Malaysian unrefunded tax spat ‘a misunderstanding over accruals’

3 Sep 18

A row has erupted between Malaysia’s former prime minister and the current finance minister over unpaid tax refunds.

Finance minister Lim Guan Eng warned in a statement last week that the previous administration recorded billions of Malaysian ringgits in unrefunded taxes as revenue, which could be seen as “falsifying accounts”.

But Najib Razak, the former Malaysian premier and finance minister, has claimed Lim has made an error because he does not understand the difference between cash and accruals accounting.

Lim has said the previous Barisan Nasional government did not refunded a total of 16.046bn ringgit ($5.3bn) in excess income tax and real property gains tax to taxpayers, with some being owed refunds for the last six years.

But Najib, who was the country’s prime minister and finance minister between 2008 and May this year, said in response the administration was using cash-based accounting – and not accruals, which is used by the private sector.

“Looks like our finance minister does not understand that the government uses the modified cash accounting standard and not the standard accruals accounting standard as used in the private sector,” he wrote on his Facebook page last week.

He said: “In the government administration, for standard cash account, all financial transactions are calculated and recorded when there is a cash deposit or withdrawal for the financial reporting period.”

He added that the misunderstanding between cash and accrual accounting was “an easy mistake” that “could be made by anyone”, local media The Star reported.

“However, under the public sector transformation initiative under my administration, the government then was going through a transition to accrual accounting or the years to come.”

Lim said in a statement last month the outstanding tax refunds have not been paid because of a shortage of transfers made into the state’s tax fund from the Consolidation Fund.

The balance of the fund stands at 1.486bn ringgits, records from the Accountant General’s department said.

Lim said that this 14.56bn ringgit shortfall meant that more than 1.5 million taxpayers had not been receiving their tax refunds for up to six years.

He said that 29% of the total tax refunds had not been paid out for over six years. Additionally, 38% of the total amount owed had not been refunded for a period of between two to three years.   

“Therefore, it is clear that the 14.56bn, which was not transferred from the Consolidated Funds to the [tax refunds fund], had already been recognised as government revenue by the previous government.

“This means that the government revenue that was reported by the previous government is not accurate and larger than what is actually was,” he added.

The current government, which came to power in May, will allow taxpayers who have outstanding tax refunds to make an application to set off the amounts against the tax they have to pay this year, Lim said.

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