REPORT ON THE SURVEY ON LEVIES ADMINISTERED BY GOVERNMENT REGULATORY BODIES

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Table of Contents

Abstract......................................................................................................................................................ii

Introduction...............................................................................................................................................iii

Objectives of the Study............................................................................................................................iii

CHAPTER ONE..........................................................................................................................................1

1.0: Introduction......................................................................................................................................1

1.1: Sources of funding............................................................................................................................1

1.2: Current levy charges per regulatory body visited:............................................................................2

1.3: Levies Charge Reviews....................................................................................................................3

1.4: Reasons for review of the charges....................................................................................................4

1.5: Impact of the levy percentage review:..............................................................................................4

1.6: Levy collection growth curve...........................................................................................................5

1.7: Procedures in collection of levies.....................................................................................................6

1.8: Compliance Levels of the levies.......................................................................................................7

1.8.1: NCA Levy Compliance.............................................................................................................7

1.8.2: For the other regulatory bodies:.................................................................................................8

1.9: Non-Compliance...............................................................................................................................8

Levies Vs Impact on Growth.................................................................................................................10

Other Relevant Information...................................................................................................................11

CHAPTER TWO.......................................................................................................................................12

Conclusion and Recommendations.........................................................................................................12

2.0: Conclusion......................................................................................................................................12

2.2: Recommendations...........................................................................................................................12

Challenges Encountered............................................................................................................................13

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Abstract

This survey was carried out by members of the research team as requested by the Research

Department. The field survey conducted on government regulatory institutions was in an effort to

benchmark the operations of the authority. Detailed information was collected from the

institutions on sources of revenue during the survey exercise, delving more on the levies as a

revenue source. This was in line with the mandate of the National Construction Authority of

undertaking or commissioning research into any matter relating to the construction industry and

doing all other things that may be necessary for the better carrying out of its functions under the

authority’s Act. The research was triggered by relevant stakeholders in the construction industry

due to the feedback received from various clients on the levy charges currently being

administered as per the NCA Act i.e. “the levy shall be in an amount not exceeding an equivalent

of 0.5% of the value of any contract whose value exceeds five million shillings”. The survey

findings are through various methodologies. Research questions were formulated and data

gathered from various government institutions, i.e. National Environmental Management

Authority (NEMA) and National Industrial Training Authority (NITA), Kenya Civil Aviation

Authority (KCAA), Kenya Airport Authority (KAA), Communication Authority (CA), Insurance

Regulatory Authority (IRA) and the Energy Regulatory Commission (ERC). The objectives of

the survey is to find out on levies charged by other government regulatory bodies and their

implementation over time. The analysis of the data gathered in the field will enable concrete

conclusions to be made and thereafter feasible recommendations done as per the conclusions in

relation with the objectives of this survey.

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Introduction

The National Construction Authority (NCA) is a state corporation established by an Act of

Parliament – National Construction Authority Act No. 41 of 2011. Its overall mandate is to

oversee construction industry and coordinate its development. One of its other functions is to

undertake or commission research into any matter relating to the construction industry and to do

all other things that may be necessary for the better carrying out of its functions under the Act.

The National Construction Authority currently imposes a levy whose amount does not exceed an

equivalent of 0.5% of the value of any contract whose value exceeds five million shillings.

The study was commissioned by the Research, Training & Capacity Building Department with

the purpose of guiding the National Construction Authority in planning, in relation to the levy

charges. The primary sources of information were one-on-one interviews with the administration

of the other regulatory bodies and questionnaires delivered to them to fill. The report draws

substantial base of information from the last quarters’ report (dated January 2015 to April 2015)

and its recommendations for boosting the levy collection from the last reported figure of 56.29%

to a projected value of 75.00%. As per the last quarter’s report, non-compliance on remittance of

levies from the NCA clients was of grave concern as a result of its high levels; hence there was

need for a better and more elaborate levies collection system for its improvement. The report

covers only issues pertaining levy administration and its scope is limited to the levy

administration.

Objectives of the Study

1. To find out on levies charged by other government regulatory bodies

2. To find out how the various regulatory authorities have been able to implement their levy

charges over time

3. To make recommendations to the NCA Research, Training & Capacity Building

Department based on the research findings

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CHAPTER ONE 1.0: Introduction

This chapter presents the summary of main findings of the survey research. It similarly does a

comparison between the field findings from the other regulatory bodies and that from the

National Construction Authority. Some of the statistical data gathered are presented in tables and

graphs to give a more elaborate picture of the comparison. Analysis of the graphs and the table

values are done also in a bid to explain their cause of variation.

1.1: Sources of funding Following is the graphical representation of the levy sources for the different authorities:

Source Authority % of total visited

authorities

1 Government grants NEMA, NITA, IRA, ERC 100

2 Training Levy NITA 25

3 Licensing NEMA, NITA, IRA, ERC 100

4 Development partners NITA, NEMA 50

5 Registration NEMA, NITA, IRA, ERC 100

0

20

40

60

80

100

120

Governmentsources

TrainingLevy Licensing Developmentpartners

RegistraCon

perc

enta

ge o

f tot

al v

isit

ed a

utho

ri3

es

sources

Graph of percentage against sources of income

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From the graph above, the predominant sources of funding for the entire regulatory bodies

visited is that from the government, licensing and registration fees. Others include funds from

trainings, donors, sponsors and well-wishers. The government source is provided for by

parliament for the purposes of the authorities, and given in form of grants. The training, licensing

and the registration levies are moneys that accrue to the authorities during the performance of

their functions under their respective Acts. The funds from the development partners are moneys

from other sources that are provided for, donated or lent to the authorities. Of the total visited

regulatory bodies, only a quarter of them charged training levies. These are the levies that are

given for training purposes, ensuring that their clients are up-to-date with the current trends

either from the technological point of view or their clients gain practical knowledge required of

them.

1.2: Current levy charges per regulatory body visited: All the visited regulatory bodies had varied percentage levy charges as indicated in the table

below:

S/No. Name of

Body

Levy Charges

1 NEMA 0.1% of the total project cost

2 NITA KShs. 50 per trainee per month

3 CA

4 IRA 1.0% Insurance Premium Levy

5 ERC Between 0.11% and 0.20% depending on category and units of consumption

6 KAA

7 KCAA

8 WRMA

Table 2: Current levy charges as per the institution visited

Levy Charges as Per Various Authorities’ Act

S/No. Name of

Body

Levy Charges As Per Act

1 NEMA 10% of the total project cost

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2 NITA 0.25% of the total project cost

3 CA

4 IRA

5 ERC

6 KAA

7 KCAA

8 WRMA

Table 3: Initial levy charges as per the institution visited

Considering each Act of Parliament that created the bodies aforementioned, it is apparent that the

charges levied above have been reviewed over time from their original values.

1.3: Levies Charge Reviews It was apparent that most of the regulatory bodies had imposed a definite levy percentage on the

clients, based on the total project cost. Some had monthly fixed charges on the clients,

disregarding the project costs. Further, the research established that all the bodies began upon

their establishment, to charge a fixed rate percentage on the project costs as per their respective

Acts. However, with time, there was a review of their charges based upon prevailing

circumstances mentioned herein.

Authorities % of the Total Visited

Reviewed their levy charges NEMA, NITA, IRA, ERC 100

Never Reviewed since formation - 0

Table 4: Percentage number of bodies that have reviewed their levy charges since their formation

Resulting graphical illustration of the above table:

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1.4: Reasons for review of the charges Varied reasons were given for the reviews, which included:

• To aid in funding implementation of new strategic plan objectives/activities in line with

expanded mandate

• The public outcry by the relevant stakeholders, who felt that the previous levy charges

were high

• Too much pressure from the stakeholders to revise levy.

• For ease of operations/doing business.

• Improve compliance

1.5: Impact of the levy percentage review: It was noted that over 100% of the regulatory bodies visited had at one point reviewed their levy

charges, because of the reasons mentioned above. After their reviews were made, there has been

generally a positive feedback from their relevant stakeholders. With their reviews in place there

has also been an annual steady increase in the total levies collected, as tabulated below:

S/No. Name of Regulatory Body Annual % Increase on the total levies

1 National Environmental Management Authority

(NEMA)

20

100

0

% AUTHORITIES THAT HAVE R E V I E W E D T H E I R L E V Y C H A R G E S

Reviewedtheirlevycharges NeverReviewedsinceformaCon

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2 National Industrial Training Authority (NITA) 20

3 Communication Authority (CA)

4 Insurance Regulatory Authority (IRA) 20

5 Energy Regulatory Commission (ERC) 6

6 Kenya Airports Authority (KAA)

7 Kenya Civil Aviation Authority (KCAA)

8 Water & Resource Management Authority (WRMA)

Table 5: Annual percentage increase in total levies collected per institution

1.6: Levy collection growth curve The Chart below shows the average annual percentage increase in the total levies collected,

against the individual regulatory bodies

Chart 1: Annual average percentage increase in total levies per body

The annual percentage increase illustrated as above is as a result of increased number of

contractors on the ground (for the construction industry) or generally an increase in the number

of clients for the individual bodies. It is also partly attributed to the clients who feel the levies

0 5 10 15 20 25

NEMA

NITA

CA

IRA

ERC

KAA

KCAA

KRB

WRMA

AnnualPercentageIncrease

RegulatoryBod

y

AnnualPercentage

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imposed on them are manageable, achievable and self-satisfactory hence turning out to pay their

dues.

1.7: Procedures in collection of levies For the National Construction Authority, in order to coordinate its duties effectively, the

Authority opened up seven regional offices in some major towns as shown in the table below:

Region Town with regional office

1 Coast Mombasa

2 Lower Eastern Machakos, Makueni, Kitui

3 Mount Kenya Nyeri

4 Isiolo Isiolo

5 Central Nyanza Kisumu

6 Central Rift Nakuru

7 North Rift Eldoret

Table 6: NCA Regional Offices

The regions above aid the authority devolve the following key functions:

• Construction levy collection

• Contractor registration

• Project registration

• Site visits

• Construction workers accreditation.

For other authorities;

Most of the visited regulatory bodies employed a physical tracking system for identification of

their clients. This is done by sending individual registration/levy officers on sites to do the

identification. Similarly, for certain projects such as those for construction, there is issuance of

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licenses to the contractors, who must possess the approval of their relevant regulatory bodies

before undertaking any professional practice. On the same note, there are fixed amounts charged

on the project costs, to have the approval of the regulatory body.

1.8: Compliance Levels of the levies 1.8.1: NCA Levy Compliance As per the quarterly report for the period January 2015 to April 2015, following are the

percentage compliances as per the regional offices performances:

Region Invoiced

Levy(Kshs)

Collected

Levy(Kshs)

Levy due

(Kshs)

%

collection

Coast 18,171,470.14 6,969,641.14 11,201,828.17 38.35

Lower Eastern 14,696,598.70 10,105,220.70 4,591,378.00 68.76

Mount Kenya 10,010,874.30 8,257,432.00 1,753,442.3 82.48

Isiolo 4,114,105.00 4,114,105.00 Nil 100.0

Central Nyanza 13,947,167.10 2,318,032.60 11,629,134.50 16.62

Central Rift 11,669,863.00 6,806,491.00 4,863,372.00 58.33

North Rift 8,675,149.73 7,188,151.73 1,486,998.00 82.86

Total 81,285,227.97 45,759,074.17 35,526,153.80 56.29

Table 7: Last Quarter’s NCA Levy Compliance as per Regional Office

As per the data above, it is evident that as per the quarter, the percentage compliance for the levy

collection was 56.29%

0

20

40

60

80

100

120

Coast LowerEastern MountKenya Isiolo CentralNyanza CentralRiR NorthRiR

PERC

ENTA

GE

REGION

Graphof%Collectionagainstregionasperlastquarters'report

Averagepercentage

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From the graph above, the Central Nyanza and the Coast regions exhibited very low percentage collection as per the projected values. This arose amidst the realization of 100% percentage compliance by Isiolo Region. Going as per the graphical illustration above, there is clearly great need to step up the compliances of the entire regions, led by Central Nyanza and Coast. With this in place, the average percentage compliance is expected to rise.

1.8.2: For the other regulatory bodies: Following is a table showing their level of levy compliance:

S/No. Name of Regulatory Body % Levy

Compliance

1 National Environmental Management Authority (NEMA) 60

2 National Industrial Training Authority (NITA) 70

3 Communication Authority (CA)

4 Insurance Regulatory Authority (IRA) 100

5 Energy Regulatory Commission (ERC) 100

6 Kenya Airports Authority (KAA)

7 Kenya Civil Aviation Authority (KCAA)

8 Water & Resource Management Authority (WRMA)

Table 8: Percentage level of levy compliances

1.9: Non-Compliance According to the NCA Act, the Authority may suspend, cancel or revoke the registration of a

contractor, who commences construction works for which the owner has not paid the amount -of

the construction levy as provided in this regulation. Other cases of non-compliances are also

handled as per the provisions of the Act, such as subjection to civil litigation to recover costs.

As per the last quarter report of NCA, a total of 194 projects were closed with the reason that

they did not conform to justifications of the construction standards laid by National Construction

Authority. These included;

• Lack of NCA registered contractor on site.

• Lack of sign post showing professionals engaged in the project.

• No proof of project registration.

• No personal protective equipment on site.

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• Lack of sufficient fencing.

• No proof of statutory approvals.

The other regulatory bodies that were part of the survey also had varied levels of non-

compliances. Their modes of dealing with their cases are explicitly laid down as per their

respective acts.

The tabular representation for the clients’ level of non-compliance (with respect to Table 5

above) is as below:

S/No. Name of Regulatory Body % Levy

Non-Compliance

1 NATIONAL CONSTRUCTION AUTHORITY 43.71

2 National Environmental Management Authority (NEMA) 40.00

3 National Industrial Training Authority (NITA) 30.00

4 Communication Authority (CA)

5 Insurance Regulatory Authority (IRA) 0.00

6 Energy Regulatory Commission (ERC) 0.00

7 Kenya Airports Authority (KAA)

8 Kenya Civil Aviation Authority (KCAA)

9 Water & Resource Management Authority (WRMA)

Table 9: Percentage level of non- compliances

It was also noted that the regulatory bodies that had 100% compliance were generally satisfied

with their levy charges and they felt the charges were fairly adequate for the sustainability of

their operations. They also experienced no complaints from their clients, hence concluded that

the relevant stakeholders in their respective fields were also adequately satisfied with their

charges. The ERC however felt it was due to re-review their levy charges as a result of an

awaited new Act coming in force.

The NEMA also experienced fairly high non-compliance percentage. The authority was also

much concerned on the strategies aimed at raising its levy compliance and recommended a raft

of measures to achieve the same. Of greatest interest were its effort to reduce the time required

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for a client to acquire a license, introduce an online payment for licenses and its forecasted plan

to digitize the licensing process (including payment) to reduce the time taken to bank money for

licensing. It is their hope that once this is achieved, their goal of raising their levy compliance

will be achieved.

Levies Vs Impact on Growth It was noted that the levies charged across all the institutions was very instrumental for their

overall growth. The levies constituted a major source of income, catering for the greater

percentage of the sustenance of the authorities. Following is a table showing the authorities and

their general perception towards the sustainability of their levies

Regulatory Bodies % Of Total Visited

Authorities

Levies adequate for sustainability NEMA, IRA 50

Levies partly adequate for sustainability ERC, NITA 50

Levies not adequate for sustainability - 0

Pie chart for the above representation:

From the chart above, 50% of the visited bodies recorded sustainability of the levies towards the

general operations for the authorities. 50% felt they were partly satisfied with their levies. And

50%50%

0

Chart showing levy sustainability expressed as a percentage of the total visited authorities

Leviesadequateforsustainability Leviespartlyadequateforsustainability

Leviesnotadequateforsustainability

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none felt the levies were not adequate for their sustainability. The 50% that recorded partial

satisfaction expressed their need for further revision of their levies either in accordance with their

new act coming in place, or generally with the approval of their board stakeholders (which

included Federation of Kenya Employers (FKE), Central Organization of Trade Union (COTU)

and the Kenya Government). For the NITA, despite their partial satisfaction, both their

administration and their clients felt that the levies imposed were low.

Other Relevant Information The general feeling from 50% of the regulatory bodies visited was that the NCA levies were

high. This, as per their perception, is one of the factors behind non-compliance on levies

collection. During the interviewing process, the CA expressed the need for NCA to come up with

a database on the licensed contractors and their categories. This was as a result of them being

unable to verify the licensed contractors from the NCA website.

The NITA interviewee recommended addition of more value to the NCA levies imposed on

clients, i.e. by conducting regular trainings to clients, offering certificates and awards to clients

and improving of timely delivery of services such as digitization of payments. This, to them, was

to win clients’ satisfaction and in the long run result into greater levels of levy compliance.

With the partial satisfaction of NITA with its levy charges, it resolved to improve its compliance

levels also by employment of sensitization via the media. The interviewee explained that several

of its clients may not be aware of NITA operations and with this resolution, it forecasted to reach

a larger audience about its operations.

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CHAPTER TWO

Conclusion and Recommendations 2.0: Conclusion

From the discussions above, it is evident that the percentage compliance of the levies received by

the National Construction Authority is lowest, in comparison to other bodies. Of all the visited

regulatory authorities, it was established that only NCA has strictly adhered to their provisions as

per their Act and has never done any amendment on the levies section.

The level of compliance in the collection process of the levy is partly attributed to the manual

system of the fund’s collection. For the authorities that employed a computerized system for

their levy collections, their compliance level was 100% such as the ERC and the IRA.

All the regulatory authorities visited had a forecasted plan to re-revise their levies. This is true

both for those that exhibited 100% compliance and those with lower compliance levels

2.2: Recommendations From the previous discussions on the main findings, following are the recommendations for

consideration by the NCA administration:

1. More human resources to be availed on the different regions to aid in tracking of levies from

defaulters

2. That there is need for revision of the levies to achieve more affordability to the NCA clients

and construction projects. In the revision, lower limits and upper limits need to be clearly

defined as per the total project costs

3. There is also need to add more value on the levies collected by the NCA, e.g. by conducting

regular trainings to clients, issuance of certificates/awards and having timely service delivery

to boost satisfaction

4. That to curb defaults of levy payments, more stringent measures need to be subjected to

defaulters. This will ensure greater adherence to NCA regulations on the side of the clients

5. There is need to create more awareness on the levy charges to the public. This is to be done

by forecasting on increased sensitization via the media, on the various NCA operations as

outlined in the NCA Act

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6. That there is need for digitalization of payments. This will hasten the process of remittance of

the levies and in return boost the percentage of compliance

7. Generally, the NCA regional offices are fairly vibrant as per the last quarter’s report with the

56% compliance in their levies collection. With more resourcing, there is great potential of

boosting their performance and thus enhanced attainment of NCA’s mandate.

Challenges Encountered During the survey process, following are the challenges that the researchers encountered:

1. Reluctance in giving full and in-depth information by the government regulatory bodies

during the interview and questionnaire filling process

2. Conducting of follow-ups to the administration heads left with the questionnaires to fill,

as some took longer to submit the questionnaire forms to relevant departmental

representatives for filling

3. There was delay in submission of the report as a result of delay in filling of the

questionnaires and their subsequent submission