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Customs intentionally delayed GST refund process as govt lacked money, PAC told

KUALA LUMPUR (July 16): The Customs Department had intentionally slowed down the Goods and Services Tax (GST) refund process, as the government had run out of money to pay the refunds, the Public Accounts Committee (PAC) was told yesterday.

According to the hansard of a Public Accounts Committee (PAC) hearing dated March 7, former Customs director-general Datuk Seri T Subromaniam said the department had not wanted to accelerate the refund process, because tax refund claimants would then be questioning why they had yet to receive their refunds.

“I admit there was a delay. We did not want to process (the claims) quickly, because if we processed it quickly and approve the claims, the tax payer can see in the system. Ours (system) is very transparent. They can see it (and say): ‘Ha, Customs has approved. Where is the money?’  In fact, the money is not there,” he said.

Subromaniam said some of the tax refund claimants had not received their refunds for two years.

“Business has been choking. Some of them did not get their refunds for two years and this is very, very serious. That is why we have RM19.4 billion outstanding. This (amount) was supposed to put into a fund, but it was not there,” he said.

Therefore, Subromaniam said he stood by his earlier statement that the GST refunds shortfall was RM19.4 billion.

“When the finance minister asked me, I told him: ‘Yes Sir, the RM19.4 billion has gone through the system’s approval (process) 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 related to the RM19.4 billion,” he explained.

The PAC Report on the GST Refunds shortfall noted that refunds totalling RM1.5 billion had been approved but not paid, as at May 31, 2018.

In its report on the outstanding RM19.4 billion GST refunds, which was tabled in the Dewan Rakyat yesterday, PAC attached briefing slides by the Customs Department, which showed that as of May 31 last year, RM9.6 billion of the claims was still under review, RM3.9 billion was related to issues of no taxable supplies, RM900 million related to exemption issues, and RM3.5 billion was still under investigation.

In its findings, PAC said it found that there were procedural issues in the GST collection and rebate, whereby the government has kept all GST collections in the Consolidated Account, and made rebates in stages, only when needed via the Fund for GST Refunds.

PAC said the legitimate way is for the government to have transferred all GST collections to the GST Trust Fund. The PAC also found that only 35% of all GST revenue was transferred to the Fund for GST Refunds, and the remaining 65% was used for government expenditure. The committee said the 35% refund rate was too low and that 42% of the GST collections should have been set aside for refunds.

Nonetheless, with regards to Lim’s claim of GST money having being stolen, the PAC asserted there was “no loss of money in GST collection”.

This is because “the collection from GST that was not transferred into the Fund for GST Refunds, was actually spent for the purposes of government’s operating and development expenditure.”

The PAC said the previous government has also overestimated the net collection of GST.

It noted that the shortfall in GST refunds was because the previous government wanted to project better government cash flow and a smaller deficit. The government policy is to ensure that its revenue is sufficient to cover all operating expenses.

The PAC has recommended that the government ensures full adherence of the country’s law, especially in finance-related procedures, so that the finance administration is more organised.

“Civil servants have to advise the government in relation to legislation procedure and report to their superior without fear or favour, especially in cash flow planning and accountable fiscal discipline,” the committee recommended.

Lim had on Aug 8 last year, told the Dewan Rakyat that the outstanding GST refunds amounted to RM19.4 billion as at May 31, 2018.

The minister alleged the previous government had “robbed” the GST refunds that was supposed to be paid to taxpayers through the Fund for GST Refunds, which was left with RM140 million.

The PAC said it called 10 witnesses to testify, including Subromaniam, former treasury secretary-general Tan Sri Dr Mohd Irwan Serigar, former second finance ministers Datuk Seri Ahmad Husni Mohamad Hanadzlah and Datuk Seri Johari Abdul Ghani, incumbent treasury secretary-general Datuk Ahmad Badri Mohd Zahir, former finance minister Datuk Seri Najib Razak and Lim, who succeeded Najib, as well as Accountant-General Datuk Saat Esa.

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