The error, which occurred in 2014/15, has since been managed via a new payroll system, he added. Finance minister Mark Brown earlier stated it was likely PAYE tax relating to some government agencies was amongst the massive tax write off, amounting to about $19 million.
“Pay as you earn (PAYE) is being paid to Revenue Management Division (RMD) on a monthly basis by MFEM and credited against each government agency,” Henderson said.
“These same government agencies were required to file reconciliations to RMD on an annual basis to match against the credits from MFEM.”
The RMD will have a record for each agency, a credit from MFEM and debt by agency, which Henderson said would ideally balance out.
“If the reconciliation from the agency was wrong then RMD records would either show too much credit or debt. In most cases the reconciliation was wrong.
“For the value added tax (VAT), the agencies are required to file VAT returns monthly, and MFEM provides monthly bulk funding for agencies’ operational and personnel costs (plus VAT),” Henderson explained.
“Incorrect recording (by agency) of VAT returns resulted in VAT debt accumulation. This matter is only addressed after an agencies account has been audited, we are working together with the audit office to bring this up to date.
“As has already been reported our audits of annual financials lag behind by three years which explains why the errors remains in the books until cleared.”
Henderson said government has also embarked on establishing a Financial Management Information System (FMIS) that will use a consolidated bank account.
VAT filings will be processed by MFEM so the risks of errors between MFEM and agencies will be removed, he added.
Like Minister Brown, Henderson also decline to name the biggest beneficiaries of the controversial tax write-off, citing the secrecy provision of the Income Tax Act.
“When staff first join the Revenue Management Division (RMD) they are required to sign a declaration of secrecy,” Henderson said.
“It prevents them from disclosing any information that they obtain while working for RMD and even once they leave. He said that the reasons for withholding the information was to protect individuals and not unreasonably prejudice commercial positions and trade secrets, and was a common tax principle that was not limited to the Cook Islands.