Wednesday, June 30, 2010

The Perfect Scam?

Will Kuala Dimensi Sdn Bhd (KDSB) get away scot free for not paying RM328 million in outstanding taxes?

The Port Klang Authority (PKA) is due to pay the next instalments amounting to RM772 million in 2010 to various bondholders on behalf of Kuala Dimensi Sdn Bhd (KDSB). The latter which is owned by Barisan Nasional Backbencher's Chairman in parliament, Datuk Seri Tiong King Sing, is the main contractor for the controversial Port Klang Free Zone (PKFZ) white-elephant project which may cost the government up to RM12.5 billion.

Despite the fact that PKA has sued KDSB for up to RM1.4 billion for fraudulent and excess claims last year, the former was instructed by the Ministry of Finance to make an instalment payment of RM660 million in 2009 due to the fact that the former Minister of Transport, Tan Sri Chan Kong Choy, having provided a guarantee to the bonds raised by KDSB.

However, it has now been discovered that KDSB has outstanding taxes due to Inland Revenue Board (IRB) amounting to RM328.4 million. The IRB has in its letter dated 23 June 2010 to PKA instructed that any payments due to KDSB must have the unpaid taxes deducted, and made payable to IRB. The IRB is empowered to do so under the Section 67(4) and 68(1) of the Income Tax Act 1967.

PKA has accordingly informed the various KDSB bondholders of its intent to withhold 2 payments – RM230 million due on 30 June 2010 and RM120 million due in July 2010 – for the purposes of settling the outstanding income taxes of KDSB.

The KDSB bondholders are understandably upset with the development as there is a likelihood tha they may not be paid for the loans extended to KDSB. However, based on the previous action taken by the Ministry of Finance, they will once again insist that PKA make full payments amounting to RM772 million to the bondholders to fulfil the “guarantee” which has been provided by the Government by virtue of the letters of guarantee signed by Tan Sri Chan Kong Choy.

In such eventuality, the result will then be the “perfect scam” of the century where the IRB gets to collect its taxes, the bondholders get to recover their “investment” with interest, while KDSB escapes from all its obligations without having to fork out a single sen of tax.

Since PKA has paid IRB on KDSB's behalf from the payments due to the bondholders, IRB will not need to sue Datuk Seri Tiong King Sing and KDSB to recover the outstanding taxes. At the same time, since the Ministry of Finance feels obliged to honour the dubious letters of guarantee issued by Tan Sri Chan Kong Choy despite a RM1.4 billion pending legal suit by PKA against KDSB, the bondholders will get paid their dues. Hence there will be no need for the lenders to sue Datuk Seri Tiong King Sing and KDSB to recover their outstanding loans.

The complete burden amounting to billions of ringgit is shifted to the hapless and helpless rakyat who are forced pay for the follies of the Barisan Nasional government, enriching KDSB and its shareholders while those possibly guilty of criminal breach of trust such as Tan Sri Chan Kong Choy gets away scot free. This is the perfect exemplification of a “people first” government.
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