This article first appeared in The Edge Financial Daily on September 3, 2018

KUALA LUMPUR: Whether it is based on the modified cash accounting or the accrual accounting standards, RM16 billion worth of excess taxes paid that have yet to be returned are still missing from the Fund for Tax Refunds (TBBC), said Finance Minister Lim Guan Eng.

Guan Eng said this in a statement yesterday in response to his predecessor Datuk Seri Najib Razak’s claim that the RM16 billion taxes that have yet to be returned are actually not missing, based on the modified cash accounting standard that is supposed to be used, and not the acrrual accounting standard.

On Saturday, Najib said the new finance minister, who has placed the blame on the previous government for failing to return the RM16 billion to taxpayers, does not understand that the government uses a different accounting system from that of the private sector.

“It looks like our finance minister does not understand that the government uses the modified cash accounting standard and not the standard accrual accounting standard as used in the private sector,” said Najib, who was also the sixth prime minister, in a Facebook post.

He then tried to school Guan Eng, a trained accountant, that under the modified cash accounting system, assets are not capitalised and liabilities are not reported in the financial report. This was why he said Guan Eng had made an “incorrect conclusion” that the previous Barisan Nasional government had misreported unreturned taxes as revenue, and accused it of falsifying the accounts.

“This statement by Datuk Seri Najib in blaming the accounting system used is his attempt in portraying that the RM16 billion unreturned taxes are in fact not missing, which is without basis and is absolutely untrue. The RM16 billion that has been unreturned since six years ago remains as missing from TBBC regardless of whether the modified cash basis or the accrual accounting standard is used by the government,” said Guan Eng.

“According to the Inland Revenue Board (IRB), and as verified by the Accountant General’s Department, whereby the modified cash basis is used and as was mentioned by Datuk Seri Najib Razak, it is found that the credit balance, which has yet to be returned to taxpayers, stood at RM16.046 billion as of May 31, 2018, as shown [in the table],” he said.

The sum is owed to 1.65 million individuals and companies, he reitereated. “The seriousness of this situation was written in an official letter by the director of the IRB to the treasury secretary-general, Tan Sri Dr Mohd Irwan Serigar Abdullah, in 2016, whereby the IRB requested for the transfer of extra funds from the Consolidated Funds to TBBC. However, this was ignored by Mohd Irwan,” he said.

The accrued tax refunds were due to the failure of the finance ministry’s Cash Management Committee to execute the transfer of extra funds to TBBC as had been requested by the IRB during the monthly meeting that was chaired by Mohd Irwan.

TBBC is a trust account formed under the Income Tax Act 1967 to channel funds from the Consolidated Funds for the purpose of returning taxes to taxpayers. “It should be emphasised that pursuant to Section 111B(2) of the Income Tax Act 1967, only the minister of finance has the power to make any decisions pertaining to the funds to be transferred from the Consolidated Funds to TBBC,” Guan Eng said.

Hence, he said, Najib has to answer why he allowed the RM16 billion not to be returned to taxpayers.