MINISTERIAL STATEMENTS
INACCURACIES/INCONSISTENCIES IN TREASURY
TAX/ REVENUE ACCOUNTS
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, on Thursday,
21st April, 2011, the Member of Parliament for
Gwasi, hon. Mbadi, sought a Ministerial
Statement on the Tax Account at the Treasury. In particular, he wanted explanation made
to the House on the following:-
(i) whether our Tax Account, and especially the revenue rates are properly kept;
(ii) the number of revenue statements that were certified by the Controller and
Auditor-General for the financial years 2007/2008 and 2008/2009;
(iii) the actual receipts of revenue for the financial years 2007/2008 and
2008/2009 in respect of various Budgetary Heads, including Mining, Profits and
Dividends, Fines and Penalties, Other Charges, Taxes on Income, Profits and Capital
Gains; Taxes on Goods and Services, Taxes on International Trade and Transactions,
Other Taxes Not Classified; Property Income Interest Receivable, Property Income,
Rents on Land, Sale of Goods and Services, Other Records not Classified; Repayment
from Domestic Lending and On-lending, Tourism and Wildlife, and Trading Licences;
and,
(iv) whether the receipts of the revenue for the financial years 2007/2008 and
2008/2009, as declared to Parliament in the Estimates of Revenue, reflected the actual
receipts into the Exchequer Account for the respective Revenue Heads for the same
period.
On 15th March, 2012, the Chair directed the Minister for Finance to issue a
Ministerial Statement in relation to the receipts of revenue for the financial years
2007/2008 and 2008/2009 as only the accounts for the financial years 2008 and 2009
were already receiving attention by the Public Accounts Committee (PAC).
Mr. Deputy Speaker, Sir, I beg to, first of all, tell this august House that revenue
collection and accounting is a process, and that it involves various stakeholders. The
taxpayer pays his or her taxes due directly to the tax collector or indirectly into the Kenya
Revenue Authority (KRA) collection accounts in the banks appointed by the KRA. On
receiving the tax revenue payments, the revenue collector remits the same to the
appointed receiver of that revenue, who subsequently remits the same to the Exchequer
Account.
The KRA is legally appointed collector of Income Tax, Customs Duty, Excise
Duty and Value Added Tax (VAT). Collectors of other revenues, who largely include
Ministry Departments, are appointed by respective receivers of revenue, who are in turn
appointed by the Treasury.
Mr. Deputy Speaker, Sir, from the above description, you appreciate that the
process of collecting and accounting for revenue involves parties who are independent of
each other, and who maintain their own separate sets of books of accounts. Indeed, the
revenue records maintained by these parties often show different revenue positions and,
therefore, require reconciliation – in some cases, on monthly basis and in other cases
even on a daily basis.
Let me underscore the fact that variances are usually explained by the timing
differences when revenues are received and then ultimately remitted to the Exchequer.
For instance, when a taxpayer pays his or her taxes through the KRA collection account
in a bank, the KRA immediately recognises the receipts in their books but such receipts
take time to be reflected in the receiver’s account at the Central Bank of Kenya (CBK)
and subsequently to the Exchequer Account.
Mr. Deputy Speaker, Sir, with this background, I now wish to respond to the
specific questions raised by hon. Mbadi.
First, I am not aware of a Tax Account under the Government Financial
Management Act but I presume that the hon. Member was referring to the Exchequer
Account.
Let me clarify that for all revenues due to the Government – tax, non-tax and
proceeds from borrowing – are paid into the Exchequer Account, which is properly kept
and indeed audited on a daily basis by officers from the Office of the Controller and
Auditor-General. As part of his or her legal mandate, the Auditor-General also keeps a
mirror account of the Exchequer Account.
Mr. Deputy Speaker, Sir, with regard to the question of the number of revenue
statements for the financial year 2007/2008 that were certified by the Controller and
Auditor-General, I would like to confirm that only two statements were certified. These
were the Property Income Interest Received Account, and the Dividends and Fines,
Penalties and Forfeitures Account. For the financial year 2008/2009, all the 14 statements
were qualified.
The Report of the Controller and Auditor-General for the financial year
2007/2008 provided specific reasons as to why each revenue statement was excluded
from his certificate, and this was basically for accounting reasons. The Report of the
Controller and Auditor-General for the financial year 2007/2008 has already been
discussed by the PAC, and the Committee has given specific recommendations on actions
to be taken by the respective receivers of revenue. Indeed, revenue receivers have been
taking action as directed by the PAC, through the Treasury.
Mr. Deputy Speaker, Sir, therefore, I wish to say that the action by the PAC is in
order, and this is being implemented.
Regarding the question as to whether the receipts for the financial year
2007/2008, as declared to Parliament in the Estimates of Revenue, reflect the actual
receipts into the Exchequer Account for the respective Heads and for the same period, I
wish to clarify that the actual receipts for that year, as reflected in the Printed Estimates
of Revenue, were based on unaudited revenue returns because at the time of reporting to
Parliament the accounts were in the process of being audited.
So, preparation of the
Printed Estimates of Revenue was based on unaudited accounts.
Mr. Deputy Speaker, Sir, in conclusion, let me reassure this House and the public
at large that the Treasury remains fully committed to ensuring full accountability and
optimal utilisation of all revenues collected and received by the Government of Kenya.
Indeed, we have strived to uphold a high level of transparency in dealing with public
finances. We have continued to demonstrate this, in accordance with the Fiscal
Management Act, by publishing in the Kenya Gazette, on monthly basis, the Statement of
Revenues and Net Issues out of the Exchequer Account.
In addition, we submit to this House the Quarterly Economic and Budgetary
Report, as required by the law. Indeed, the later publication can also be downloaded from
the Treasury’s website for wider access.
Thank you.
Mr. Mbadi: Mr. Deputy Speaker, Sir, the Statement by the Minister sounded like
a Paper prepared for a seminar, but not a clear explanation on accountability to the
National Assembly on the part of the Government.
According to the Minister, only two out of 14 revenue accounts were certified.
According to my information, three out of the 14 revenue accounts were certified. So, I
have added him one account that was also certified. These are the Mining Account, the
Profits and Dividends Account, and the Fines and Penalties Account; which are the
smallest revenue accounts. All the other major revenue accounts such as the Taxes on
Income Account, the VAT Account, the Corporation Tax, et cetera, were not certified but only qualified.Mr. Deputy Speaker, Sir, in accounting language, “qualified” means they were
not certified. When the Minister says that the accounts were qualified in the following
year, it may mislead one to think that everything was perfect. It means that all the 14
accounts did not meet the threshold of auditing standards. Revenue is collected and
banked in the Exchequer Account.
The Constitution is very clear under Article 206, which states that there is
established the Consolidated Fund into which shall be paid all money raised or received
by or on behalf of the national Government. This actually has been uplifted from the
other Constitution that we did away with in August, 2010. So, it is just a law that has
been in place all this time. Once the money is banked, that is what the Controller and
Auditor-General is given and that is what should be reported to this House. Could the
Minister now address the following three pertinent issues?
First, could the Minister tell this House why, for example, taxes on income - and I
want to be very particular, Pay-As-You-Earn--- According to the Exchequer Account,
what was given to the Controller and Auditor-General for 2007/2008 was Kshs81.6
billion. To Parliament you reported Kshs85.9 billion. That is over-reporting by Kshs4.3
billion.On taxes on corporations, to the Controller and Auditor-General you reported
Kshs86 billion, but to Parliament you reported Kshs79 billion. It is now the opposite.That is under-declaring to Parliament of Kshs7 billion. I could go on and on, but
the most
interesting one is net domestic borrowing. You reported to the Controller and Auditor-
General that for the year 2007/2008 you collected zero.
This is very straightforward. On
this one you do not need any book reconciliation because it is the CBK borrowing. So, if
you are telling the Controller and Auditor-General that you collected zero and yet you
come to Parliament and report that you borrowed Kshs13.8 billion then the question is, if
you borrowed that money, where did you bank it such that the Controller and Auditor-
General could not find it in the Exchequer Account?Mr. Deputy Speaker, Sir, finally, I want to take the Minister to task for saying that
the reason why there is a difference between the figures given to the Controller and
Auditor-General who is now the Auditor-General and what was given to Parliament is
because the figures given to Parliament were based on unaudited revenue returns. Could
the Minister tell us why these figures were based on unaudited revenue returns and yet he
reported to Parliament in June, 2009 and the audit was conducted between September,
2008 and May, 2009? The audit report was actually out by May, 2009 and he reported to
Parliament in June, 2009. Why did he then base it on unaudited accounts? Does it really
make sense? So, this is a very big issue and the Minister should not treat it casually as if
that this is just mere book entry. The Controller and Auditor-General is telling this
Parliament--- Remember that this Parliament has employed the Controller and Auditor-
General to be auditing on its behalf and be reporting to Parliament. The Controller and
Auditor-General is telling us: “Parliament, I have done my work. I cannot certify these
accounts because they do not make sense to me. There is a total sum of Kshs489 billion
for the 2007/2008 Financial Year that I cannot give my opinion on.”
I think this House deserves clear reasons as to why the Controller and Auditor-
General found it difficult to certify our accounts; why the figures in the Exchequer
account where we should keep all our money are different from what the Minister has
given us on the Floor of the House.Thank you, Mr. Deputy Speaker, Sir.
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, as I explained,
the balance differences will always be there. They will be there this year and they will be
there next year. Why? Basically because of timing differences.
As I said, if you look at the whole scenario where you as an individual, for
example, if you pay to the Kenya Revenue Authority (KRA) as a collector it recognizes
that tax immediately. But if you pay to the bank on behalf of the KRA, there is a
difference of one or two days before the money is actually reflected in the KRA account.
It is even worse where it is another collector. So, if you do--
Mr. Mbadi: On a point of order, Mr. Deputy Speaker, Sir.
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, let me explain
so that the hon. Member can understand the timing differences.
Mr. Mbadi: On a point of order, Mr. Deputy Speaker, Sir. I would have allowed
the Minister to continue with his time differences. The Minister can tell this House what
it may not understand. However, can he just explain to us, for example, in his timing
difference, the net domestic borrowing? The Central Bank of Kenya is the one which gets
the money through borrowing and reports. Why is it that the Minister reported to the
Controller and Auditor-General that there was zero in the Exchequer Account for that
year and yet he reported to Parliament Kshs13.8 billion? It is just as simple as that. One
can understand the Minister’s talk about paying through banks, PAYE, VAT and
whatever. However, can he explain the net domestic borrowing, for example, where it is
the CBK which borrows? That should go directly to the Exchequer Account. Can the
Minister tell me, for example, why there was that difference? That is where he told the
Controller and Auditor-General that we did not borrow anything according to his records
in the Exchequer Account but he came to Parliament one month later to report to us that
he borrowed Kshs13 billion. How does this tally with the Minister’s timing difference?
The Minister for Finance (Mr. Githae): Thank you, Mr. Deputy Speaker, Sir.
Let me begin from the beginning. As I said, differences in balances will always be there.
They were there last year, they will be there this year and they will be there next year,
basically, because of timing differences. I was giving you the example when you pay
your taxes. If you pay them directly to the KRA it is recognized immediately but if you
pay to a collector, it takes some time. There are other collectors who take more time
before this is recognized. Ultimately, the total taxes will find their way into the
Exchequer. So, depending at what time you are looking at the figures, there will be time
differences. That is why reconciliations are done – I said some on daily basis---
Mr. Njuguna: On a point of order, Mr. Deputy Speaker, Sir.
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, I think they do
not want to hear the answer
Mr. Deputy Speaker: Proceed, Mr. Minister!
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, depending on
when you ask for the books of account, there will be these timing differences. I assure
you that they will be there and that is why there is reconciliation. In this particular case,
since the figures were being audited, what we reported to Parliament were the unaudited
accounts.
Coming to the specific accounts - and I thank Mr. Mbadi - they are three. In fact, I
mentioned them but the calculation is wrong. There were three that were satisfied by the
Auditor-General. If you look at the reasons for non-certification, you will see that they
are basically auditing issues and more of reporting time. Again there are other collectors
who do not remit their accounts immediately. So, it will take time.
There are others, for
example, which are shown as having been received but ultimately this has not been
remitted to the Auditor-General. Again, this depends on the timing. For example, if you
closed your books today, you will have a different figure but when those figures on the
net borrowing are taken to the Exchequer Account tomorrow, they will be different. So,
these timing differences will be there.
Mr. Deputy Speaker, Sir, the most important thing is that not a single cent of
Kenyan money has been lost and it will not be lost under my watch.
Thank you.
Mr. Mbadi: On a point of order, Mr. Deputy Speaker, Sir. I do know whether the
House is convinced, but you will agree with me that if there is timing difference, it should
be systematic and consistent; if PAYE is low in terms of this date, the corporation tax
should be the same and the Value Added Tax (VAT) should be the same. Why is it that
we have a difference; for some the report to Parliament is higher and for others the report
to Parliament is lower? How then would we be sure that this is a timing difference?
Mr. Deputy Speaker, Sir, I was very clear to the Minister that he reported to this
House in June after the audit was concluded. Why did the Ministry choose to bring to this
House what they are calling “unaudited” accounts? The Minister has not addressed
himself to that. Again, when you are presenting the books to the auditor, it is assumed
that you have done reconciliations. Can the Minister tell us, these figures that he gave to
Parliament, where did they come from? Did they come from the Exchequer Account? Is
he giving us figures from the Kenya Revenue Authority (KRA)?
Can he explain to us
where these figures are from? These figures are different from what is in the Exchequer
Account, where we expect our money to be banked. If today, I come to this House and
tell you that you gave me Kshs50,000 to bank in your account and I give you a banking
slip that shows a banking of shs35,000, and then I tell you there is a reconciliation and
timing difference. Am I not supposed to explain to you how that timing difference has
resulted into the difference in the amount?
Mr. Deputy Speaker, Sir, I would expect the Minister to be very clear and
forthright to the people of Kenya. You are new in this Ministry. You might not even
know how the money disappeared; chances are that money disappeared. This is because
the Auditor-General is saying, “I do not know how much this country is collecting”.
Mr. Deputy Speaker: Order, Minister! Allow another request for clarification!
Mr. Ogindo: Mr. Deputy Speaker, Sir, I rise to seek clarification from the
Minister. According to the Constitution, the Auditor-General is required to audit the
books after eight months. Previously, audits have been done after a reasonable period of
time. The question of timing difference does not, therefore, arise.
This is because the only
tax that is collected through agents is VAT. The remittance is done in not more than a
week’s period. The auditing is done after about three months.
Therefore, the question of
timing does not arise.
Having said that, Article 216 says that the revenue allocation shall be based on the
revenue collected by the central Government. At this point when we are going into
devolution, it is very important that we get the figures of revenue accurately. Could the
Minister clarify the differences in view of the fact that we want to know the accurate
figure to be used for revenue allocation?
Mr. Deputy Speaker: We are going to allow the Member of Parliament for Lari
to seek one clarification; that is the last clarification.
Mr. Njuguna: Mr. Deputy Speaker, Sir, it is sad and a bad signal to this House,
and even the country, that 14 accounts were presented to the Auditor-General and only
three qualified. What measures is the Minister taking to make sure that the remaining 11
accounts are qualified? In addition, what measures will the Government take to make
sure that this will not happen in this country in future, as the Minister tries to display a
degree of accountability and transparency in his new Ministry?
The Minister for Finance (Mr. Githae): Mr. Deputy Speaker, Sir, beginning with
the last question by the Member for Lari, it is not our intention to have the accounts
qualified. In fact, to the contrary we would like the accounts not to be qualified by the
Auditor-General.
Coming to the other issue raised by Mr. Ogindo, the funds that are to be remitted
to the county governments will be based on the last year’s audited accounts for every
year. That is what the Constitution says. Those are the figures that have been used by the
Treasury and the Commission on Revenue Allocation (CRA).
Coming to the other issues that were raised, as I said these accounts are reconciled
on a daily basis. I have a schedule here which I would like to share with Mr. Mbadi. It
shows that for every account you would have what was estimated, the actual receipt and
the amount paid to the Exchequer, as per the revenue statement, and then the actual
receipts in the Exchequer Account. You will find that in any given day there will always
be differences. Even for reporting purposes, if you close your books today and the other
institution accepts the figure from the following day, there will be a difference. I would
like to share this list with Mr. Mbadi. As I said, we have absolutely nothing to hide. He
can actually see even the causes for the differences. Sometimes payment is made directly
by the collector of revenue. Sometimes some loanees pay directly. If dividend income is
declared it may not be received until sometime later. Therefore, these differences will
always be there.
Mr. Okemo: On a point of order, Mr. Deputy Speaker, Sir. From the information
available to me, these same accounts we are querying here are exactly under scrutiny,
currently, by the Public Accounts Committee (PAC) whose report will be brought here
because the qualification means there must be reasons which have been given why the 11
accounts were not satisfactory. Therefore, unless we want to anticipate what is going to
be in that report--- Why can we not give the PAC the opportunity to complete their work
and bring the report to Parliament?
Mr. Deputy Speaker: Mr. Okemo, for the benefit of the Chair when will that
report be ready? Chair of the PAC, are you in concurrence with what Mr. Chris Okemo is
saying?
Dr. Khalwale: Mr. Deputy Speaker, Sir, we have lost a bit of time because of the
work we are doing on the special audit of De La Rue; therefore, probably in another two
weeks to three weeks, we will have concluded and presented the report to the House.
Mr. Mbadi: On a point of information, Mr. Deputy Speaker, Sir.
Mr. Deputy Speaker: Who do you wish to inform?
Mr. Mbadi: The hon. Chair of the Committee.
Mr. Deputy Speaker: Dr. Khalwale, you should be ready to have that
information.
Dr. Khalwale: Mr. Deputy Speaker, Sir, I can only get reliable information from
Members of the Committee if I am not right about it.
Mr. Mbadi: On a point of order, Mr. Deputy Speaker, Sir. It is very sad that the
Chair of the PAC is not even aware of the work of his Committee. You had ruled that the
accounts of 2007/2008 had been looked at by the PAC. They have been tabled there and
adopted. You made a specific ruling that the 2008/2009 accounts, which are before the
Committee, will not be addressed by the Minister. However, the 2007/2008 accounts
were finalized by the Committee, and a report bought here; it had only one small
paragraph on revenue to be addressed. That is why the Minister is addressing this issue. It
is very sad that the Chair of the PAC is not even sure. When I want to inform him, he
behaves in a funny way.
Mr. Deputy Speaker: Fair enough! He is a medical doctor! He is not an
accountant like you! Proceed, nonetheless. Dr. Khalwale, listen to the experts at times. It
helps.
Mr. Mbadi: Mr. Deputy Speaker, Sir, this is my final plea to the Chair. Let me
put this matter very clearly; the accounts we are referring to were for the year that ended
on 30th June, 2008. These accounts were audited between September 2008 and May 2009
and a report issued by the Controller and Auditor-General in May 2009. The financial
statements I am referring to, which were brought to this House, were brought in June,
2009, 12 months after the end of the financial year. Therefore, the figures that were
tabled before the House should have been the same ones that the Controller and Auditor-
General was given.
Mr. Deputy Speaker, Sir, from the Minister’s answer, either he has not reconciled
himself to the gist of this matter or he has deliberately been misled by his Office. I want
you to help this House and this country because this is taxpayers’ money. We are talking
about the Kshs489 billion in question. The Controller and Auditor-General is not sure.
If
today you asked the Minister how much we collected as a country in that particular year,
he may not answer us because the figures he gave the auditor are different from what he
gave to this Parliament. So my concern is that this matter needs to be revisited by this
House. We need to take this matter to either the Revenue sub-committee of the Budget
Committee or the Public Accounts Committee (PAC) to specifically look at the revenue.Otherwise, we may approve and give a clean bill of health to the Government to proceed
with inaccuracies. The following year the amount was less but in 2007/2008, it is
shocking.
Mr. Ogindo: On a point of order, Mr. Deputy Speaker, Sir. Is the Minister in
order to persistently mislead this House that the differences in account of revenue are as a
result of timing difference? The Government accounting system is cash based and the
cutoff point is very clear; 30th June and the Government does not engage in accrual. So,
the Government can never put in its books dividends that it has not received. I want to
invite you to find the Minister’s answer unacceptable and hollow. I want you to order that
this matter be taken up by the Budget Committee because Kshs489 billion is a mind
boggling sum if it is being included or excluded as revenue. It is going to affect the
operations of this Government and also the county governments. I invite you to find the
Minister’s answer unacceptable!
Mr. Deputy Speaker: Mr. Okemo, maybe you can help us and help this House
because you are the former Minister for Finance. Indeed, the Chair finds this mind
boggling and finds reason to direct the matter to the Budget Committee as well as the
Departmental Committee on Finance as a joint committee.
Mr. Okemo: Mr. Deputy Speaker, Sir, personally, I think to help the House I
would recommend that this matter which involves accounts for the year 2007/2008 be
referred back to the PAC because all audit queries or all accounts that have queries are
the responsibility of the PAC and they can incorporate the Budget Committee and the
Departmental Committee on Finance and we can then interrogate this issue because they
are actually very genuine concerns, in my view. That, indeed, if there are issues that
cannot be explained between the revenue collected as reported by the Minister, then this
must be looked into much more deeply.
Mr. Deputy Speaker: Clearly, the Chair also finds reason or cause to give a
direction because the amounts and the figures and the disparity is clearly mind boggling
and we have a responsibility, as much as possible, to the extent we can do it within our
means; to use the relevant Committees to interrogate this issue at length. The Chair
directs a joint Committee of the Budget, the PAC and the Departmental Committee on
Finance to be led by the Budget Committee because the PAC Chairman has already said
he is too busy with some other issues---.
So proceed with speed and report back to this House in a maximum of two weeks.If you can do it in one week, so much the better! Clearly as the argument goes, we want
to see if the money that we have contributed as taxes and for any reason that it does not
look like it is tallying up, then there is need for the House with its own limited
understanding and knowledge to use the relevant Committees who can also seek experts
in the process both inside and outside Parliament to get to the bottom of this and report to
this House in a maximum of two weeks.