Business Commentary

Plugging the leakage

Written by TheMole

March 9, 2017

By Salahuddin Hisham

A sociologist once said that  Marxist theoretician critique of conventional capitalist system is usually from the perspective of leakage. Solution to any economic woes or crises tends to address the leakage.

Before being misinterpreted as perpetuating Marxism ideology, one should be aware that Malaysia emulated the five-year economic planning practice from the old Soviet Union. So there is nothing wrong in copying good policies from any system.

At the start of the new millennium, Malaysia implemented the Selective Capital Control which was to plug leakage.

The National Transformation Plan introduced by Datuk Seri Najib Abdul Razak to introduce the Good and Services Tax (GST), subsidy rationalisation, cash transfer, and focused disbursement of assistance was about plugging the leakages.

Salahuddin Hisham was involved in various financial markets but has since, turned political and online.

The implementation of GST that was delayed for political expediency by previous administrations, was a bold move that saved the government financial position.

Despite the temporary political fall-out, the introduction was timely to address the significant reduction in oil revenue. Although the amount seldom mentioned is RM30 billion, the 2015 figure was RM36 billion. It is too significant to ignore.

The Prime Minister exhibited strong leadership to bite the bullet and plough through the political storm. Responsible leadership is not short-term political gain, but the long-term economic security and prosperity of the country and for the people.

Najib has done more in this aspect but not known to the public. A Special Task Force (STF) has been established by Putrajaya since 2011 to curb financial losses from uncollected taxes and other sources of revenue.

STF works discretely with publicity given to the relevant agency. STF is synonymous with a certain politicised issue, thus most Malaysians are not aware of an STF that is called  the National Revenue Recovery Enforcement Team (NRRET).

The outfit led by the Attorney-General Office, include, among others, the Malaysian Anti-Corruption Commission (MACC), Bank Negara Malaysia, the Royal Malaysian Customs (RMC), the Inland Revenue Department (IRD) and the Domestic Trade, Cooperatives and Consumerism Ministry.

The role of the NRRET, led by current MACC Chief Commissioner is to investigate cases of tax evasion by individuals and corporate bodies, evasion of customs duties, activities of smuggling, and misuse of subsidised goods.

In the earlier years of 2014, IRB saw a 100 per cent increase in collection to RM140 billion within the initial three years and correspondingly, RMC saw an increase of RM10 billion to RM36 billion within five years.

Today, IRB can proudly target a collection of at least RM200 billion a year.

In addition, NRRET investigates the illegal outflow of funds and related acts of corruption. If NRRET and the participating agencies are spared from budget cut –  better still, increase its budget, th government can do more plugging of leakages and increase its revenue.

A former police top official once described illegal activities or underworld economy as worth as much as RM500 billion a year. And, another source with access to black economy “businessmen” believed it could be as much as half the national Gross Domestic Product (GDP)!

Intertwined with the black economy is corruption, in which the bulk of it involves civil servants and particularly, enforcement agencies officials taking kickback to turn a blind eye or collaborate with  offenders.

Before petrol and diesel subsidies were rationalised, there was a year when subsidy rose by RM15 billion a year. If a weaker ringgit was part of the reason, the subsidy amount surprisingly continued to increase at a rate beyond normal economic growth.

The government had no choice but to float the petrol and diesel prices. It came at a cost to the standard of living of the general public but it could not carry on this way.

It complements the government plan to move to a focus subsidies approach. It is unfair that businessmen with six cars including Mercedes and BMW are enjoying the same petrol subsidies as the lower income and poor.

Unfortunately, misuse of subsidised goods is still rampant and one can hear in the news of endless raids done on the smuggling of cooking oil, LPG, etc. Enforcement must be more diligent and dedicated. Consumers and the public must assist the government. Failing which, more subsidies may need to be rationalised and the effect is on the peoples’ pocket.

To vent out by voting opposition, it will not help. When put in the same shoes, any responsible government will make similar decisions. Economics is prioritising scarce resources.

Faced with financial constraints, no responsible government should shy away from taking tough actions. Delaying will only accumulate the problem. When forced by circumstances to bite the bullet, it will be more severe and painful.

Leakages to the system can occur in the form of illegal “business” activities involving vices, entertainment and gambling. The sprouting of online gambling outlets is a major leak to the financial system as money is channeled abroad to syndicate.

The money accumulated from the lucrative business of vices and entertainment can finds its way into retail industry and distort market. It is not surprising laundered illegal money find its way into public-listed corporations headed by respectable Datuks and Tan Sris.

It seems harmless but laundered money kills legitimate small businesses.

Another major leakage is the services sector. Efforts by the government to promote the services sector is fine and well.

The service sector today contributes about 58 per cent of the national GDP. It could be higher as the economy gets more developed and the services elements in deliverable of goods and services by private or public sector increase in line with improved services.

Does the contribution of the services sector to the government’s revenue correspond to the 58 pr cent contribution?

Much of the leakage could be to the poor system.

The U Custom system touted by the Royal Malaysian Customs as one touch solution to all their information and document needs has yet to be implemented despite the contract having been fully paid. It was supposed to have put in place by December 2015!

The later the proper system is put in place, they larger the cost to the government in terms of lost revenue. Malaysia is the 16th largest trading nation, thus the longer Customs officials drag their feet, the larger the lost revenue to government.

It is also high time that the operation of be expanded. The government needs to cast a wider net to bring in other complementing operators to existing areas or new areas of focus.

The recent change of guard at the helm of the government’s Audit Department was too embroiled in the choice of the new Auditor-General and her qualification.

The retiring Tan Sri Ambrin Buang left a parting shot which should have been given wider coverage and discussion. He said mismanagement and corruption resulted in leakage of 10-30 per cent of government funds. Given efforts to plug the leak and pursuit of corruption and money laundering cases, Ambrin had not raised awareness to anything new.

As raised by Second Finance Minister, Datuk Johari Abdul Ghani, the government needs to be guided with specifics. Ambrin is right to suggest that the government strengthens the role of internal auditors, auditing of government procurement, and more training on procurement management.

It is best to start with qualified professional accountant and auditor as Auditor-General.



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