What really happened to GST refunds?

Much has been said about the GST refunds which some claimed had gone missing. But is the money really missing?

First, we need to know a little more about government accounting which is essentially on a cash basis: money received does not necessarily reflect actual money “earned”.

All money collected will go into a fund known as the consolidated fund (CF). Money expended or charged out of the CF must be done through budget allocations. Remember the basic maxim of our financial system: no taxes may be levied and no expenditures incurred unless provided for in the annual budget.

There was a shortfall of RM19.4 billion in GST refunds which many claimed had gone missing. Some even said it was robbed.

To me, money can only be robbed if it is siphoned out of the CF without proper authorisation, i.e. money taken out and spent or wasted without budget allocations.

Did someone take the money out of the CF without allocations? Do we have evidence of expenses amounting to RM19.4 billion which were not provided for under the budget of any ministry or agency? If we have such evidence, then we can say that the money was stolen.

Assuming for the moment that there was no money stolen, i.e. we can’t find expenses amounting to RM19.4 billion that were not provided for under the budget, how did the RM19.4 billion shortfall come about?

I believe there are reasons for this.

The Treasury and customs have persistently overestimated the net amount of GST to be collected. They largely ignored the substantial refund that must be earmarked and returned to the taxpayers.

Under the law, refunds must be made within a certain time frame. But there are also provisions for customs to question the refund sought, which allows the refunds to be delayed.

I think this is what happened: the government was delaying the refund because it was facing a budget deficit. To make the deficit figures look better, the government “artificially” made the GST revenue bigger and the refunds smaller. Cash accounting allowed the total GST collected to be treated as revenue even though a substantial part of it must be refunded because GST is a value-added tax. It overestimated the GST revenue and underestimated or ignored the refunds.

I believe no one stole or robbed the RM19.4 billion. But what the government did was unethical and wrong, too. It camouflaged the actual deficit situation by “swelling” the GST collection and ignoring the refund that taxpayers are entitled to.

TK Chua is an FMT reader.

The views expressed are those of the author and do not necessarily reflect those of FMT.