures, have fewer employees, moderate levels of
business activity that are often cash-based, but with possibly
less diligent book-keeping procedures, leading to more cases
of under-recording of taxable income, and tax evasion.
Information Box 2: Advantages of the Integrated

Functional Revenue Administration
A one-stop-shop for a taxpayer to register for all current tax obligations,

and receive an identification number for all tax administration purposes;
A single, comprehensive approach to taxpayer services that provides
all necessary information and support to meet a taxpayers needs
in one place , tailored according to the taxpayer segment and unique
circumstances;
Single payment and returns processing arrangements to minimise
compliance costs to the taxpayers;
An integrated audit strategy and approach to optimise the use of audit
resources, eliminating duplicity and enhancing coordination in audits;
An integrated approach to debt management and collection enforcement,
ensuring that the taxpayer is viewed and treated as a single entity for
debts, non-filing, and offsetting credits. Source-World Bank
A potentially much larger segment of very small or micro-

businesses pose many difficulties with regard to identification
and regulation. It is therefore important to ensure that they pay
their fair share of taxes commensurate with their capacity. In
Kenya, much of this group is considered to be in the informal
sector, commonly referred to as Jua Kali sector. Often, proper
book-keeping is non-existent, not to mention the migratory
nature of these taxpayers. Given the harsh economic
conditions in recent years, there is a perception in Kenya that
the informal sector has grown substantially, while the other
sectors have either stagnated or declined. Accordingly, KRA
80
appreciated the need to develop appropriate strategies to

tackle this issue.
Finally, a large number of taxpayers whose only source of

income is from employment typically have relatively small
tax obligations, but little scope for tax evasion since their
taxes are administered through the well-established Pay As
You Earn (PAYE) system. There exist practical challenges,
however, with regard to taxing an employees income from
sources other than employment. The need to understand
taxpayers activities, habits and needs has led KRA to adopt
taxpayer segmentation in the recent times.
Segmentation required categorising taxpayers into large,

medium and small taxpayer groups. The objective of this
approach was to assist in addressing the unique needs of
each category of taxpayers. This led to the formation of
LTO and introduction of Turn Over Tax (TOT) to improve tax
administration.
With taxpayer segmentation, some functions were unique

while others could be shared. The cross cutting functions for
sharing included the policy functions of technical, compliance,
debt, audit and taxpayer services.
(c) Elevation of the Large Taxpayers Office (LTO)

After the integration of domestic taxes under DTD, it was
noted that 20 per cent of taxpayers in the register contributed
80 per cent of the total departments revenue. As discussed
in segmentation, it was not possible for all the taxpayers to be
in the same pool and treated equally.
Following this strategy, Large Taxpayers Office (LTO), which was

previously a division within DTD, was elevated to a department
headed by a Commissioner in 2006, while small and medium
taxpayers were managed under Domestic Taxes Department-
J.K. Njiraini, Domestic Revenue (DTD-DR).
Commissioner-Domestic
Taxes (Large Taxpayers
Office)
81
The criteria used in classifying the two taxpayer categories were:
All companies with turnover of Kshs 750 million and above,

all central government headquarter operations, all banks and
insurance companies, all wines and spirits manufacturers and
local authorities with city status are administered under LTO.
Taxpayers with turnover between Kshs 5 million to 749 million

fall under medium taxpayers, while taxpayers with turnover
between Kshs 0.5 million to 4.9 million fall under small
taxpayers. All these are administered under DTD-DR.
Currently, LTO administers about 800 large taxpayers. The

operations of DTD-LTO are centralised at Nairobi while DTD-DR
has a total of 18 stations and three satellite stations spread across
the country.
After the elevation of LTO to a department within Domestic Taxes,

decisive steps have been taken to improve its general administration,
including audit selection, compliance & debt management.
LTO has implemented the following key initiatives to enhance

revenue collection and improve service delivery: taxpayer
segmentation by sectors and appointed relationship managers
to address the needs of the taxpayers in each sector; developed
a revenue tracking module; established rapid response capacity
for compliance monitoring; implemented excise stamps for wines
and spirits and related controls; created LTO homepage within
the KRA website; created and disseminated LTO e-mail address
to taxpayers; established e-mail database for large taxpayers;
established monthly information bulletin The Tax Point and
established communication function and customer care desk in
Times Tower building, Nairobi.
(ii) Tax Programme Reforms

These reforms were implemented targeting selected programmes
with the aim of increasing revenue collection, improving compliance
and to act as a deterrent to tax offenders by implementing stringent
offender punishments. Details on the implementation of these
initiatives are:
82
(a) Enhancement of Tax Compliance

Value Added Tax (VAT) was introduced in Kenya in 1990.
Prior to its introduction, Sales Tax was levied on goods
manufactured or imported into Kenya. With the introduction
of VAT, the coverage was expanded to include goods and
services and also to cover wholesale and retail supplies.
This resulted into a rapid expansion of the number of
taxpayers.
However, VAT administration faced several challenges,

including the growth in delinquent filers, some who could
not be traced; the growth of a large number of unregistered
suppliers of taxable supplies, especially from the informal
sector; poor record keeping resulting to some taxpayers
not declaring all their taxable sales and inability to collect
huge arrears established long after undeclared taxable
supplies had been made and payments for them received,
resulting to huge debt portfolio that was difficult to collect.
To address these challenges, KRA implemented withholding

VAT and Electronic Tax Register systems to enhance VAT
compliance.
The measures have greatly enhanced the payment

compliance and increased the number of taxpayers
registered for VAT. The number of new taxpayers recruited
during the 2003/04 financial year increased to 8,785 from
4,621 in 2002/03, a growth rate of 90 per cent. In addition,
VAT collections increased by 14 per cent from Kshs
27,586 billion to Kshs 31,411 billion between 2002/03 and
2003/04. Moreover, VAT revenue soared to Kshs 40,183
billion in 2004/05, representing an annual growth rate of 28
per cent.
(b) Withholding VAT System

KRA introduced the Withholding VAT Agency System from
1st October 2003. The main objectives of the system were
to promote compliance, net the credit, nil and non-filers
Alice A Owuor -
Commissioner Domestic
and reduce uncollected debts by collecting tax from some
Revenue of the major consumers.
83
The system is applicable to any person directed in writing

by the Commissioner to withhold and pay VAT due on his
local purchases direct to the Commissioner, whenever
payment is made to the supplier. The system focuses on
institutions that make exempt supplies.
These institutions include government ministries and

departments, local authorities, state corporations,
public institutions including schools, banks and other
financial institutions, hospitals, insurance companies and
cooperative societies. Later, exporters were added to the
list of withholding VAT agents. All traders dealing with
these institutions and exporters were required to register
for VAT purposes.
The withholding agents are appointed by KRA and issued

with a Withholding VAT Agent Certificate. Each withholding
VAT Agent is provided with a unique identification number.
The system applies to payments in respect of local

taxable supplies only. VAT is withheld on such payments
irrespective of whether VAT was charged or not and whether
the supplier is registered for VAT or not. A withholding VAT
certificate (VAT 32A) is issued to the supplier in respect to
the amount of VAT withheld.
This system does not interfere with the procedures of

submitting VAT returns and accounting for VAT charged
by registered persons. The Withholding VAT returns (VAT
32) are filed on a weekly basis and the only exceptions are
banks and insurance companies, who file once a month.
By the end of 2006/07, KRA had appointed a total of 2,500
withholding VAT agents.
The withholding VAT system is continuously reviewed to
ensure it serves the purpose for which it was intended.
Accordingly, DTD revoked the appointment of certain
Withholding VAT Agents in October 2007. The de-registered
Agents included exporters and their suppliers to exporters,
cooperative societies, private hospitals, insurance brokers
and agents, and public and private schools. This implies
84
that these traders ceased to be Withholding VAT Agents

and are not authorised to withhold any VAT or issue
withholding certificates.
(c) Electronic Tax Register (ETR)

The administration of VAT relies heavily on proper recording
of transactions as products move towards final markets. But
this requires transparency in running business transactions
and lengthens the compliance process. However, with
proper record-keeping, one advantage of ETR is that it
creates a clear invoice trail, making it much easier to detect
and deter tax evasion. Cases of maintaining parallel books
of account for VAT and business records were rife.
Therefore, the introduction of the ETR system in July

2005 as an enforcement tool was aimed at addressing
the perennial problem of poor record keeping for business
transactions.
The system was introduced after extensive study visits

to Italy, Greece and Turkey. The main objective of the
introduction of the ETR system was to enhance revenue
by enforcing improved and secure receipting and record
keeping methodologies. Traditionally, VAT registered
persons are supposed to keep specific records in a manner
that has been overtaken by technological changes, such as
the use of computerised accounting packages. A number
of traders do not remit all taxes they have collected and
use VAT to finance their activities. Others maintain several
sets of accounts with the purpose to evade their VAT
obligations.
By implementing the ETR system, Kenya has followed in

the footsteps of Italy, Greece, Poland, Brazil, Argentina,
Venezuela, Ukraine, Bulgaria, Yugoslavia, Russia,
Romania, Cyprus, Malta, Hungary, Czech Republic,
Latvia, Lithuania, Turkey, European Union, Germany and
Sweden, which introduced a requirement for taxpayers to
install ETR. By May 2008, a total of 38,400 taxpayers (75%
of targeted taxpayers) had installed 55,200 ETR devices.
85
The advantages of an ETR system include: better control/

management of business by traders; improved record
keeping by traders; reduced tax audit period and paper work
on taxpayers and tax auditors; less paper work by traders;
reduced disputes and court cases; reduced fraudulent
accounting and improved VAT revenue; more jobs for
local technicians and software houses and minimized cost
of records by taxpayers since daily, monthly and annual
reports are automatically generated by ETR.
An ETR machine: Revolutionised accounting for VAT
The introduction of ETR system has greatly enhanced

compliance and by extension VAT revenue collections. The
VAT revenue collection increased by 24 per cent from Kshs
42 billion to Kshs 52 billion between 2004/05 and 2005/06.
Despite the achievements made, implementation of the

ETR system has been faced with numerous challenges,
including litigation, hostility and a negative attitude from
sections of the business community, enforcement, pricing
of the ETR devices, capacity of suppliers to handle
technical challenges arising after installation and integrity.
To address these challenges, KRA has taken several
remedial measures, including prosecution of offenders,
compliance checks and compounding of offences,
sensitization/publicity campaigns and re-evaluation of ETR
86
suppliers. However, to address the long term challenges,

KRA has devised a strategy to facilitate transfer of ETR
information by linking ETR machines with KRA IT systems.
(d) Excise Duty Reforms

Domestic excise duty is levied on excisable products within
the domestic market. It is one of the major contributors to
tax revenue but for a long time, it has been dogged with
challenges of evasion and diversion of export products into
the local market. Generally, excisable commodities attract
high tax rates. This is because they are considered luxurious
products and the measures are aimed at managing
conspicuous consumption and related externalities. To
address the challenges, KRA has implemented various
initiatives, including introduction of excise stamps,
among other measures. The use of excise stamps has
been focused on the high risk excisable commodities of
tobacco, spirit and wines. Excise stamps for tobacco were
introduced in 2001 while stamps for spirits and wines were
introduced in January 2007. The holographic stamps are
affixed on each item of these commodities to certify the
payment of the relevant duty. The department conducts
random market surveillance to ensure compliance and
curb possible evasion and diversion of exports.
Other initiatives implemented to enhance the excise

tax administration include: tighter application of excise
licensing rules, re-definition of the roles of KRA officers
who are resident at factories producing excisable goods,
short listing (registration) of all purchasers of duty free and
de-natured spirits, installation of flow metering devices
by the distillers, issuance of permits for purchase of duty
free and de-natured spirits, short listing of importers of
wines and spirits for the purposes of excise stamps and
introduction of self assessment in excise tax remittances.
However, a lot remains to be done. In future, KRA intends
to introduce audit-based and automated controls for
administration of excise duty (domestic). This will eliminate
the current practice where KRA officers are resident at
87
factories producing excisable goods to enforce compliance.

The above measures have led to tremendous growth in
domestic excise duty collections as depicted in the chart
below:
Chart 6: Domestic Excise Revenue Performance (2003-2009)
25
20
Kshs Billion
15
22 24
10 18 20
14 16
5
-
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
Financial Year
Excise Domestic Collections Linear (Excise Domestic Collections)
(e) Revision and Development of Operations Manuals

and Guidelines
Previously, the skills and operation procedures of the
various tax programmes were not comprehensively
documented. One key reform initiative was, therefore,
to develop comprehensive operational manuals and
guidelines that covered all domestic taxes. This ensured
clarity and uniformity of application across all operational
areas, including the stations. From the taxpayer point of
view, it was simple, predictable and enhanced transparency
in tax administration. The manuals developed included an
audit handbook, compliance and debt manual, operational
manual for component functions of taxpayer services, risk
management guideline for refunds and guidelines on the
usage of the Computer Aided Audit Techniques (CAATs).
In the initial phase, DTD faced the challenge of legislative

disparity in the administration of penalties, interest, waivers
and write-offs under the various Acts (Excise, Income
Tax and VAT). To address this challenge, the department
88
developed guidelines on penalties and interest waivers and

tax debt write offs thus ensuring uniformity in administration.
(iii) Broadening the Tax Base and Widening the Tax Net
Previously, KRA has targeted to broaden the tax base and widen
the tax net. However, more focus has been on the formal sector,
leaving out a large group of taxpayers in the informal sector. The
inherent cost and the related staff complements made it expensive
to comprehensively administer the compliance levels in the informal
sector. To address these challenges, targeted but simplified
initiatives focusing on this category were developed as follows:
(a) Advance Tax on PSV Crew (Drivers and Conductors)

Generally, the public transport system in Kenya (famously
known as the matatu sector) is largely operated by the
private sector. Over the years, the public transport system
has expanded exponentially to meet demand (passenger
and cargo), but, its contribution to tax revenues has not
been commensurate with its expansion.
Following this challenge, KRA developed a strategy to bring

this large sector into the tax bracket through implementation
of advance tax on the drivers and conductors of the public
service vehicles (PSVs) in January 2007. The tax is payable
annually on renewal of the requisite license. However, like
all presumptive taxes, advance tax is not a final tax and
therefore, the PSV crews are still expected to file annual
income tax returns, at the end of the financial year.
(b) Turnover Tax (TOT)
Turnover Tax (TOT) is component of the taxpayer segmentation

initiative. Annual revenue turnover is probably the best measure
of the size of a business organization. The approach was adopted
on the understanding that small taxpayers are difficult and costly to
administer thus raising the cost of revenue collection. Therefore,
the best way to bring this sector under the tax net is a simple
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presumptive tax regime. This tax targets taxpayers below the

VAT threshold (i.e. those with annual turnover of between Kshs
500,000 and Kshs 5,000,000 per annum. Taxpayers falling within
TOT regime are expected to file their returns on a quarterly basis.
TOT is not subject to capital deductions and any expense incurred
by the taxpayer are not deductible from the taxable income (gross
turnover). However, a lot remains to be done to achieve the desired
results that were anticipated.
The combined effects of the reform initiatives have not only led to
modernization of the operations of the Domestic Taxes Department,
but also resulted in substantial increase in the overall revenue
collections, voluntary compliance, broadened tax base and reduced
cost of collection.
The impressive growth in domestic revenue is depicted in Charts 7

and 8 below:
Chart 7: DTD Revenue Performance (2003-2009)

Kshs Billion
299
2006/07 2008/09
90
Chart 8: DTD Cost of Collection (2003-2009)
2008/2009
Modernizing The Road Transport Department (RTD) was established under the
the Road Ministry of Transport and Communications in 1958 with the primary
responsibility of regulating the transport sector. The department
Transport acts as the administrator for all road transport matters in the
Department country. It plays an important role in ensuring that only those who
are authorized and meet all requirements stipulated in the Traffic
Act use the road transport system.
Administratively, the department falls under KRA and all revenues

realized through licensing fees form part of the Authoritys revenue
collection. The Ministry of Transport, on the other hand, shares in
this responsibility by handling all the road transport policy issues
of the department. The department also promotes road safety in
conjunction with other stakeholders in the transport sector, such
as the Association of Kenya Insurers (AKI), by ensuring that all
vehicles are insured before they are licensed.
The RTD is a source of crucial data and information for other KRA
departments. It ensures that any applicant seeking motor vehicle
registration has paid all duties and obtained Customs clearance.
RTD provides information to DTD on individuals selling more than
four motor vehicles per annum for VAT registration purposes. The
department also provides crucial information on motor vehicle
91
Commissioner of Motor Vehicles Simeon ole Kirgotty

affixing new generation number plates on a motor bike
ownership, thereby supporting the Domestic Taxes Department

with regard to assessment of business income from the transport
sector.
Reforming and modernizing the transport department will

contribute significantly to the way the department discharges its
responsibilities, while ensuring that taxpayers and stakeholders get
quality service delivery in the most efficient way. The registration
process of motor vehicles used to be manual and cumbersome and
involved about 36 stages from lodging of registration documents to
issuance of logbooks. The process was slow, inaccurate and led
to poor service delivery. The logbook lacked any security features,
and was extremely vulnerable to counterfeiting.
RTD handles about 60 per cent of KRAs customers who are

served over the counter and as such the reforms introduced in
the department were service-oriented. The achievements to date
include automated records management, resulting in a major
reduction in the service dwell-time at the service counters. Other
reform initiatives include integration of the Vehicles Management
System (VMS) and S2005S to facilitate faster registration of motor
vehicles and issuance of security printed logbooks with more
92
enhanced security features. Further, plans are underway to roll out

the issuance of smart card driving licenses, online registration and
payment of motor vehicle registration fees.
The issuance of driver licenses was also characterized by a manual

procedure and involved 15 stages from driving test examination
to issuance of the license. The driver license is also vulnerable to
counterfeiting resulting in having unqualified drivers on our roads,
which negatively impacts on road safety.
The RTD is also charged with the responsibility of custody and

management of all records relating to motor vehicles and drivers
in the country. The registry processes were largely manual, and
this made referencing and information retrieval difficult. In general,
business operations in the department were manual, supported
by a limited back-office information system known as Movers.
The largely manual systems made any form of connectivity with
the other KRA departments and stakeholders a real challenge. All
information required had to be manually retrieved, which was time-
consuming and tedious.
The transformation of RTD from a humble outfit in the Ministry of

Transport into a modern customer driven department within KRA
is indeed, a clear manifestation of what effective stewardship
of strategic change can achieve. The department is currently
undergoing an intensive modernization programme whose primary
goal is to automate all the processes and enhance service delivery.
In a broader sense, the reform initiatives under the RTD are aimed
at reorganizing the transport sector to promote professionalism and
integrity among the industry players.
The overall objective of the departments reform and modernization

is to provide quality service and products to customers in real time.
The department set out to ensure that it issues secure and durable
documents, in real time. This objective is set to be achieved through
the use of ICT and Business Process Improvement (BPI) strategies.
The modernization project has brought substantial benefits to the
stakeholders as well as KRA. These include: efficient and effective
service delivery by providing quicker response to customers
93
queries; access to information; improved revenue collection;

improved road safety as a result of streamlined document issuance
processes; fast and efficient law enforcement; enhanced security of
documents, particularly the motor vehicle files; and interconnectivity
between RTD and CSD.
The most outstanding reforms RTD has undertaken include;
(i) Document Scanning and Imaging

Due to inefficient service delivery and manual processes, the
department embarked on data capture of all information contained
in the physical motor vehicle files in the newly created VMS.
Further, the files were scanned and stored into an information
jukebox as Kofile Visual Information System (KoVIS) images.
The images were later indexed to create the e-registry. Which is
the scanned motor vehicle images. Consequently, microfilming
as a backup system has now been phased out. The overriding
objective of this initiative is to facilitate electronic processing
and retrieval of all documents easily. This development has
greatly improved records and queue management, eliminated
the syndrome of missing files and enhanced quality of service
delivery in the department.
(ii) Automating the Revenue Collection Function: Cash

Receipting System (CRS)
After integrating RTD into KRA, the cash office continued to
operate manually without any controls or checks creating a
loophole for revenue loss by use of counterfeit manual receipts.
This necessitated the creation of a CRS system, thereby
automating revenue collection for RTD. Security printed receipts
were issued for any service paid for. This led to enhanced
revenue collection and accountability by staff. However, KRA has
since moved towards a broader integrated CCRS that covers all its
departments.
(iii) Introduction of Public Service Vehicle (PSV) Badges, PSV

Driver and Conductor Licenses
Legal Notice No. 161 of October 2003 introduced PSV badges
for conductors and drivers. These badges had the particulars of
the employers and hence tied the PSV driver and conductors to
94
a particular employer who was liable for their income tax. This
was meant to streamline the transport sector and ensure that all
industry players met their equitable tax liability. The PSV drivers
and conductors were required to pay their advance tax before
being licensed. The tax was introduced as a compliance measure
to rope in PSV owners.
(iv) Drivers License Status Query

This initiative was prompted by the need to reduce crowds in the
KRA banking halls. To achieve this, a link was placed in the KRA
website to facilitate querying by the taxpayers. The user is required
to fill in their interim driving license number or their national identity
card number after which the system generates the results.
(v) On-line Motor Vehicle Registration

This was a milestone reform introduced in October 2007 in the RTD
in order to hasten the motor vehicle registration process and ensure
that all secondhand motor vehicles leaving the Container Freight
Stations (CFS) are issued with number plates. The online motor
vehicle registration process enabled motor vehicle registration fees
to be collected together with import/customs duties. Prior to the
actualization of this reform, the case was that once import duties
on motor vehicles were collected, the vehicles would be released
from the port, hence registration fees would be collected at a later
date once a buyer had been identified. This initiative enhanced
service delivery and improved revenue collection and resulted in
some RTD staff being assimilated in CSD.
(vi) Removal of Road License

The removal of road licenses for motor vehicles in June 2006
was aimed at enhancing equity in service delivery and ensuring
that Kenyan motorists only paid for the services that they have
enjoyed. Other reasons that were considered included making
services more accessible and readily available across the country,
increasing revenue collection to the exchequer by curbing revenue
losses and lastly the cost of administering the road license, which
was uneconomical and cumbersome.
This eliminated the unfortunate situation whereby some motorists

whose motor vehicles were temporarily removed from the road
were still required to pay for the license, creating a situation of
taxation without commensurate services. The replacement of road
95
license with fuel levy has ensured that motorists now pay tax only
on the value of fuel they consume. The removal of road license led
to significant drop in RTD revenue in 2006/07 (see Chart 9).
Chart 9: RTD Revenue Performance (2003-2009)
2006/07 2008/09
(vii) Automation of Motor Vehicle Registration

The development of a comprehensive IT system for the RTD, known
as VMS, was another significant reform initiative in the department.
The deployment of real time VMS in 2003 for data capture on motor
vehicle registration and transfer replaced the old IT system that
was known as Movers. With VMS, details of all motor vehicles are
captured and a database is created to facilitate management and
retrieval of this vital information. Any subsequent data on new motor
vehicles imported or registered is entered into the system directly.
This has facilitated the automation of motor vehicle registration and
transfer process, thereby enhancing service delivery as depicted in
Chart 10.
96
Chart 10: RTD Service Delivery Performance (2004-2008)
The inter-connectivity of Simba system with VMS has facilitated

flow of information from CSD to RTD and enabled faster verification
of data on motor vehicles as well as enhanced security.
(viii) New-look Security Logbook

Since October 2006, RTD introduced a security printed, electronically
produced logbook to replace the manual, bulky one that has
been in use for decades. The new look logbook has substantially
reduced forgeries and enhanced security of motor vehicles. It
has numerous advanced security features embedded that have
made it impossible to print fake logbooks as was the case earlier.
The new logbook is very convenient to carry and is replaceable
instantly in the event of loss or defacement. As society becomes
more sophisticated, with white collar crimes on the increase, it was
necessary to try and keep ahead of these unscrupulous members
of society who do not respect the laws. The introduction of the new
logbook was thus, a move to drastically dim the chances for people
who steal vehicles and hope to formalize their registration through
a manual system.
97
Conclusion According to a former Commissioner of Domestic Taxes, Andrew

Okello, one of the most challenging aspects of implementing
reforms in KRA was winning staff to buy-in and embrace reforms
as a way of enhancing efficiency and service delivery. Vested
interests in status quo, low morale due to long outstanding human
resource issues and lack of continuous professional development
among staff created bottlenecks. There is need for continuous
learning among staff to enable them acquire new skills and stay up
to date with new developments and most importantly view reforms
as measures to make their work more efficient.
The new generation phase of reforms has surpassed expectations

in terms of modernization and reform of revenue administration.
It has undoubtedly been marked as the most intense period, with
a lot of results to show. It is in this phase that the Authority has
emerged as a model for public reforms within the public sector.
It is important however to reiterate that one of the key factors
Andrew Okello, former to explain this performance is that, unlike the past, there has
Commissioner, Domestic been a renewed commitment on the part of the leadership to
Taxes
make difficult decisions, a necessary ingredient in implementing
reforms. This commitment was strongly backed by the new political
establishment. In addition, the attitude towards risk demonstrated
by the leadership and management was commendable and vital
to success because implementing new systems and replacing
decade old legacies require a strong will against the deep seated
will to retain the status quo.
98
Lessons Learnt
It is the reformer who is anxious about the reform and should expect nothing better
than opposition, abhorrence and mortal persecution. Mahatma Gandhi
Chapter
5
T
he lessons learnt from undertaking reforms have provided
insights on how to go about implementing large scale
reforms as it has become clear that each reform draws from
the previous one. For example the procurement approach used
to acquire the Customs S2005S, was improved and applied in
the acquisition of Integrated Tax Management System (ITMS)
for domestic taxes. This chapter highlights key lessons that have
emerged from the implementation of the Revenue Administration
Reform and Modernization Project (RARMP) in Kenya.
Significance of Visionary Leadership and Risk Taking Ability

Successful reforms require an ability to conceptualize the outcome
that is sought even before one embarks the implementation process.
This ability to conceptualize is a critical characteristic in the leader
who drives the reforms as it feeds into the clarity that is necessary
to communicate where the organization is headed. Reforms being
a team effort, require constant reminders and routine articulation
to ensure that all staff in the organization tread the same path.
Large scale reforms also involve a huge element of risk e.g.
political interference, negative impact on revenue or employee and
taxpayers apathy. But despite the hesitation and sometimes severe
pressure from various spheres, risk taking leadership is a key trait
necessary in undertaking revenue administration reforms of the
magnitude KRA embarked on. This characteristic emerged clearly
in the new generation reforms where entrenched practices in
revenue administration were overhauled in a bid to inject efficiency.
The implementation of the Simba system and ETR are examples of
cases where the reforms faced national organized resistance from
lobby groups and political quotas, among other interest groups.
99
Chapter 5 - Lessons Learnt
Importance of Formal Corporate Planning

Corporate planning is an indispensable element in the modern
managers tool kit that is used to create a road map to the desired
future. Over the last half-a-century, this approach has gained
widespread acceptability not only in the private sector where
managers are concerned about their market share, new products,
competition, and survival but also in the public sector due to the
increasing demand by citizens for quality service delivery. This
necessitates planning for the same. A corporate plan with a 3-5 year
horizon is a valuable tool for any revenue agency implementing
reforms. In particular, it helps in providing overall guidance to staff
as they discharge their duties. Further, backed with a monitoring
and evaluation mechanism, it provides for more focused way of
implementing programmes. Without it, efforts tend to gravitate
towards short term objectives thus ignoring to some extent, the
bigger picture which the reforms seek to address.
Continuity of Leadership is a Major Determinant of the Success

of a Reform Programme Implementation.
Ideally, the CEO of a reforming institution should enjoy a tenure
long enough to empower him/her to confidently implement a
reform agenda devoid of fear or distraction that may arise out of
job insecurity. Furthermore, reforms have an implementation life-
span which require stability and continuity. Security of tenure would
enable a CEO to steer the reforms from start to finish without
disruption which is necessary in ensuring their success. The same
applies to senior managers in charge of the reforms. They should
be identified and put in place early enough and given reasonable
amount of time to see the reforms through. Where possible, efforts
should be made to minimize turnover as this has a disruptive effect
on the reform process, leading to loss of institutional memory.
Recruiting Top Caliber Professionals Injects New and

Innovative Ideas Necessary for the Reform Process.
Balancing the need for fresh talent and experience in terms
of accumulated organizational knowledge is a vital aspect of
reforms. For example the appointment of Edgar Manasseh, a
former Commissioner of Income Tax and Financial Secretary at
the Treasury, as the first Commissioner General was necessary to
100
Chapter 5 - Leassons Learnt
retain organizational knowledge in the process of establishing the

Authority. Subsequent shift to recruitment of CEOs externally since
then has borne a lot of fruits in terms of injecting new ideas and
innovation that break with the past civil service mode of operation.
KRA has reaped widely from the initiative of recruiting top quality
professionals from outside the organisation, which has proved to be
a very successful strategy in the management of reforms. External
skills supplement and supports internally nutured expertise.
Further, it injects a business approach to tax administration. KRA
benefitted immensely from a large cross section of staff from the
private sector who supplemented the skills of those inherited from
the Ministry of Finance.
An Organizations Ability to Identify and Effectively Utilize

Change Agents With Experience in Managing Crises and an
Affinity for Risk and Utilizing them in the Reforms Process is
a Valuable Strategy
At the centre of all reform initiatives there is need for focused
and innovative leadership at all levels. Strategic leadership is an
indispensable component of the CEOs job description that cannot
be delegated to subordinates. This calls for constancy to purpose.
Shifting paradigms is extremely uncomfortable for those used
to the status quo. This came alive when, at the inception of the
Simba system and the Electronic Tax Register, traders went on
the rampage calling for the scrapping of the reform initiatives. It
took the unwavering resolve of the project managers, their team
leaders, the Commissioner General and the Board to successfully
drive the reform agenda.
It is Important to Clearly Articulate the Need to Reform Across

the Entire Organization.
When an organization embarks on reforms, it is mandatory to
prepare staff and stakeholders for change as lack of staff buy-
in is the most cited reason for failure in implementing reforms.
Initial challenges faced in pushing through the Authoritys reform
agenda are substantially attributable to lack of understanding of the
rationale behind the reforms.
101
Both the Authoritys staff and external stakeholders were not

adequately appraised on the reforms prior to their roll out. As a
result, a large number of stakeholders both internally and externally
believed they were going to be disadvantaged. This partly explains
their resistance to the reforms.
Effective communication of the rationale for reforming should

therefore be the first step in implementing any reform programme.
A clear and thorough understanding of the motivation behind
reforming that is shared across an entire organization is an
irreplaceable start point for any reform programme. In KRA, the
rationale of reforming was simply to strengthen the efficiency and
effectiveness of tax administration. The key beneficiaries were
to be the taxpayer, the Authority and its principal, the Treasury.
The key factor is that taxpayers and other stakeholders needed
convenience in obtaining tax services, which would act as a critical
determinant in the success of the reforms.
All organizations that have undertaken major reform programmes

always had to deal with the question of phobia among staff
regarding their positions in the post-reforms dispensation.
Phobia in organizational restructuring is a reflection of clogged
communication channels, a crucial aspect of management that
unfortunately, many organizations take for granted. In the absence
of credible information from management regarding an impending
strategic change, workers resort to the grapevine, which tends to
exaggerate the anticipated impact of the programme. It is therefore,
quite understandable that employees who do not have the right
information tend to imagine that the worst is about to befall them.
Employees can employ tactics, including sabotage, go-slow and

even strike to either delay or impede implementation of reform
initiatives. Yet this should really not be a problem if management
gives meticulous attention to change management issues in the
reform agenda. This would ensure that the pockets of resistance
are surmounted and all the staff members, customers and other
stakeholders are roped in to rally behind the programme. As is
already in the public domain, the KRA reform programme rolled out
initiatives in quick succession. Often they caught many members
of staff unawares, yet they were meant primarily for their benefit.
102
The lessons learnt with regard to people involvement in change

processes point to the need to adequately prepare staff for the
imminent change and particularly how changes may affect them.
The organization should train staff and win them over to embrace
the expected changes. In this regard, there is need for business
processes analysis, to identify potential pockets of resistance and
involve representatives of staff in executing the reform initiatives.
More importantly is the need to carry out training based on needs
assessment. Ideally, an organization should have in place a unit or
group of individuals whose key responsibility is to ensure that every
cadre of staff is represented in the change process. The practice
in modern organizations is to popularize reforms through change
champions who can easily break ice with different cadres of staff to
support the change. Change champions should be people who are
acceptable across the board and have themselves fully understood
and embraced the intended changes.
There is need for constant explanation and articulation of benefits

of a particular reform to relevant parties to win support for these
initiatives. The most effective method to communicate the benefits
is to quantify benefits either by additional taxes collected, time
improvement or number of documents processed.
It is Important to Actively Engage Stakeholders Throughout

the Process of Implementing Reforms.
One effective strategy for ensuring stakeholders support for a reform
programme is by engaging them in every step with communication
notwithstanding. The benefits may not be immediately discernible
but counts significantly in the final product roll out. Legal changes
aimed at strengthening tax administrations enforcement powers,
are often met with suspicion, skepticism or overt hostility from
vested interests. These should therefore, be countered by proactive
efforts to explain their rationale and purpose to taxpayers and their
representative associations and legislators. In this regard, the
revenue agency should try to carefully highlight all the safeguards
in the proposed legislation or reform, aimed at safeguarding the
interests of taxpayers. KRA has been able to initiate stakeholder
engagement programme under the banner of taxpayer education
targeting the professional associations such as the Institute of
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Certified Public Accountants of Kenya (ICPAK), Kenya Association

of Manufacturers (KAM), Kenya International Freight Forwarders
and Warehousing Association (KIFFWA), Kenya National Chamber
of Commerce and Industry (KNCCI), among others. In many
occasions, the Authority has organized sensitization seminars for
Parliamentarians to rally their support behind proposed legislative
changes affecting tax statutes.
For effective support from stakeholders, frequent communication

with them is not enough. It is imperative that they are made part
of the reform process. This calls for their inclusion in the reform
project steering committees. Their participation in the process
would ensure their full support of the same.
Despite the Lack of Funding Associated with Reforms, Many

Reform Projects are Unable to Fully Absorb and Utilize Allotted
Project Funds.
Undoubtedly, tax administration reforms under RARMP have been
costly, necessitating involvement of Treasury and development
partners. The capital outlay in terms of implementation cost of the
various reform projects under RARMP has been significant. It has
mainly been from three key sources: (i) Internal; from within the
KRA, (ii) the Treasury; especially for heavy capital outlays reforms;
and (iii) funding by development partners. However, one major
challenge experienced was lack of synchronization between project
life cycles and cash flows from the Treasury and donor agencies,
often leading to inability to absorb allocated project funds within
the set time frames. In the course of implementing donor funded
programmes, the issue of inability to absorb donor funds often arose,
mainly as a result of the elaborate procurement guidelines by the
donors. This resulted in inordinate delays in project implementation,
cost overruns and technological obsolescence (particularly for IT-
related supplies) at the time of delivery.
To mitigate this, KRA put in place its own strict guidelines on

procurement planning to achieve efficiency in management of donor
funded projects, among others. The way forward is to incorporate
procurement specialists in reform projects to ensure adherence
to procurement guidelines. The need for early planning cannot
be over emphasized, otherwise the contrary is partly the reason
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behind the chronic inability to absorb funds resulting in delays and

paper work. The lack of understanding of procurement guidelines
has been a lesson for KRA that internal procurement capacity
should be enhanced in order to ensure efficiency in procurement
planning and funds utilisation are within the guidelines provided by
the funding agencies.
Sequencing in reform implementation is critical for effective

utilisation of funds. A vital underlying issue that should be addressed
when introducing reforms is whether the necessary structural
foundations to facilitate the changes are in place such as skills
level, supporting infrastructure, training, staff force and legislative
backing where the reforms require that it be in place. For instance
before introducing customs scanners, there must be adequate
training of staff to manage the equipment. IT systems should be
made compatible and maintenance issues should be addressed.
These types of challenges have been very common and have
become a major obstacle in the absorption of funds allocated. It
therefore, shows the importance of sequencing in the process of
implementing reforms.
When Designing a Reform Programme it is Vital to Ensure

That There are Adequate Domestic Resources to Finance the
Core Reform Projects.
Another major lesson that has arisen from reliance on external
source of financing reforms is the need to ensure that core revenue
projects are financed domestically. This arose from the fact that the
KRA had to endure financing crisis as a result of procedures, which
the Authority did not have adequate capacity to comply within the
required time frame. KRA has therefore had to train specialized
staff within the finance, procurement and reforms office in order
to ensure that similar bottlenecks are not encountered in future.
Development partners often provide basket funding for reform
projects. This is a situation where various agencies contribute
to one kitty from which the recipient of such funds has to draw.
The difficulty from this basket funding is that the recipient has to
adhere to a multiplicity of procurement guidelines to access the
funds. KRAs experience from this resulted in deliberate training
of selected officers on modern procurement practices. If such
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projects were for example financed domestically there would be no

need for such training. Lack of this knowledge threatened to delay
key projects after which KRA adopted a policy where critical reform
projects are financed Internally. Donor funding is utilized only in the
peripheral revenue reforms projects. In addition, the Authority draws
annual procurement plans for all reform projects. The importance
of this cannot be over emphasized. It ensures planning, scheduling
and budgeting for all procurement items within the confines of
delivery, funding and procurement guidelines. PMBO maintains
a three year procurement plan, which has evened out the flow of
implementation of reforms and enabled the Authority to implement
reforms smoothly.
Integrating Tax Departments Should be Gradual and

Systematic.
Revenue departments tend to develop district cultures and thus
integrating them can be a difficult task. Cognizance should be taken
of the fact that institutional change requires both time and sensitivity
to the surrounding environment. The role and position of support
departments (ICT, Legal, Finance, Human Resources, Audit and
Administration among others) in a new integrated dispensation
also becomes problematic. This is especially the case where
previously independent tax departments had their own respective
internal systems. There is a risk that staff would not be willing to
let go, sometimes even leading to attempts by some to sabotage
new integrated systems. In the case of Kenya Revenue Authority,
integration of the formerly independent revenue departments
to form KRA faced challenges from inception. First, there was a
feeling that since the first Commissioner General had come from
the Income Tax Department, officers from that department would
be favoured by him. This led to resentment by officers who had
Customs and VAT backgrounds. Second, the harmonization of titles
across revenue and support departments was not received well,
particularly by the revenue officers who had a feeling of superiority
over the rest of staff.
It is therefore important that at each stage of reforms, due attention

should be accorded to strong feelings associated with cultures
which staff may not be willing to part with.
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Exploitation of Transitional Opportunities Poses a Risk

When implementing large scale reforms it should be borne in mind
that there will always be a few unscrupulous individuals bent on
misusing loopholes in a new system or procedure for personal
gain. A case in point is Customs Services Department when direct
banking was introduced. Some traders illegally cleared motor
vehicles from the port using the loopholes that were presented by
transition. However for KRA, the scam was exposed in good time
and the necessary measures taken. Members of staff who were
involved were subjected to the disciplinary process as an illustration
to other potential schemers. The important lesson here is that
agencies must be proactive in determining potential loopholes that
may arise from a transition and come up with counter measures.
Careful Sequencing and Prioritizing of Reform Initiatives is

Essential.
Experience has shown that without proper sequencing of reform
projects, too many reform programmes might be initiated at the
same time and these can quickly exceed the institutional capacity.
In such situations, the organization might end up with several white
elephants which tie the scarce resources and do not produce return
on investment. Careful sequencing of reform priorities is therefore
key to the overall success of the implementation.
Continuous International Benchmarking With Fellow RAs is a

Valuable Tool for Gauging effectiveness of Reforms.
Modern tax administration is dynamic due to interaction with the
private sector, international community and tax administrations
worldwide. However, it is very tempting for a revenue agency to
resist the urge to reform unless it takes deliberate steps to familiarize
with developments internationally. This is particularly so given that
the task of revenue collection is often a monopolistic role in any
country. In the course of reforming it is important and crucial to
pause, evaluate and compare initiatives taken against what peers
and stakeholders prefer. This is best achieved under the umbrella
of membership associations and bodies which allow benchmarking
against international best practice. KRA has emerged as a leader
among its contemporaries by affiliating itself to associations such as
the Commonwealth Association of Tax Administrators (CATA), Inter-
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American Center for Tax Administration (CIAT), World Customs

Organization (WCO) among others. Consequently the Authority
interacts with and draws from experiences of tax administrations
world wide including Australia, Chile, Rwanda, Senegal, Tanzania,
Uganda and USA (Guatemala), among others. This has enabled
the Authority to keep pace with its peers by drawing from
experiences of other tax administrations. It is indeed no surprise
that many reforms implemented or underway are a product of direct
deliberations between revenue administrations e.g. Integrated Tax
Management Systems (ITMS) with Chile Revenue Agency or the
customs valuation database, which is being implemented with the
assistance of The Indian Customs.
Finance Minister Uhuru Kenyatta (left) receiving the WCO

Secretary General Kunio Mikuriya in his Office. International
networking has been key in KRAs Reform Agenda.
Relying on Risk Based Management Approaches to Tax

Administration Allows the Authority to Focus on Priority Areas
While Ensuring that Focus is not Lost on Other Core Areas of
Operations.
The traditional approach to tax collection that taxpayers are
bent on designing tax avoidance and evasion schemes partially
explains the appalling levels of non-compliance with tax laws in
most of developing countries. Reliance on risk based approaches
and allowing taxpayers a degree of trust e.g. the self assessment
system of taxation introduced in 1992, has enabled the Authority to
focus on high risk areas. It is notable for example that Kenya was
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among the first countries to introduce self assessment, ahead of

more developed countries such as Britain, which introduced the
system in 1996. This marked a major departure from the traditional
approach and the challenge for KRA has been to sustain this
trust and explore other areas so as to benefit from the approach.
This has enabled the Authority to introduce innovative risk based
management approaches such as post clearance audit intelligence
liason and audit selection procedures for Income Tax and VAT.
As former Commissioner of Domestic Taxes and a Revenue

Administration Advisor for IMF, Andrew Okello aptly emphasized
Revenue Authorities can never have all the resources they
need. Therefore emphasis has to be placed on efficient and
effective allocation of existing resources through adoption of risk
management techniques. Risk-based compliance and enforcement
are the way to go and revenue authorities will have to gradually
let go of traditional practices such as 100 per cent verification or
expansion of audit coverage. Investment in intelligence and risk
management techniques, tools and skills provide the key to the
future.
Effective Automation and Creative use of IT in Revenue

Administration is Central to Reforms.
ICT is crucial in routine data processing functions e.g. registration
of taxpayers, processing of returns and payments, maintenance
of taxpayer ledgers, detection of non-filing, and non-payment of
taxes based on self-assessments. It is also important in routine
correspondence with taxpayers. This substantially reduces contact
between taxpayers and tax officials thus minimizing opportunities
for corruption.
Revolutionary advances in ICT have offered a berth of opportunity

to reinvent service provision within tax administration. When the
idea of computerizing tax administration was mooted in Kenya in
the early 1990s, tax departments viewed it as a foreign idea whose
value in revenue collection was overrated. Today it has become
part and parcel of the fabric of tax administration as espoused
in KRAs third corporate plan (2006/07-2008/09), which states
that the strategic theme is to: Develop a dedicated professional
team embracing modern processes and technologies to deliver
customer focused services that embrace compliance and revenue
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collection. This shows how far KRA has come in embracing ICT as
a platform for enhanced service delivery.
The roll out of IT solutions was also accompanied by extensive

analysis of the current administrative procedures and business
re-engineering. In addition to developing and implementing new
software systems, reforming the management of information
from the manual system that was inherited from the civil service,
has necessitated heavy investment in IT infrastructure. This has
included developing local and wide area networks, improving
communication and access to automated systems.
It is however, important to note that while computerization is

necessary to improve efficiency and effectiveness in Revenue
Administration, it is not a panacea. Organizational weaknesses must
be continuously addressed in order to achieve lasting performance
improvements. Changes in organizational structure and functions
of different departments should be effected before IT solutions are
rolled out. Uncertainties regarding departmental structures, roles
and responsibilities make it difficult to prescribe appropriate IT
solutions and organizational changes during systems development
and can lead to considerable rework, higher costs and delays in
implementation.
Political Support is a Necessary Ingredient When Implementing

Revenue Administration Reforms.
Revenue administration reforms can often be unpopular, far
reaching and an expensive undertaking that requires the goodwill of
the political establishment, including the executive, Parliament and
the parent Ministry, particularly when there is need for amendments
to the existing law to facilitate reforms or need to rally members
of the public. The new generation reforms in Kenya were largely
successful due to the constant political support that was received
especially at cabinet level. This aspect is critical to success and
should ideally be a role shared evenly within the board of directors
so that the CEO may obtain the freedom to focus solely on getting
the reforms up and running.
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Chapter 6 Next Steps - Future of Tax Administration
The support of HE the President Hon Mwai Kibaki was particularly

instrumental in the success of KRA reforms. Being at the forefront in
rallying Kenyans to pay taxes and set the Country free continued
to resonate across the country with a very clear message of
voluntary tax compliance. The President has regularly graced the
annual taxpayers day which is held to appreciate taxpayers for
meeting their tax obligations and therefore contributing to national
development. This signified the importance the Government
attaches to revenue administration.
The Impact of Reforms Should be Quantified and

Communicated in Simple and Clear Terms.
With reforms it is important to constantly explain and articulate
what the benefit of a particular reform measure is. This enables
the organization to win broad based support for the next round of
reforms and to keep all stakeholders informed. One indicator that
has been utilized in the reform process is the time release study
(TRS). The objectives of TRS were; to compare the release times
with a similar study carried out in 2004 with the view of finding out
if there is improvement, and propose further measures to reduce
the time required for the release of goods ensuring efficient trade
facilitation. Not only did the study involve KRA but also other
agencies that are involved in the import clearance procedure. The
study showed that it took 10 days and 10 minutes at seaports, 3
days, 10 hours and 31 minutes at airports, 5 days, 1 hour and 36
minutes at land border posts.
KRA carried out a TRS (before implementation of the Simba

system) to determine the time taken from the arrival of goods
until their release. Publicizing the improvements in cargo release
times in customs is a good indicator of the positive impact of
reforms. The implementation of the Simba system coupled with
the centralization of the DPC has yielded considerable gains in the
declaration process. These type of statistics give confidence to the
reform project sponsor and development partners with hard facts
about the value of a reform initiative.
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Next Steps - Future of
Tax Administration
Nothing we can do can change the past, but anything we do changes the future.
Ashleigh Brilliant
Chapter 6
K
Introduction RAs long term vision is To be the leading Revenue Authority
in the world respected for professionalism, integrity and
fairness. KRA will face many challenges as it attempts to
scale up its performance. These challenges will need to be met
in the context of the countrys Kenya Vision 2030, which sets out
the framework for transformation of the entire country. According
to the vision, by 2030, Kenya is expected to be a globally
competitive and prosperous country with a high quality of life. It
will be a newly industrializing middle income country with a clean
and secure environment. Kenya will also have met the Millennium
Development Goals (MDGs) by 2015. The Vision 2030 document
places the highest premium on the stability of the macro economic
environment. Indeed, it explicitly states All the projects proposed
under Vision 2030 will, therefore be implemented subject to the
parameters set under the macro economic stability framework
(GoK, 2007, ibid). Whereas Vision 2030 foresees seven key macro
economic challenges, the key one, that is relevant to revenue
administration is the revenue challenge, which requires maintaining
a strong revenue effort with a revenue to GDP ratio of over 20.7%
over this period. Given its dominant role in revenue collection, the
performance of KRA will be of critical importance to the overall
achievement of Vision 2030 targets.
Long Term Target

Achieving the revenue targets implies that a 10% annual growth
in revenues for 23 years is required. This will raise KRAs revenue
collection almost nine-fold, leading to revenue collection in
2029/2030 of Kshs 3 Trillion at a constant 2006/07 trend. Achieving
Josaline Ogai, Senior
this target will place KRA well up the ranks of middle income country
Deputy Commissioner- tax administrators. It is therefore imperative that the challenges of
Research and Corporate
Planning
middle income tax administration be the central issue of concern to
the Authority over the long term.
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Medium Term Targets

However, 2030 is still 21 years from 2009. KRA will face other
challenges as it attempts to achieve its medium term targets.
There are ongoing projects and institutional reforms that will need
completion over the short to medium term. These will need to be
met within the context of the long term vision to ensure that short
and medium term exigencies do not undermine the longer term
goal.
Structural Transformation
With respect to the long term vision, two structural transformations
are relevant to tax administration as the country moves to middle
income country status. First, the countrys capacity to tax grows as
evidenced by a rising revenue to GDP ratio. Second the countrys
tax composition changes with reduced emphasis on customs duties
and excise taxation and increased emphasis on direct taxes.
Taxable Capacity
With respect to taxable capacity, Kenya is currently considered to
be a high effort low tax rate country. As a high tax effort low income
country, Kenya should target becoming a middle income country
with high tax rates and high tax effort. Countries that meet these
requirements have achieved tax to GDP ratios of over 23% .As
a high tax effort country, Kenya could potentially achieve a tax to
GDP of up to 30% by 2030. For this reason, KRA should foreseably
be able to meet the revenue targets over the 2007-2030 period
even if the country as a whole does not achieve the GDP growth
rate targeted.
Tax Composition
With respect to tax composition, as countries develop, both the
level and the composition of their taxes change. In particular,
countries shift from reliance on trade taxes to reliance on direct
taxes especially personal taxes, with the most significant decline
being the decline in border taxes (customs duties).
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Modernising Customs
Other challenges will be of critical importance to KRA over the
long term. First, there is the challenge of modernizing customs.
Conventional wisdom has it that four core responsibilities will
form the core roles of customs in the 21st century. Firstly, revenue
mobilization will continue to be important despite trade liberalization
given the difficulties of broadening other tax bases\Customs
administration will still provide an optimal solution for the collection
of import VAT and excise for verification and control purposes.
Secondly, the statistical function will continue to focus on import and
export data. Thirdly, the effective and efficient border management
will increase in importance especially in the context of increased
security concerns and fourth an increased role in trade facilitation,
which is a major contributor to the international competitiveness of
nations.
New Approaches
To meet these new challenges, several new approaches are
envisioned. These include:
(1) A shift from physical controls to post release verifications using

audit approaches;
(2) Amalgamation of various border control functions and the
adoption of ICT systems that allow traders to adopt a single window
approach for all border transactions;
(3) More effective co-ordination between government agencies
involved in cross border trade;
(4)The Customs Department will increasingly rely on the use of
modern information and communication technology to provide for
seamless transmission of data to all concerned parties;
(5) Membership of regional groupings may lead to the promotion
of harmonization and simplification of customs procedures and
processes in line with recognized international best practice.
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Optimal Utilisation of ICT

Another critical challenge is that of utilizing ICT to its full potential.
Electronic tax administration is now fairly standard in most countries.
However, the long term direction is less clear. Tax administrations
in developed countries, are likely to lead the way in expanding the
use of ICT services. All the same a key development in the ICT field
has been its adoption in developing countries and technological
developments that have made it possible for low income countries to
access most modern ICT systems. For these reasons, the thinking
in revenue Authorities within developed countries is likely to provide
insights into where the primary challenges will be for both revenue
administrations in developing countries and developed countries
that seek to maximize the use of ICT services.
End-End Electronic Tax Administration

The Internal Revenue Services (IRS) of the United States of
America (USA) has provided a snapshot of the challenges they
expect to face in electronic tax administration. A future of End to
End electronic tax administration is foreseen. This requires a shift
from current automation practices where tax authorities drive their
automation primarily to modernize internal processes to adoption of
automation processes that allow for incorporation and value addition
by third parties. This End to End approach is borrowed from the
private sector where businesses share similar characteristics to tax
administrators. These characteristics include a diverse customer
base, complex and highly specialized functions, seasonality and
a high degree of dependency on value adding intermediaries. Just
as the private sector companies which have faced this challenge
have streamlined their internal and external service providers in
a seamless end to end service network, a similar approach is
expected to be adopted by revenue bodies.
If this vision is achieved, several outcomes are foreseen. First,

taxpayers will have multiple choices with respect to how they
interact with a revenue authority, with the taxpayer shifting from
being an e-filer to an e-customer. Secondly, tax software developers
would have a role in defining new software while the revenue
administrator would not only provide electronic services but also
ensure secure access, allowing privately developed software
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to integrate seamlessly with their systems. Thirdly, online filing

providers would have access to electronic services that they could
integrate in their tax preparation and e-filing packages. Fourth,
tax practitioners would be able to choose from a range of soft-
ware products offering interactive services made possible through
interaction with the revenue administrator system. Fifth, other
Government agencies will exchange information electronically
with the revenue administrator, to improve compliance, taxpayer
service and processing accuracy; and sixth, employees and
institutions would be able to file withholding and information returns
electronically while financial institutions would be able to integrate
their taxation related services with other customer related services
and thus allow for improved service delivery to their customers.
The overriding principle underlying this approach is value addition.
In the new modernized environment, stakeholders in the tax arena
would be enabled to innovate through a process that would lead to
value addition for the entire tax infrastructure.
The challenge for KRAs automation is to ensure that it does not

adopt short and medium term automation solutions that will limit
its potential in the longer term and thus compromise either its ability
to achieve its targets or lead to prohibitive compliance costs to
taxpayers.
Thus, over the long term the revenue authority will be faced with
the challenge of maintaining strong revenue growth even as its tax
base changes from indirect to direct. It will also need to adapt to
the new world of customs management and the changing world of
ICT.
Ongoing KRA is currently undertaking an intensive reform effort. These

Reforms reforms cover automation, legal and institutional reforms. The
in KRA following section presents a review of the major reform areas that
are underway to enable the Authority to meet its challenges in
the medium to long term horizons. It is important to note that the
current initiatives feed into the medium term strategy, which in turn
is in line with the long term strategy, to meet the challenges in the
long term.
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Automation As outlined in previous sections of this book, KRAs automation

strategy has three main thrusts: automation of revenue functions,
ensuring the integration of systems and automation of support
functions with a view to ensuring the support departments
adequately play their role.
Support Services Departments Automation

An often overlooked aspect of automation is the need to automate
the support functions in order to ensure they keep pace with the
reforms in the revenue departments and thus not undermine
reforms taking place in the revenue arena. In this regard, there is a
need to ensure the support departments automation requirements
are also met. These departments are the Support Services (SSD),
Investigations and Enforcement, (I&ED), Finance (FD), Human
Resources (HR), Internal Audit and Risk Management (IARMD),
Information Technology (ICT), Board Corporate Services and
Administration (BCS & Admin) and Marketing and Communication
(M&C). As part of the automation of these departments, the
following key initiatives are ongoing:
i) Common Cash Receipting System (CCRS): This is being

implemented by the Finance Department. The CCRS project
is driven by the need to harmonise payment procedures
in all departments as opposed to the independent
(in- house) systems currently in place. The current payment
systems do not provide a single view of the taxpayer. The
implementation of the CCRS will allow for a single view of
the taxpayer, reduce human intervention in the payments
process, improve reconciliations, match payment and bank
reports online and allow for real time monitoring of revenue
collection. CCRS will integrate with Simba, ITMS and VMS
systems, on one hand being fed with payment information
by the various business systems while on the other hand,
updating the business systems with information on payments
received from banks. This development will move the system
to the level of a fully automated Electronic Funds Transfer
system, allowing taxpayers to transfer funds electronically
for payment to KRA.
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ii) Enterprise Resource Planning (ERP) System for

Support Departments: KRAs objective is to acquire and
implement an integrated system to support administrative
functions in the Authority. The ERP system will merge the
support departments processes and enable efficiency,
effectiveness and transparency by providing an integrated
application with a unified database. Automation and
integration of support departments will enhance efficiency
in providing support to revenue departments, stakeholders
and the general public,
iii) Business Intelligence Database and Performance

Dashboard: KRA is in the process of implementing web-
enabled business systems. This will mark a shift from the
data entry practice of updating data to real time update of
business data. The result will be availability of information
through reports to assist in timely decision making for
management. With the advent of application of performance
management in its operations, real time data provided by
business systems can guide the organization to take early
remedial action before they escalate to serious issues.
This will be made possible by the implementation of a data
warehouse to store up-to-date information for performance
management. The parameters for information will be relayed
to KRA managers via a Performance Dashboard to assist
them monitor performance and intervene where necessary.
The business intelligence database will be crucial to the
Investigation and Enforcement Department (I&ED). This
will be realized through the storage of data queried from
different business systems to the business intelligence
system to provide a single view of a taxpayer. This will in
turn assist the officers to carry out investigative work by
collating information on the case under review
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iv.) The KRA Contact Centre (Call Centre): To improve its

communication and response to taxpayer queries, KRA
has established a Contact Center (Call Center). This is a
centralized one-stop information center where taxpayers
obtain responses to their enquiries promptly. The contact
centre will expand its services to respond to queries received
through telephone, fax, short message service (SMS), email
and delivered physically mail. Callers will also be able to
access self service facilities through the Integrated Voice
Response (IVR) system of the Contact Center. The purpose
of the Contact Centre is to integrate all existing service
desks including all channels of communication as well as
contacts onto one platform. This will improve customer
service through a one stop shop for all services, in place of
the current independent service desks across KRA offices. It
will also allow for efficient management and tighter controls
on monitoring and tracking of all channels of taxpayer
communication with the Authority and ensure that consistent
responses are given.
v.) Disaster Recovery and Business Continuity Plan

(DRBCP): In carrying out its mandate, KRA is increasingly
dependent on automation to support its business operations.
Development of a Disaster Recovery and Business
Continuity Plan (DRBCP) is being implemented to ensure the
ability to recover and guarantee continuity of critical business
operations in the event of any disaster.
vi.) E-Learning Programme: takes pride in possessing and

nurturing a dedicated and professional workforce. To
achieve this goal employees undergo continuous training in
their respective fields to meet changing demands within the
operating environment. However, this traditional approach to
training has its limitations because it is rigid and has limited
coverage. In view of this, coupled with the tremendous growth
of the staff force, the need for a convenient training approach
has been identified as a necessary intervention. This has
led to the introduction of an E-Learning programme project,
which is currently in the process of implementation. The
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programme is expected to increase organizational capacity

to achieve maximum productivity of employees. This will
also provide a window of opportunity for the personal growth
of employees. E-Learning will utilize the latest technology to
facilitate continuous and just-in-time learning that improves
training coverage, provides flexible learning hours and
tremendously reduces training costs.
Revenue Customs Services Department:

Departments Since 2003 the CSD has been at the forefront of automation in
Automation KRA. CSD is confronted by challenges in both the external and
internal operating environment. Its obligations under the World
Customs Organization (WCO) protocols requires reform efforts in
trade facilitation and security, increased use of risk management
strategies and non intrusive inspection techniques to reduce
customer compliance burden and standardization and simplification
of procedures. Not surprisingly, most automation activities carried
out over the Third Corporate Plan period (2006/07-2008/09) were
related to customs issues. Key initiatives include:
- Electronic Cargo Tracking System (ECTS): This is a

key reform project in the department, where a program of
cargo tracking system facilitates effective monitoring of
all transit goods, transit motor vehicles and export goods.
This ensures non intrusive cargo tracking that has limited
human interaction and scope for abuse. Its operations
involve installing electronic seals on containers or electronic
devices in the motor vehicles, which communicates through
General Packet Radio Services (GPRS) on real time to the
control room as the cargo transits to the destination. The
initial implementation strategy involved KRA owning the
equipment and supervising the installation at a nominal
fee. Later, the Authority set requirements for transit/ export
movements and the service is now available from licensed
service providers. Implementation commenced in mid June
2009 starting with transit cargo from Kilindini. The scope of
the initiative will be expanded to include exports and transit
motor vehicles, which will necessitate additional equipment
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to cater for the large volumes. Apart from all goods under
customs controls, KRA assets will also be included.
- Port Community Based System (PCBS): The Introduction

of PCBS now rebranded as the national single window
system is being implemented by KRA, Kenya Ports Authority
(KPA) among other stakeholders. It aims at reducing the dwell
time of the clearance process at the port and also decongest
the port. It involves bringing all the stakeholders at the port
under a single window. It is expected that on completion,
all the stakeholders in the clearance process will access
the information on the status of all the consignments on a
uniform platform,
- Further Expansion of RADDEx: With the completion of
the real time exchange of information between KRA, URA
and RRA, the next stage is to achieve the same for other
countries in the region. RADDEx provides a secure means
of confirmation of transits goods, exports and import details
between the countries. User requirements have been
developed and testing undertaken in 2009 to implement the
online connection with TRA and Burundi.
- Risk Management Enhancements to Simba 2005 System
(S2005S). KRA in 2009 introduced a risk profiling system
into S2005S. It is expected that this system will use up-
to- date profiles of traders, along with compliance records
and specific information to rate the level of risk represented
by each transaction. The risk rating will result in each
declaration being assigned a colour coded channelling with
different interventions being implemented according to the
determined risk. Risk management underpins all major
reforms of the Customs Department and as such is critical to
the functioning of all customs processes.
- Valuation Database: In 2009 KRA started a process of
installing a valuation data base system through a country
to country arrangement with India. The objective of the
project is to develop a database of values that can be used
for reference purposes for imports and exports at all CSD
stations. Once in place, it will enable officers to access
a benchmark value for imports when they suspect the
121
validity of commercial documents and declarations. This

electronic database will support risk management with the
inclusion of highly sensitive imports and exports, which
are subject to high rates of duty. The valuation database
will bring significant gains for the customs and business
fraternity, which will contribute greatly to facilitation of
trade. Implementation of the valuation database will lead
to uniformity and consistency in valuation across regions,
maximization of revenue collection, increased compliance
by traders/agents, speeding up of processing and resolution
of valuation queries, provision of a level playing field for
domestic producers and manufacturers and feedback to risk
management,
- Customs Revenue Accounting Module (CRAM):
Another component to the system is the Customs Revenue
Accounting Module (CRAM), which seeks to develop an
accounting module, which will account for all import and
export transactions in the Simba system. The module
will also be able to give a single view of the position of
stakeholders accounts i.e. report all amounts owed by
taxpayers, follow the financial impacts of every entry during
its life-cycle, manage debts recoverable from taxpayer/
importers, manage aged analyses in debtors ledgers, alert
Customs Officers to non-compliant traders and provide real
time management information. This project is an important
component of S2005S and integral to progress on PAYBOX
and Authorised Economic Operator (AEO), and is an
important part of strengthening Risk Management generally.
The Customs Revenue Accounting Module (CRAM) has
Domestic Taxes since been renamed Customs Ledger Management Module
Department (CLMM)
The key challenge facing the DTD is lack of an integrated tax

system that provides a single taxpayer database. To address this
challenge, DTD is undertaking the implementation of an Integrated
Tax Management System (ITMS). DTD has been lacking an IT
system aligned to its current functional structures which allows
for seamless data exchange with the SIMBA and VMS systems of
the CSD and RTD, respectively. To address this challenge, KRA,
122
reviewed various systems including those of New Zealand, Ireland,

and Netherlands and finally settled on the Chilean system under a
country to country co operation arrangement. Thus, KRA settled on
the Chile tax system as the basis of developing its own integrated
tax management system. Implementation of the ITMS Project
formally commenced in September 2007.
Co-operation between KRA and the Chile Internal Revenue

Services (Servicio Impuetos Internos or SII) is based on a
Memorandum of Understanding (MOU) signed in November 2007,
which provides for technical assistance, training of KRA technical
personnel in relevant areas, quality assurance on the developed
tax software and assistance in the design and implementation of
appropriate technological platform to support the tax system. Once
fully implemented, ITMS will provide more efficient service delivery
in terms of faster responses and reduced compliance cost, enhance
taxpayer empowerment by facilitating easier information access
and transaction flexibility, improving integrity by minimizing human
contact, facilitating seamless sharing of information across KRA
and relevant third parties to assist in cross matching and statistical
analysis, providing a single view of a taxpayer, and improving tax
collection.
Commissioner General, M.G. Waweru KRA and Director of

the Chile Internal Revenue Services, signing an MOU on
Kenya/Chile collaboration on implementation of ITMS.
123
The major ITMS components are: electronic tax registration,

e-tax filing (all returns and attachments), e-tax payment, e-tax
statement enquiries a web-based question and answer page and a
facility to send e-mail. ITMS is being implemented in three stages
namely; Stage I: Business Analysis and Documentation, Stage II
Systems Analysis and Design, Stage III; Systems Development
and Implementation. The phasing is elaborated in chart 11 below:
Chart 11: ITMS Implementation Stages
BUSINESS ANALYSIS AND

DOCUMENTATION
124
Chart 12 provides a schematic overview of the information flow in

ITMS, emphasizing the single view approach adopted.
Chart 12: ITMS: Single View
DTD is also implementing improvements in the ETR programme.

Though ETR has been fairly successful since its introduction in
July 2005, with 75% of targeted taxpayers or 38,000 out of 55,000
having installed ETR devices, several challenges have arisen
subsequently. These include non-usage of ETR machines by some
unscrupulous taxpayers, especially after official working hours and
weekends, inadequate staffing to enforce ETR compliance, poor
management and control of ETR field staff, reactive rather than
proactive enforcement procedures, frequent breakdowns and late
reporting of the same by taxpayers and increased paper work given
the need to submit monthly print-outs on ETR sales (the Z-reports).
To address these challenges, KRA is considering the options
available to network ETR devices and ITMS to facilitate seamless
exchange of information.
125
Road transport The Reforms outlined in chapter 4 have made RTD a highly
Department automated department. It is building on these reforms with the
following initiatives:
- Second Generation Driving License (SGDL): KRA is
currently in the process of introducing a second generation
smart card type Driving License. The license will bear
new security features and will be linked to a computerized
database of drivers licenses. It will comply with the
international specifications including a digitized facial image
of the applicant and signature. The license shall also be
security laminated to safeguard it from counterfeiting,
alteration or duplication.
- New-Look Motor Vehicle Number Plates: Another
significant development that is underway is the upgrading
and modernizing the current motor vehicle number plate
system with a more secure one.
- On-line Vehicle Management System: The VMS currently
in use in RTD is not web enabled. With a web enabled one,
lodging of registration documents would be possible from
any location via internet. This will enhance service delivery;
enable tracking the processing of documents on-line,
decongest the banking halls and automatically update the
motor vehicles e-registry,
- Driving License Management System (DLMS): This
database system will support the issuance of the Second
Generation Driving License. The rationale behind this
initiative was the need to automate the drivers records and
facilitate their retrieval.
- Transit Vehicle Identifiers/ Number plates: To eliminate
the possibility of diversion of transit vehicles into the country,
the department is in the process of introducing an identifier
for transit motor vehicles. This identifier will be colour coded
depending on the destination of the vehicle. Government
revenue will be safeguarded by avoiding illegal diversion
of transit vehicles and compliance to road safety measures
by ensuring the vehicles leave the country within stipulated
transit period.
126
6.3.2 Ongoing Institutional Reforms
The ongoing reform initiatives have led to the need for institutional
and organizational reforms to proceed alongside the automation
initiatives. These institutional reforms include the following:
Customs The CSD is carrying out the following institutional reforms:

Services i.) Review of the Customs Organization Structure: CSD has
Department undergone fundamental reforms in revenue collection, service
delivery and enforcement systems. The reform effort has
revealed structural weaknesses and severe human resource
constraints, which adversely impact on service delivery.
Given these challenges, the department has reviewed the
existing structure as well as staff numbers with a view to
addressing them. The review identified several shortcomings
including an ambiguous reporting structure/relationships,
which hampers decision making and service delivery; lack of
clarity in roles; an aging workforce and technical deficiencies
among staff that undermine the departments capacity to
manage existing programmes. There has been a higher than
expected staff turnover due to dismissals caused by integrity
related issues.
ii.) Operationalization of the Authorized Economic Operator
Scheme (AEO): the Authorised Economic Operators
(AEOs) are customers whose compliance records justify
that they receive preferential treatment in processing their
transactions. In line with international best practice, CSD is
operationalizing the scheme, which will on one hand provide
importers with an incentive to comply with existing laws
and regulations while simultaneously allowing it to focus on
recalcitrant importers,
iii.) Modernization and Automation of Customs Procedures
for Investment Schemes: Various trade related incentive
schemes are managed by the CSD. These include the Tax
Remission for Export Office (TREO), Export Processing Zone
(EPZ) and Manufacturing under Bond (MUB), all aimed at
promoting exports by ensuring exporters enjoy Tax and Duty
Free priviledges. Interventions focus on developing business
rules that will assist in striking off the quantities allocated/
127
approved by Treasury instead of the current manual system;

speeding up the audit process and ensuring uniformity of
the audit procedure, compliance with ISO requirements and
both reliability and traceability of reports. The interventions
are being spearheaded using the TREO scheme. Once
successfully implemented, the initiative shall be adopted for
the management of the EPZ and MUB,
iv.) Proposed Centralization of Licenses for Transit Trucks:
Annually, CSD licenses over 8,000 Transit Trucks for
conveyance of goods in Transit. Currently, the activity is
decentralized and takes place in Eldoret, Kisumu, Mombasa,
Nairobi and Nakuru. Decentralization was previously
adopted as a measure to ease congestion and address
the issue of delayed services to the public. With respect
to centralization, the objective is to streamline licensing of
Transit Trucks and to gain control over them. With the new
centralization strategy in place, it is envisaged that trade
facilitation shall be boosted and the licensing section shall
be managed better.
Domestic Taxes The Domestic Taxes Department is carrying out the following
Department institutional reforms:
i.) Review of the DTD Organization Structure: The DTD
organization structure has evolved from a tax type structure
to a function based structure. However, the current function
based structure may not support the operations within the
ITMS environment. Consequently, the structure will be
reviewed to create a process based structure in line with
ITMS processes.
ii.) Risk based audit selection: KRA is currently implementing
a risk-based case selection system, which is being pioneered
within the Large Taxpayers Office. Development of systems
for risk analysis and selection of cases for audit and
investigation is a crucial tool of improving the enforcement
capacity of revenue administration. These systems use
information from different sources to form an opinion
on which cases are prone to risk of fraud and rank them
accordingly. Risk profiling allows the department to focus on
high risk cases, and put in procedures to simplify compliance
128
requirements for low risk customers. In order to enhance

efficiency and effectiveness in audit and enforcement,
DTD has prepared and operationalized an audit manual
which incorporates this risk based approach. The manual,
pays particular attention to improvements in audit planning,
collection of relevant information, methodology of conducting
an audit and training of auditors.
Support In a bid to protect revenue and adequately support revenue

Departments departments, the support departments are also in the process of
effecting institutional changes. Key among them include:
i.) Strengthening the Prosecution Function: In its
endeavour to build its prosecution capacity, the Authority
has been mandated to prosecute tax related cases through
gazettement of six internal prosecutors, further this initiative
is complimented by prosecution of tax related cases under
the Anti Corruption and Economic Crimes Act. The Authoritys
unit shall also publicize tax evasion cases with the aim of
promoting tax compliance by deterring those with a tendency
to evade tax and the public at large.
ii.) Strengthening the Anti-Counterfeit Function: Under the
leadership of the anti-counterfeit unit, a secretariat was
formed to incorporate stakeholders including the Police,
Kenya Intellectual Property Institute (KIPI), Kenya Plant
Health Inspectorate Services (KEPHIS), Kenya Bureau of
Standards (KEBS), Kenya Music Society, the AGs Office
and other agencies to pursue and eliminate all intellectual
property rights infringement for the benefit of the owners. The
secretariat undertakes surveillance and raids on suspected
intellectual property right violators.
129
6.3.3 Required Statutory and Legal Reforms
Operating in the changing global environment and taking account of

the institutional and legal requirements of the current dispensation,
the need for statutory review to underpin several of the reform
efforts has arisen. Thus, there are ongoing efforts to bring the legal
framework up to date. The key areas that need statutory changes
include the following:
i.) Tax Procedure Code (TPC): As indicated in Chapter 3,
prior to the formation of KRA, each of the revenue statutes
were administered by different departments headed by
individual commissioners. The creation of DTD brought all
the statutes governing domestic taxes under one umbrella.
However, these acts had different provisions with respect
to the various administrative issues, penalties and dispute
resolution mechanisms. This necessitated the harmonization
and integration of operations, processes and procedures
in the Income Tax Act, VAT Act and Excise Duty Bill. To
address these challenges, a draft Tax Procedure Code
(TPC) is being finalized by the Treasury with input from
KRA. If approved by Parliament, the TPC will standardize
administrative procedures, penalties and dispute resolution
procedures; among others. The process of formulating the
TPC also provides an opportunity to modernize the existing
procedures and practices within KRA,
ii.) Excise Tax Legislation: With the advent of East African
Community Customs Management Act (EACCMA 2004),
the excise domestic component that was previously
administered by Customs and Excise department was shifted
to domestic administrations in respective member countries.
Hence, Kenya found itself in a situation where the Customs
component of Cap. 472 (Customs and Excise Act) has been
superseded by the EACCMA while the excise sections of
the law were still operative. To rectify this anomaly and to
modernise the legislation covering excise taxation, the
Ministry of Finance is in the process of finalising the Excise
Bill, which has been prepared with input from KRA,
130
iii.) Establishment of Tax Dispute Resolution Body: The

various Revenue Acts administered by KRA provide for
different dispute resolution mechanisms. Specifically, the
Income Tax and VAT Acts provide for the resolution of tax
disputes through the Local Committee and VAT Tribunal,
respectively, each having its own procedures and operations.
In addition, there is need to provide a framework where
these dispute resolution mechanisms are a necessary step
prior to taking tax matters to court. As currently provided,
tax payers have the option of either pursuing their claims
through the dispute resolution mechanism or going directly to
court. To address these challenges, the Ministry of Finance
with KRAs input is developing a Bill to establish a single
dispute resolution body. The proposed Bill incorporates
the experiences of other countries including Uganda and
Tanzania,
6.3.4 Ongoing Reforms and the Long Term Vision
This chapter began with a review of the challenges KRA will face
as it seeks to become a middle income revenue Authority by 2030.
The challenges focused around maintaining a strong revenue
effort even as the composition of taxes changed from the easier
to collect customs and excise related taxes to more onerous direct
taxes, keeping pace with global automation initiatives and coping
with the changing role of customs. The review of the reforms that
were ongoing at the beginning of 2009 makes it quite clear that
the Authority is on the right track with respect to handling these
challenges. In particular, the CSD, through its efforts to benchmark
with international practice, is on track to meet the challenges of its
changing role.
131
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134
Index
INDEX
A
Advance Tax 89
Administration
-colonial 1, 2
-integrating VAT and income tax 77
Anti-Counterfeit and Anti-Smuggling Office (ACSO) 47
Assessment
-self 8, 108
-risk 8
Assets register 53
Association of Kenya Insurers (AKI) 91
Attorney general 16
Audit 106
-risk based 128
- Selection 121
-post clearance 109
Authorized Economic operator scheme 72, 122, 127

Autonomy 16
Automation 117
-medium term 116
-of support services department 117
B
Balance
-Score card 24
Benchmarking 107
Bill 18
Board 75,101,117
-of directors 16,35,44
135
Index
Bond execution 69
Border management 114
British
-common law 3
Budget
-deficit 3, 4
Bureaucrats 20
Business
-Automation 43, 45,57
-continuity plan (DRBCP) 57, 119
-intelligence 47,118
- Intelligence database 118
-intelligence office (BIO) 47
-organization 89
-Process Improvement 67, 93
C
Cargo management
-information system 66
Cash Receipting
-System (CCRS) 94
Capacity 3
-building 45,68
CCTV cameras 63
Centralization 111 ,128
Challenges
-faced during formation of 19
Change
-Agents 101
-Management 102
136
Index
-process 103
-champions 103
Clearing Agents 56,65,72
Client services 71
Commonwealth
-association of Tax Administrators (CATA) 107
Commissioner
-definition of 46
-general 4,6,60
-of motor vehicles 92
Complaints and Information Centre (CIC) 49

Common cash receipting system (ccrs) 57,64,94,117
Compliance
-voluntary 13,16,39
Components of RARMP 44
Computer Aided Audit Techniques (CAATs) 88
Conductor 89
- Licenses 94
Contact centre (Call centre) 119

Container Freight Stations (CFS) 66
Continuity
-of Leadership 100
-structural 2
Corporate
-entities 5
- Identity and re-branding 54
-income tax 5
-plan 23,37
-wide reforms 46
137
Index
Cost
-of implementation 25
Creation of a support services department 46

Creation of Kenya Revenue Authority 14
Customs
- Agreement on Customs Valuation (ACV10) 72
-and excise Department 26,58,78,130,132
-administration Reforms 58
-Border control services 76
- Clearance Audit 44,59,69,109
- Direct Banking 64,107
-entry processing 32
- Import Declaration Form ( IDF ) 64
-ledger management module (CLMM) 122
-modernizing 91
-oil stocks information system (COSIS) 67
-organizational structure 59,110, 126
-payments 62
-reform and modernization (CRM) 44
-Revenue accounting module (CRAM) 122
-single entry document (SED) 31
Customs services
-Business Automation 60
-department 120,127
-Department-revenue performance 62
Cycle
-boom 3
-burst 3
Criminal Investigations department 23,48
138
Index
D
Debt 3,79
Department
-Domestic excise 59, 87
-Domestic taxes 122,128
-Income tax 27 , 32
-VAT 131
Designing of reform programme 10, 42, 100, 102, 105
Development of operations Manuals and guidelines 88
Disaster recovery business continuity plan (DRBCP) 119
Document
- imaging 94
-processing Centre (DPC) 62
-security 92
Document scanning and Imaging92, 93
Dog Unit 74
Domestic
-revenue 77, 81, 90
-tax reform and modernization 45
Domestic Taxes 116, 107

-administration reforms 77
-department (DTD) 78, 122,128
-integration of 77
-transformational reforms 77
Donor
-funding 106
-support 3
Drivers
139
Index
-license status Query 95
Driving
-license 120
-License Management System (DLMS) 126
E
e
-customer 115
-filer 115
-learning Programme 119
-registry 126
-tax filing 124
-tax payment 124
-tax registration 124
-tax statement 124
East African
-Community (EAC) 3
-trade and transport facilitation (EATTF) project 58,68
- Customs Management Act (EACCMA) 59,130
Economic
-growth rate 1, 2
-indicators 4, 6
-management 14
-policy 2
-recovery strategy (ERS) 10
-reform 10
-shocks 3
-stagnation ii
Efficiency Monitoring Unit (EMU) 46
Electronic
-cargo tracking system (ECTS) 120
-Funds Transfer (EFT) 64
-tax administration End to End 115
-tax register (ETR) 75, 83, 99, 124
140
Index
-tax registration 124
Employee 19
Enforcement
-and compliance 59
- Anti-narcotic 74
Enterprise
-resource planning 117
-integrated information system (KREISA) 24 , 26
Era
-of shocks 3
Exemptions
-duty 38
Excise
-department 59
-duty reforms 87
- Operations Manuals and Guidelines 88
- stamps 87
Excisable
-commodities 87
Expansion of KRA stations 22

Export Processing Zone (EPZ) 127
F
Finance 49, 105, 117
Formation of KRA 8, 5, 19
Formation of SIMBA 60, 64
141
Index
G
General Agreement on Trade and Tariff (GATT) 72
General Packet Radio Services (GPRS) 120
Graduate trainee 27
Government agencies 116

Governor 14
H
Harmonization 55
-of two tier salary scale 30
Human Resource 104

- Policies 12, 55
-revitalization 54, 55
I
Import
-duty 40
-Declaration Form (IDF) 64
Information Communication Technology (ICT) 65, 93, 109, 114,

115
- and modern business systems 56
-optimal utilization of 114
Income
-employment 6
-gap 5
-middle 112
-tax 3, 6, 16, 27, 78
-tax policies 5
-tax rate 5
-tax returns 89
Inflation 14
Informal sector 77
Informer Reward scheme 48
142
Index
Information system 63
-back office 93, 94
Infrastructure development 10,44,51

-enhanced awareness on 51
Installment
-tax payment system 33
Institute of Certified Public Accountants of Kenya (ICPAK) 104

Institutional reforms 113 ,116 , 127
Integrated
-tax management system (ITMS) 123
Integrity
-and Zero Tolerance to Corruption 52
Integration 58, 78 , 106
Inter-American Center for Tax Administration (CIAT) 108

Internal Revenue Services (IRS) 115
Interest rate 14
Internal
-process reforms 22
Investigation and enforcement

-reform and modernization 45
ISO certification 53
IT 60
ITMS 99, 122, 123
-components 124
-implementation 117,124
-single view 124
143
Index
J
Jerquing branch 69
K
K9 Unit 74
Kenya
-Anti-Corruption Commission (KACC) 48
-Association of Manufacturers (KAM) 104
-Bureau of Standards (KEBS) 69, 129
- National Chamber of Commerce and Industry (KNCCI) 104
-International Freight Forwarders and Warehousing Association
(KIFWA) 104
-Ports authority 121
-Revenue Authority Training iInstitute (KRATI) 55, 56
KoVIS 94
L
Large Taxpayers
-formation of LTO 32
-unit 32
-office 33
Leadership 98
Lessons learnt 99
Levy
-fuel 96
Liberalization 114
Logbook 90
- Security printed 97
Long Term
-Target 112
144
Index
M
Macroeconomic policies 1,4
Management
-board 16
- Of security bonds 59, 69
-recruitment of top 26
-performance of 53, 26
-queue 94
Marine Unit 75
Marketing and Communication Department
-formation of 50
Medium
- term expenditure framework 9
- term targets 113
Memorandum
-of objects and reasons 16
-of understanding 123
Millennium Development Goals (MDGs) 112
Modern
-Business Systems 56
-tax administration 77
- Information technology 25, 117
Modernization of customs procedures 44, 56, 127

Mombasa Anti Smuggling Team (MAST) 76
Motor vehicle
- Automation of Registration 96
-registrar of 34
-Second hand purchase 34
Multi party democracy 7, 8
145
Index
N
National Intelligence Security Services (NSIS) 48
New
-approaches 114
-generation reforms 37
- look Security Logbook 97
-Number plates 126
Non
-compliant 18
-Compliance 6
O
On-line
-filing providers 116
-vehicle management system (VMS) 117,122,126
- Motor Vehicle Registration 31, 91, 95
Organization
-structure 18
-restructuring 23, 55, 102
Orbus System 64
One-Stop Border Post (OSBP) 67
One-Stop Centre 69
P
Paradigm shift 20
Patrol boat 75
Pay as you earn 81

PAYBOX 122
People involvement 103
Performance dashboard 118
Personal identification number (PIN) 25

-introduction of 8
146
Index
Physical controls 114

PMBO 42, 106
Policy
-and legislation 59
-shift 4
-Industrialization 4
Political
-change 2
-pluralism 7
-transition 2,
- Support 110
Port community Based system (PCBS) 121
Post clearance audit (PCA) 69
Public
-service commission 27
- Servants 17, 18
Pre-shipment inspection (PSI) 71

Presumptive taxes 89
Projects Management office 59
Public service Vehicle (PSV) 89

- Badges 94
- Driver 94
-service vehicle crews 87
-transport system 87
Q
Quality Management 46, 51
147
Index
R
Re-branding 50, 54
Reforms
-agenda 100
-across the organization 100
-initiative 60
-in other tax jurisdictions 38
-implementation strategy 42
-implementing 105
-impact of 111
- Initiatives 107
-people centered 22, 26
-programme 42, 100
-projects 104
Regional groupings 114
Removal of Road License 95
Research
-and corporate planning 23
Revenue
-administration 24, 38, 105
-administration reforms 38
-administration and digital data exchange (RADDEX) 71
-administration and reforms programme (RARMP) 10, 26, 41
-collection 3, 107
-enhancement reform 21, 31
-integrated functional 80
-mobilization capacity 114
-performance 38
-protection (RPS 22
-target 6, 112
Retrenchment 37, 29
-programme 29
-staff, of 29
148
Index
Revenue administration reforms

-Fiscal 15
-policy management 27
Revenue Collection
-function 92
Revenue departments 21 , 106, 120
- Administration reforms, features of 32
Review of the DTD Organization Structure 128
Risk
-based audit 128
-based management 108
- Exploitation of Transitional Opportunities 108
-Taking Ability 99
Road Transport Department (RTD) 126

-incorporating of 34
- Interfacing the 62
-Modernizing the 91
-revenue performance 96
-Service delivery performance 97
Rwanda Revenue Authority (RRA) 71
S
Sales tax 4
Second generation Driving License (SGDL) 125
Security Bond
-Management 69
-Management Unit (SBMU) 69
Security
149
Index
-features 97, 126
Semi autonomous
-revenue agency 12
-revenue authorities (SARA) 15
Sessional paper 14
Single window 45, 114, 121
Simba 2005 System 60 , 121

- Challenges Faced 65
-implementation of 61
Structural
-Adjustment Programme 4
-Transformation 113
Support services Departments

-creation of 46
-Alignment of 49
- Harmonization of 55
-strengthening the prosecution function 129
Stakeholders 103
Strategic
-Planning approach 24
T
Tanzania Revenue Authority (TRA) 71
Task force 65
Trade
-liberalization 114
-facilitation 114
Time release study (TRS) 111

Training facilities 28
Transition phase 21
Treasury 21
Transit trucks 128
150
Index
Transit Vehicle Identifiers /Number Plates 126
Turnover 89
-tax
Tax
-administration 4, 112
-administration reforms 38, 10
-administrator 107, 112
- Base; broadening the 89
-border 113
-brackets 5
-composition 113
-Compliance 83, 57, 129
-direct 113
-evasion 6, 23, 40, 49, 129
-framework 1
-integrating 12, 106
-modernization programme 14
-Net; broadening the 89
-personal 113
-payers charter 37, 52
-payer segmentation 77
-payers Week 52
-policy 3, 39
-programme reforms 82
-practitioners 116
-rate 113
- reforms 4, 40
-revenue gap 6
- Remission Export Office (TREO) 58, 127
-system 6
-Turn over 89
Taxable income 79, 90

Training and KRATI 55
Transit
-cargo 120
151
Index
-Vehicle identifiers 126

Turn over tax 89
Two tier salary scale 30
U
Uganda Revenue Authority (URA)
V
Value
-added tax 77
-added tax compliance 83
Valuation
-and tariff 59
-database 72, 108, 121
VAT 77
-32A 84
Vehicles Management System (VMS) 92, 117
Vision 2030 112
Visionary Leadership 99
W
Waiver 59, 88
Website
- (KRA) as a Source of Information 57
Wide Area Network 32
Withholding
- Agents 83
- VAT 83
- VAT Agency System 83
World Customs Organization (WCO) 56, 72, 108

Write offs 88
www.kra.go.ke 57
X
X-ray Cargo scanner 58, 73
152
A tax loophole is something that benefits the
other guy. If it benefits you, it is tax reform.
Russell B. Long
153
NOTES
154
NOTES
155
NOTES
156
NOTE
157
NOTES
158

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Revenue Administration Reforms in Kenya:

Experience and Lessons

Kenya Revenue Authority

First Edition (2010)

Kenya Revenue Authority

Design & Layout

Bibliography ............................................................................................................................ 132

CASE STUDIES/INTERVIEW BOXES

Information Box 1: Common features of revenue administration reforms ......................... 39

Chapter one begins with a discussion on the historical account of

Chapter two describes the formative stage of Kenya Revenue

Chapter three covers the tax administration reforms that were

Chapter four is dedicated to the new generation reforms, which

Chapter five captures in detail the major lessons learnt at various

Finally, Chapter six-Entitled Next Steps concludes by taking the

Implementing these reforms has taught us valuable lessons that

Consequently, over the years our views regarding tax administration

I wish to recommend this book to policy makers interested in

The Commissioner General, M.G Waweru and the top management

The Project Oversight Team also provided valuable guidance and

KRA would like to thank the project managers in the Revenue

This book was also enriched by the experience of two Ministers

We also benefited immensely from the years of experience of the

Interviews with former top management staff of KRA, and in

Kenya Revenue Authority 2010

These achievements have been realised under sustained

Whereas the reforms implemented are documented in various

processes and their impact on revenue administration has been

The issues discussed in this book delve more on tax administration

continuity in the bureaucratic legacy. During this period, revenue

This period was conspicuously marked by two severe economic

In terms of the tax system, the country faced a serious dilemma

Structural By the early 1980s, the shortcomings in the macroeconomic policies

shaky finances and a weak domestic revenue generation capacity.

There was external pressure with the government being forced to

By 1982, the lowest and highest tax brackets were widened in a

lowering of corporate income tax (from 45%) to enhance the

Accelerated The repeal of Section 2A of the Constitution in 1991 heralded

However, a major breakthrough in fiscal policy came in the year

The appointment of a new Commissioner General was a

the new regime attached to revenue mobilisation. These factors

A major objective of revenue administration reform is to enhance

Moreover, in a fast changing business environment, revenue

development endeavours. Reforms enable the revenue agency to

Emergence The Semi Autonomous Revenue Authorities (SARAs) is a

First established in Indonesia in the early 1980s, today SARAs have

1995, Tanzania in 1996, South Africa in 1997, Rwanda in 1998,

From the experiences of these countries the creation of SARAs

In keeping with international best practice, Kenya Revenue

Benefits The proponents of SARAs have justified the establishment of

There is also greater flexibility in human resource management

In August 1993, Micah Cheserem was appointed Governor of the

benchmarking. The team led by Joseph Kinyua, then Director of

Although Kenya had better revenue performance in East Africa,

With the adoption, the Minister formed a taskforce under the

The proposal was further reinforced by the group led by Edgar

The memorandum of objects and reasons of the Kenya Revenue

The object of the bill is to provide for the establishment of a

The Kenya Revenue Authority was finally established in July 1995

The first KRA Board of Directors comprised individuals drawn from