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The Public Accounts Committee’s (PAC) release of its long-awaited report on
delayed GST refunds ha elicited cries of vindication from both Pakatan Harapan
and BN, although for completely different reasons.
Harapan lawmakers are arguing that the PAC's conclusion was that the previous
administration had breached the law by channelling GST revenue to the wrong
account.
For BN lawmakers, what's important was the PAC's conclusion that RM19.4
billion meant for GST refunds was “not missing”.
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According to the Goods and Services Tax Act 2014 and the Trust Deed on GST
refunds (dated March 13, 2015), all GST revenue must be credited in the GST
Trust Fund. Surplus from the funds was to be transferred into to federal
government's consolidated revenue account.
The PAC established that this procedure was not followed. This was confirmed
by many those testified before the PAC, including the National Audit Department.
Instead, the GST monies went into the federal government's consolidated
revenue account before being transferred to the GST Trust Fund either monthly
or quarterly.
While there are some provisions that allowed for delays, the Customs
Department said some delays claims were delayed up to two years. The
accumulated effects of delayed refunds could potentially cause problems for
businesses.
“Businesses have been choking. Some of them did not get their refund for two
years and this is very, very serious.”
Yes, and it was intentional. The government simply couldn't afford to pay refunds
at the time.
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“I admit there were delays. We didn't want to process (the claims) quickly
because if we did so and approved it, the taxpayers can see it in the (RMS)
system. Our (system) is very transparent. They (taxpayers) can see it and say
'Ha! Customs have approved. Where's my money?'. In reality, there is no
money”.
“If the revenue is not enough to cover expenditure, then we will have to postpone
certain payments because our key thing is to pay the salary, the running of the
machinery of the government.”
GST revenue was collected in the consolidated revenue account and spent. The
GST Trust Fund, where the refunds were to come from, had a balance of RM152
million as of May 31, 2018.
The amount of money that ended up in the GST Trust Fund, in practice, was
decided by the Finance Ministry's cashflow committee. They had decided that 35
percent of GST revenue was to be kept in the GST Trust Fund, but that figure
could not be maintained throughout the year.
“If we pay all the claims, then we are going to have operating deficit. When we
have operating deficit, not only deficit in fiscal deficit, operating deficit then we
are going to get the (credit) rating going down, the country will be in big trouble.”
“We can't afford to pay all. If not, it would widen the budget deficit. Not only that,
at the end of the day, we would affect our (credit) rating. Our pledge (BN's
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pledge) was to maintain a budget deficit of 2.8 percent (of GDP) at that point of
time.”
“We had enough (to pay refunds) but not all outstanding balances… we had GST
revenue in 2018… RM20 billion. At that point in time, as we were informed, there
was an outstanding (balance) of RM19.4 billion. We could move everything, but
the deficit target would burst”.
That depends on who you ask. Note that GST is collected by the Customs
Department, not the Inland Revenue Board.
“So I am still defending my press release (on Aug 10, 2018). I told the
honourable finance minister, when he questioned me, I told the minister ‘Yes sir,
the RM19.4 billion has gone through to the system approval and is good to pay’.
That was my statement to him. The minister relied on my statement and that is
why we issued the statement regarding the RM19.4 billion."
Then auditor-general Madinah Mohamad's team believed that only RM1.41 billion
was good to pay and approved at that point in time. But as explained earlier in
this article, the Customs Department had intentionally stalled the process.
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The National Audit Department briefed the PAC at least four times but only the
projector slides for the Oct 30, 2018 briefing were appended to the PAC report
and none of the transcripts. The only glimpse of the National Audit Department’s
opinion was through summaries in the PAC report.
Ahmad Badri, who was the Treasury secretary-general at the material time, also
repeated “the money is there” three times.
Following this, Ipoh Timur MP Wong Kah Woh and Puncak Borneo MP Willie
Mongin asked Ahmad Badri to show them the money, but there was no simple
answer to this.
Former Finance Minister Najib Abdul Razak repeatedly told the PAC on Oct 18,
2018 that the RM19.4 billion was not missing and was “in the system”. He said
the GST refund delays were caused by cash flow problems and would have
been remedied eventually had GST not been abolished.
Najib also passed the buck to the accountant-general for advising him to keep
GST revenue in the consolidated revenue account.
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The current Finance Minister Lim Guan Eng, to testified before the PAC on Nov
18, 2018, justified his famous “robbery” remark on grounds that the government
were custodians of the GST refunds that were to be kept in the GST Trust Fund,
but this was not done.
He also said, citing the attorney-general's opinion, that the custodians of the GST
refunds had a legal obligation to facilitate the GST refunds within 14 working
days.
"We are talking a Trust Account. That is where I think the severity of the offence
lies."
The three-page summary of the PAC report was silent on criminal liability while
Attorney-General Tommy Thomas's letter to the PAC left the matter open-ended.
“The question, whether criminal liability attaches to the breach of trust is not
addressed here, but must be further considered. Apparently, they are the subject
matter of criminal investigations by the police.”
Trusts laws, according to Thomas, required the custodian of the GST refunds to
act in the best interest of the taxpayers by ensuring a sufficient amount of monies
are held in a trust account in order for refunds to be paid out within 14 or 28 days
under Regulation 67 of the GST Regulations 2014.
“By failing to do so, and by allowing the shortfall of RM19.2 billion to occur, the
government has unquestionably breached its duties as a trustee. This means
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that if any GST taxpayer who has been denied refunds sues the government, the
latter has no defence, and the taxpayer will succeed in the litigation.”