ICPAK – Annual Tax Conference Efficiency in tax collection: comparative analysis CPA Rajesh Shah Senior Tax Partner – PwC Kenya September

PwC Kenya Agenda Setting the scene A comparison on how Kenya is doing What can Kenya do? 2 September 2013Efficiency in tax collection: comparative analysis

PwC Efficiency in tax collection: comparative analysis Setting the scene Efficiency in tax collection: comparative analysis 3 September 2013

PwC Kenya Theme & topic The theme for this years Annual Tax Conference (ATC) is “efficiency and effectiveness in tax management”. Effective and efficient tax management means collecting the highest amount of taxes from the existing resources in the fastest time duration and with the lowest possible collection costs. This presentation provides a comparative analysis of Kenya’s effectiveness in tax collection from a taxpayer’s perspective. 4 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya Financing Government’s obligations Governments require funds to provide public utilities Funds are tax based or non-tax based. Kenya depends on tax revenues 5 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya Tax Revenue contribution to nominal GDP... 3 global average of 23%. Efficiency in tax collection: comparative analysis

PwC Kenya Recurrent budget themes… Simplify the tax code Continue with tax administration reform Reduce tax leakages Rationalize tax incentives September 2013 Tax reform and administration Efficiency in tax collection: comparative analysis

PwC Kenya Ambitious tax collections vs reality Efficiency in tax collection: comparative analysisSeptember

PwC Kenya What is tax collection? Tax is a financial charge or levy imposed upon persons by the government Tax collection is either through voluntary process or through intervention measures in cases of delinquent taxpayers. 9 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya Hallmarks of a good tax system The effectiveness of tax collection is largely determined by the extent to which a tax system is aligned to the hallmarks of a good tax system. A good tax system should meet five minimum basic conditions: 10 September 2013 Simplicity Administrative ease Fairness and equity Adequacy Transparency Efficiency in tax collection: comparative analysis

PwC Kenya Hallmarks of a good tax system – how is Kenya doing… 11 September 2013 Simplicity Administrative ease Fairness and equity Adequacy Transparency Efficiency in tax collection: comparative analysis

PwC Efficiency in tax collection: comparative analysis A comparison on how Kenya is doing Efficiency in tax collection: comparative analysis 12 September 2013

PwC Kenya The comparative analysis – Paying Taxes PwC in conjunction with the World Bank conducts an annual study - Paying Taxes whose key objective is to rank economies in terms of ease in paying taxes The ranking is based on the following key factors (indicators) : Total Tax Rate (TTR) Time To Comply Number of Tax Payments (NTP) 13 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya Paying taxes is important The impact that tax systems have on business is important. They: support government economic and social policy can help foster business investment and return to economic growth help reduce public finance deficits and increase tax revenues in developing countries The Paying Taxes study is important. It: provides data to inform discussions on tax policy and tax administration encourages tax reform generates great interest and is used around the world 14 September 2013 Efficiency in tax collection: comparative analysis

PwC Kenya 49% 39% 28% 36% Corporate income tax is only part of the burden 15 September 2013 Efficiency in tax collection: comparative analysis Taxes on profit are only 12% of tax payments, 26% of time spent on tax compliance, and 36% of the tax cost The chart shows the average results for all economies in the study PaymentsTimeTotal Tax Rate 36% 39% 26% 12% Corporate income tax Labour taxes Consumption taxes

PwC Kenya A declining trend on Paying Taxes for Kenya 16 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya A global comparative analysis From a global stand point, Kenya is in the last quarter in terms tax collection efficiency as illustrated below! CountryTotal Tax Rate (TTR) Number of Tax Payments (NTP) Time To Comply (TTC) Paying Taxes Ranking United Arab Emirates Qatar Saudi Arabia Hong Kong SAR China Omam Kenya Venezuela, RB Chad Guinea Congo Republic Central African Republic September 2013Efficiency in tax collection: comparative analysis

PwC Kenya A regional comparative analysis – Africa From an African perspective, Kenya is still in the last quarter in terms of tax collection efficiency as illustrated below: 18 September 2013 CountryTotal Tax Rate (TTR) Number of Tax Payments (NTP) Time To Comply (TTC) Paying Taxes Ranking Mauritius Seychelles Rwanda South Africa Botswana Kenya Chad Guinea Congo Republic Central African Republic Gambia Efficiency in tax collection: comparative analysis

PwC Kenya EAC comparative analysis In East Africa, Kenya is ranked worst in terms of tax collection efficiency as illustrated below: 19 September 2013 CountryTotal Tax Rate (TTR) Number of Tax Payments (NTP) Time To Comply (TTC) Paying Taxes Ranking Rwanda Uganda Burundi Tanzania Kenya Efficiency in tax collection: comparative analysis

PwC Kenya The key challenges for Kenya Not perhaps the tax rates It is about the number of payments and the time it takes to comply Efficiency in tax collection: comparative analysis 20 September 2013

PwC Kenya Time to comply– select African countries 21 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya What is Kenya not doing right.... Compliance time for VAT Kenya has the highest compliance time for VAT among its peers. The number of tax returns which have to be made and the level of information required affects the time needed to comply. 22 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya... Yet the Government wants to significantly increase revenue from VAT The Government hopes to significantly increase VAT collections over the next two financial years. The VAT 2013 provides for application of information technology, is the KRA eqquiped? 23 September 2013Efficiency in tax collection: comparative analysis

PwC Efficiency in tax collection: comparative analysis What can Kenya do… Efficiency in tax collection: comparative analysis 24 September 2013

PwC Kenya What can Kenya do… Not much about the tax rate as Kenya relies on tax revenues to fund expenditure… however, we can do something about Consolidating some of the taxes e.g. NSSF, NHIF, other statutory levies Reduce the Time to comply – preparation, file, pay 25 September 2013Efficiency in tax collection: comparative analysis

PwC Kenya Best international practice on effective tax collection. Tax collection efficiency is significantly enhanced by the following factors: Number of tax payments Efficient use of technology Simplification 26 September 2013Efficiency in tax collection: comparative analysis iTax is a welcome move – for the system to be effective, it has to be user-friendly and secure so that people will feel encouraged to participate

PwC Kenya Simplification in the context of devolution Taxpayer recruitment Merging and/or scraping taxes Categorizing taxpayers according to size Good Tax Practice Notes Simplife Tax returns 27 September 2013Efficiency in tax collection: comparative analysis

The way forward for Kenya... Effective use of technology and simplification of our tax system is key in enhancing effectiveness in tax collection. Efficiency in tax collection: comparative analysis

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