A Primer On The Not Missing Gst Refunds

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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”
As the full report (download here) is 484-pages long, including hearing transcripts, this instalment of KiniGuide attempts to distil the report to serve as a primer for readers who dive into the highly technical document and formulate their own conclusions
What is the PAC?The PAC is a bipartisan committee of MPs with a mandate to represent Malaysians in scrutinising the federal government's money matters
They conduct closed-door hearings, formulate recommendations, and present it to the Dewan Rakyat. Their decisions must be unanimous
What was their mandate in relation to GST refunds?In summary, PAC's terms of reference were:Determine the GST collection and refund procedure;Determine the quantum of GST revenue received; andSeek an explanation on delayed GST refunds amounting to RM19.4 billion.Who testified before the PAC?Customs Department director-general T Subromaniam (now former)Former Treasury chief secretary Irwan Seriga AbdullahFormer Finance Minister II Ahmad Husni Mohamad HanadzlahFormer Finance Minister II Johari Abdul GhaniTreasury secretary-general Ahmad Badri Mohd Zahid (Irwan's deputy at the material time)Former Finance Minister Najib Abdul RazakFinance Minister Lim Guan EngAccountant General Saat EsaWhat were the PAC's findings on the refund procedure?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
Why are the refunds important?Although GST was meant as a tax on consumption, GST is collected at every stage of the supply chain. GST collected from manufacturers, wholesalers and retailers are legally required to be refunded within 14 days of a claim
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
Customs Department director-general T Subromaniam (March 7, 2019):“Businesses have been choking. Some of them did not get their refund for two years and this is very, very serious.”Was there a delay in GST refunds?Yes, and it was intentional. The government simply couldn't afford to pay refunds at the time
Customs Department director-general T Subromaniam (March 7, 2019):“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”
Former Treasury secretary-general Irwan Serigar Abdullah (Sept 13, 2018):“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.”Why wasn't there money for refunds?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
Former Treasury secretary-general Irwan Serigar Abdullah (Sept 13, 2018):“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.”Treasury secretary-general Ahmad Badri Mohd Zahid (Irwan's deputy at the material time) (Oct 16, 2018):“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 pledge) was to maintain a budget deficit of 2.8 percent (of GDP) at that point of time.”Accountant-general Saat Esa (May 14, 2019):“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”
Did the delayed payment amount to RM19.47 billion?That depends on who you ask. Note that GST is collected by the Customs Department, not the Inland Revenue Board
Customs Department director-general T Subromaniam said their goal was to refund within 14 days and audit later where necessary as the Customs Department had a six-year time frame to conduct audits
Customs Department director-general T Subromaniam:“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."Account-General Saat Esa acknowledged there were RM19.4 billion pending claims that had been accumulated as of early June last year, but stressed that not all claims are valid
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
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
Was the RM19.47 billion “missing”, “stolen”, or “robbed”?As far as the PAC is concerned, it is “not missing” (tiada kehilangan). Again, it depends on who the PAC asked
When Subang MP Wong Chen asked Treasury secretary-general Ahmad Badri Mohd Zahid's on Oct 16, 2018 for the latter's opinion on Finance Minister Lim Guan Eng's claim that RM19.47 billion in GST refunds were “robbed”, Ahmad Badri replied: “(In) my personal opinion, I don't think it is stolen. It is there.”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
Essentially, Ahmad Badri's explanation was future revenue will periodically replenish the GST Trust Fund to facilitate the refunds, eventually. Note that GST collection stopped on June 1, 2018
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
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
Finance Minister Lim Guan Eng (Nov 14, 2018):"We are talking a Trust Account. That is where I think the severity of the offence lies."Did the PAC suggest criminality?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
Attorney-General Tommy Thomas (Oct 9, 2018):“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
Attorney-General Tommy Thomas (Oct 9, 2018):“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 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.”This instalment of KiniGuide is compiled by Andrew Ong, Geraldine Tong, and Annabelle Lee

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