Kenya Revenue Authority to be split into two by year end

Kenya: The Government will by the end of this year split Kenya Revenue Authority (KRA) into two independent agencies, ushering in a new era for the tax collecting agency which celebrates its 20-year anniversary this June.

According to the budget policy statement from the National Treasury, the process of splitting KRA into two agencies as alluded to by President Uhuru Kenyatta two years ago is set to be completed this year.

“The National Treasury, working with the KRA will develop and implement revenue administration reforms including submitting for enactment the two Bills on the re-organisation of KRA into two semi-autonomous but inter-dependent agencies,” stated Treasury. The Inland Revenue Agency Bill and the Customs and Border Protection Agency Bill are expected to be tabled before Parliament this year, kick-starting the process of splitting the powerful State organ.

However, soon after the proposal, International Monetary Fund (IMF) is said to have written a report to KRA opposing the plan. Officials aware of the plan say the Bretton Woods institution feels Kenya currently does not have the capacity to run the two entities independently.

The split will see the formation of the Inland Revenue Agency which will be charged with catering for Medium & Small Taxpayers, (MST) and Large Taxpayers, (LTO) and the Customs and Border protection Agency in charge of customs services.

The two agencies are expected to be operational by the end of this year although it is still unclear when taxpayers will be re-directed to their respective agencies to file tax returns.

“Thereafter in 2015, the National Treasury, upon enactment of the two Bills into law,, will commence the process of making the agencies operational, including developing a framework for entrenching competency and integrity into the two organisations,” states Treasury.

Middle class

This is the first major split Kenya’s tax collection agency has had since its establishment by an Act of Parliament, Chapter 469 which became effective on 1st July 1995. Kenya has since seen its Gross Domestic Product (GDP) grown by 500 per cent from $9 billion to $55 billion as at 2013. With the exponential growth in the economy, a widening middle class and a bursting SME-driven economy, the country’s sole tax collecting agency has been stretched thin having to administer the increasingly complex demands for tax policy.

In addition to this, Kenyan tax payers have often criticised the country’s tax policy of being punitive to the majority low income earners and lenient to high net worth individuals and multinationals.

This has in turn hurt compliance levels with many SMEs opting to stay in the informal sector while many multinationals adopting aggressive tax planning measures to reduce their annual tax bills.