RM18b or 93% of GST refunds missing

This article first appeared in The Edge Financial Daily, on August 9, 2018.
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KUALA LUMPUR: About RM18 billion or 93% of the RM19.4 billion input tax credit under the goods and services tax (GST) system since 2015 has gone missing, alleged Finance Minister Lim Guan Eng.

“According to records of the Royal Malaysian Customs Department on the GST input tax, there was a total of RM19.4 billion input tax credit [to businesses] till May 31 this year since 2015 but only RM1.5 billion remained in the trust fund [where GST refunds were supposed to be deposited by the government],” he said when tabling the second reading of the GST (Repeal) Bill 2018 yesterday.

Of the total input tax credit, RM9.2 billion or 47% was recorded between Jan 1 and May 31 this year, RM6.8 billion or 35% in 2017, RM2.8 billion (15%) in 2016, and RM600 million (3%) in 2015 (from April 1 to Dec 31, 2015).

Under the GST, businesses are allowed to claim credit for taxes paid on purchases two weeks after submission of proper documents.

Guan Eng said the RM19.4 billion unused input tax credit was not because GST guidelines were unclear, but rather it gave an “opportunity for the previous government to misappropriate the collection”. “The refund delay was due to weak federal government cash flow because of low fiscal discipline, widespread wastage and growing debts. What actually happened in the previous administration is a forgery of accounts and misappropriation of the refunds for other uses or to close the deficit,” he alleged.

Guan Eng said he was surprised when told that the GST input tax refunds were put into a special trust fund but later “stolen” to be deposited into a consolidated fund to be spent “freely”. “The credit was never withdrawn from the consolidated fund and put into the trust fund as expected. This is a serious abuse of power particularly when [some of the money] was used to fund projects belonging to Barisan Nasional (BN) cronies,” he claimed.

“The BN government cannot run away from the falsification of accounts and abuse of input tax as revenue to narrow expenditure deficit or supporting its cronies’ development expenditures. This happened in the three years since GST was introduced on April 1, 2015,” he added.

The minister also alleged that the revenue from the consumption tax was used to cover the “ulcer in the chest” of 1Malaysia Development Bhd (1MDB). “1MDB and GST are closely connected. 1MDB gave birth to GST. Without 1MDB, there would have been no GST. It was not introduced to help people but for BN cronies such as Jho Low (fugitive businessman Low Taek Jho) who is on the run from police now,” he said.

Guan Eng also urged businesses to be patient as the new government vows to refund the input tax, saying it is a “moral imperative” to do so, beginning next year. He said a lot of businesses have complained of the delays in refund in the past, forcing some to close down their businesses.

“This is not the government’s money. The delay in refunding gives a negative effect to the country’s competitive edge. We will look at ways to raise funds to pay back because it is the people’s money,” he said.

On Tuesday, Guan Eng accused the BN government of stealing the GST refunds that were supposed to be returned to businesses two weeks after they were collected.

“The money was paid as advance by businesses. It was to be put in a trust fund but it was deposited into a consolidated fund and recorded as revenue. Since it was acknowledged as revenue, it was instead utilised first by the previous government,” he reportedly said.

When met by reporters at the parliament lobby, Guan Eng stressed that the alleged misappropriation of the input tax credit into the consolidated fund is “legally wrong”, calling it “creative accounting”.

He said the previous Treasury secretary-general under the BN government was “definitely in the know” but it was not clear who else was involved.

“Internally, we want to have something definite. We want to look at the circle of decision-makers. [The] Treasury secretary-general is definitely in the know but as far as the others — this is something we want to identify. It is not a red file but a falsification of accounts.

“I think only the highest [person] can authorise that. Why didn’t he put it in the trust fund? The account is very important. If you don’t do it, then that is a wrongdoing,” he said, adding that.

Asked if there was any link to former prime minister Datuk Seri Najib Razak who was also the finance minister, Guan Eng said that would only be known later.

“Najib is facing charges [now], so I don’t want to say anything as it is not appropriate ,” he said. He added that the prime minister and cabinet will decide on the next course of action once the internal probe that is being conducted by the Customs Department and special officers of the finance ministry is completed.