By NJIRAINI MUCHIRA

Government is plotting forced reforms at National Social Security Fund (NSSF) and the National Hospital Insurance Fund (NHIF).

The twin Funds — critical to provision of social security and social healthcare — have had a history of scams.

Over the past decade, however, the two State Funds have aggressively and successfully resisted reforms — exposing their multi-billion tills to wanton plunder.

In the wake of open graft and mismanagement at the two Funds, the National Economic and Social Council (NESC) is pushing to transfer the mandate of collecting statutory deductions on behalf of the two institutions to Kenya Revenue Authority (KRA).

NESC is the body spearheading the implementation of the Vision 2030 economic blueprint.
The Business Regulatory Reforms Unit at the Treasury is also supporting the proposal, which has remained under wraps due to the fires its bound to ignite.

sole collector
At the core of this proposal is an argument that the transfer will not only be crucial in tackling deep rot at the NSSF and NHIF, but will also improve efficiencies. 

It is now emerging that NESC intends to petition Cabinet to approve the drafting of a bill amending the KRA Act to make the authority the sole collector of all forms of revenues.
The fact that President Kibaki chairs the NESC with Prime Minister Raila Odinga as the alternate chair tells of high-level political support for this proposal.

Currently, the revenues listed on the KRA Act do not include NSSF and NHIF contributions. However, NESC is now pushing for the expansion of the list to include the two statutory deductions.

“It is logical for KRA to collect the contributions because the deductions are from the same payroll,” KRA Commissioner General John Njiraini told Weekly Business in an interview.

core business
“Transferring the mandates of collection to KRA will ease the burden on NSSF and NHIF in as far as auditing and accounting is concerned — in the process enabling them concentrate on administration and investments,” he said.

Kenya Private Sector Alliance (Kepsa) chairman Patrick Obath supported the move to have KRA take over the mandate of collecting from both the NSSF and NHIF.

Obath, who understands the operations of the Funds as a former NSSF board member said transferring the mandate would introduce effeciency and transparency at the two institutions.

“KRA has proved to be effective in tax collection and we are in support of KRA becoming the sole collector,” he said.

cost benefit analysis
He added the fee KRA will charge is insignificant compared to the amount the two institutions spend on administration and paying salaries.

KRA is already collecting agency fees like the standards levy for the Kenya Bureau of Standards, the roads maintenance levy for the Ministry of Roads among others.

But even before the proposal can get off the ground, opposition is already mounting.
NSSF Managing Trustee Tom Odongo says the Fund has been efficient in collections and does not need help.

“KRA wants easy prey to meet its tax collection targets, which they have been unable to meet,” he said.

“We will cling to our mandate of registering members, collecting and investing the funds.”
Odongo says for NSSF to surrender collections to KRA, the tripartite grouping bringing together the government, the Federation of Kenya Employers (FKE) and the Central Organisation of Trade Unions (Cotu) must come to a consensus.

On its part, the NHIF said it tried the arrangement with KRA in 2001 but the deal collapsed within three months because KRA could not deliver on its promises.
“NHIF did not even get the money KRA collected for those three months,” said an official at NHIF who did not want to be named.

Sometime back, KRA also got into a memorandum of understanding with the Nairobi City Council to collect the council’s levies but the agreement flopped as the council continued with parallel collection.

In pushing for KRA to take over the mandate of collection from NSSF and NHIF, NESC contends the two institutions have become bedrocks of wastage. 
      
NSSF, which has over Sh80 billion under its custody and collected Sh6.3 billion in the 2008/09 financial year, spends about 40 per cent of the contributors money on administration, salaries and operations.

NHIF collected Sh5.4 billion in 2008/09 financial year and was targeting Sh10 billion with the new rates that were suspended. It spends a staggering 60 per cent on administration.
According to Njiraini, this is obnoxious. “These institutions can save a lot because we will only charge a small collection fee of 2-2.5 per cent,” he said, adding that KRA has the capacity to undertake the task.

annual growth
The move would in fact be beneficial to employers who are currently subjected to the task of remitting statutory deductions to different government agencies.
NESC also argues that for Kenya to attain the Vision 2030 dream, revenue mobilisation will be critical.

In effect, the country must strive to achieve revenue to gross domestic product (GDP) ration of 20.7 per cent over the next 18 years.

For this to be achieved, a 10 per cent annual growth in revenue collection must be maintained translating to revenue collections of Sh3 trillion in 2030 compared to Sh634.9 billion in the 2010/11 financial year.

More critically, NESC argues the move form part of the critical reforms needed to make the two institutions responsive to contributor’s needs and aspirations in the future.  

Though, over the past decade the government has spent significant resources and energies in trying to reform NSSF and NHIF, these efforts have aggressively been opposed.
In the case of NSSF, plans to introduce reforms through the National Social Security Pension Trust Bill have dragged since 2004.

Evidently, plans to convert NHIF into a National Social Health Insurance Fund have fallen hostage to vested interests.

If the Cabinet approves the amendment of the KRA Act to incorporate the NSSF and NHIF contributions, Kenya will not be reinventing the wheel.

In Australia and Canada, social security and social healthcare taxes are collected by revenue bodies.

Closer home in Rwanda, the Cabinet in 2010 centralised the function of collecting government revenues. The move handed the Rwanda Revenue Authority the responsibility to collecting social security contributions.