Case update – position of judicial review post-Bintulu Lumber

If one may recall, in August 2020, the apex court of the country held in the case of Bintulu Lumber Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri that the question of palm oil fruit is considered as a “fruit” within the context of the Schedule 7A of the Income Tax Act 1967 (“the Act”) is a question of fact and not suitable of judicial review. As such, the Federal Court remitted the case back to the Special Commissioners of Income Tax to determine this point.

Fast forward a few months later, many judicial review cases involving a dispute of taxes have appeared before the High Court and/or Court of Appeal for determination. Notwithstanding the Federal Court’s decision in Bintulu Lumber, subsequent cases had demonstrated that the doors for judicial review involving tax cases are not closed. In a recently released Grounds of Decision of Kind Action (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, the High Court of Johor allowed the taxpayer’s application for judicial review and allowed an application for a stay pending the disposal of the judicial review application.


The taxpayer was initially in the plantation business. Following a change in the ultimate holding company, a strategic decision was made to withdraw from the plantation business altogether and focus on the chemical manufacturing business. The taxpayer sold several plots of land following its intention to exit the plantation business.

The Director General of Inland Revenue (“DGIR”) was of the view that the disposal of land was subject to income tax instead of real property gains tax (“RPGT”). The taxpayer was disagreed with the DGIR’s position and stated, amongst others, that the land sold should be subjected to tax under RPGT instead because the taxpayer actively produced income from the plantation activities and the Respondent accepts that the taxpayer was carrying on a plantation business and the disposal was following a strategic decision to exit the plantation business.

The DGIR proceeded to issue Notices of Additional Assessment against the taxpayer worth more than RM81 million. The taxpayer appealed to the DGIR to have the taxes and penalties under the Notices of Additional Assessment to be paid, under protest, via instalments.

The DGIR allowed the Applicant’s instalment payment requested to have the Notices of Additional Assessment to be paid via 60 instalments. However, the DGIR disallowed the amount payable under the Notices of Additional Assessment offset against the RPGT already paid by the taxpayer previously.

This taxpayer then applied for judicial review as the Respondent’s decision in disallowing the taxes under Notices of Additional Assessment to be offset against the RPGT already paid offends the principle that the same income should not be taxed twice. By disallowing the offset, the DGIR has thereby subjected the same income, i.e. profit from the disposal of land, to both income tax and RPGT.


The Court allowed the taxpayer’s application for leave for judicial review.

Following the cases of QSR Brands Bhd v Suruhanjaya Security & Anor [2006] 3 MLJ 164 and Flextronics Shah Alam Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2018] 7 CLJ 487, a wide interpretation is to be taken when deciding whether or not a taxpayer is “adversely affected” by a decision of a public authority under Order 53 of the Rules of Court 2012.

In this case, the requirement to pay RM 81 million within a very short period (normally 30 days from the day of the assessment) was an “unequivocal demonstration” of being “adversely affected” and “serious financial prejudice”.

The Court allowed the leave of judicial review and for the DGIR to respond at the merits stage of the judicial review application.

On the point of the availability of a domestic remedy i.e. an appeal to the Special Commissioners of Income Tax under Section 99 of the ITA, the High Court was of the view that these should only be considered during the merits stage and not at the leave stage. This is in line with our body of case law which had held in similar tune.


Whilst the Federal Court in Bintulu Lumber said that based on the facts of its case, the case ought to be determined by judicial review, the Federal Court did not shut the doors for judicial review for tax cases.

This is especially the case where the taxpayer has good grounds to prove that judicial intervention vide judicial review is warranted, i.e. where there are:

  • A clear lack of jurisdiction;
  • A blatant failure to perform some statutory duty; or
  • A serious breach of the principles of natural justice.

As such, judicial review remains open for tax cases and the availability of an alternate remedy, i.e. an appeal to the SCIT, is not a permanent bar to such.

The Court of Appeal upheld privileged against the IRB

Summary of Disclosure and Privilege in English law – Elaina Bailes

Recently in a landmark ruling, the Court of Appeal in the case of Ketua Pengarah Hasil Dalam Negeri v Bar Malaysia upheld the doctrine of privilege and held that the Inland Revenue Board (“IRB“) was estopped from requesting disclosure of documents relating to client’s account by raising Section 142(5) Income Tax Act 1967 (“ITA“). The Court of Appeal upheld the High Court’s decision and dismissed the IRB’s appeal.

This case serves as a timely reminder that although the IRB is armed with wide powers under the ITA to, amongst others, request for documents for inspection, the doctrine of legal privilege cannot be abridged.


The Malaysian Bar (“MB“) received complaints from its members that the IRB’s officers raided the several law firms with a view to auditing their clients’ accounts and issuing notices insisting on being given access to, amongst other, all books and records pertaining to such clients’ accounts. In particular, the IRB was invoking Section 142(5)(b) ITA in stating that the IRB has powers is foists with the power to conduct such raids.

The MB wrote a letter informing DGIR that such actions by the IRB are in breach of legal privilege and that Section 142(5) does not override privilege.

In reply, the IRB stated that the principle of privilege on the ground that Section 142(5) of the ITA overrides the provisions in the Evidence Act 1950 and Legal Profession Act 1976 with regards to privilege.

Aggrieved, the MB filed a judicial review to appeal against the DGIR’s position.

Legal Analysis

The relevant provision of Section 142(5) ITA is reproduced herein for it’s full effect:

The doctrine of privilege is provided under Section 126(1) Evidence Act 1950 which provides as follow:

The thrust of the MB’s argument was that are as follows:

  1. The IRB cannot utilise the ITA to go on unlawful expeditions

According the IRB’s affidavit, the intention behind invoking Section 142(5) ITA in auditing the clients’ account was to ensure that law firms were reporting their income tax accurately. The IRB was more concern of law firms hiding funds in the client’s account and not the client’s hiding funds from the IRB. In other words, it was utilising Section 142 (5) against the law firms as oppose to the clients.

Privilege is for the protection of the client’s and not lawyers. Only lawyers have the right to waive privilege and not lawyers. In applying the doctrine “equity will not permit statute to be used as an engine of fraud”, the fundamental principle of privilege must prevail as it would cause untold violence to administration of justice.

2. Doctrine of Privilege remains undisturbed under statute and common law

In the seminal case of Bullock v Correy [1878] 3 QBD 356, it was held that privilege is absolute unless waived hence the infamous quote “once privileged, always privileged“.

Further reference was made to the case of R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] UKHL 21, the House of Lords described legal privilege as a “fundamental human right long established in the common law“.

Under Section 126 EA and case laws, there are only limited circumstances in which privileged is waived, such as express consent by client, for the furtherance of any illegal purpose or if the lawyer has observed any fact in the course of employment which shows a crime or fraud has been committed since the commence of his or her employment.

3. A “practitioner” under Section 142(5) ITA does not refer to advocate and solicitor.

The last part of Section 142(5) reads “prepared or kept by any practitioner or the firm or practitioners in connection with any client or clients of the practitioner or firm of practitioners or any other person.

In applying the strict interpretation, the words “practitioner” should not apply to “advocate ” as different words were employed in the ITA where reference was made. The words “advocate” was said to appear only 6 times within the ITA whereas the word “practitioner” only appears at Section 142(5). Although the Legal Professions Act used the word “legal practitioner”, the deliberate use of different terms of “advocate” and “practitioner” clearly indicates 2 different meanings.

The use of the word “practitioner” without the word “legal” does not refer to a lawyer but could include a person engaged in the practice of professions such as account, tax agent or tax consultant.


The High Court answered the question of whether Section 142(5) ITA overrides Section 126 EA to the negative and accordingly held that Section 142(5) does not exclude the application of legal privilege.

The High Court adopted an interesting interpretation in that finding that: “my view is as far as other written law which prohibit the disclosing or producing any document, thing or information to a court, the Special Commissioners, the Special Commissioners, the Director General, such protection or privilege does not apply. Para (b) overrides that Chapter or those provisions in that written law. Paragraph (b) saves Chapter IX of Part Ill of the Evidence Act 1950 from operation of ITA 1967.”

The High Court found that the operation of the non-obstante clause cannot be beyond the ITA. In the spirit of the ITA, the High Court found that “practitioners” to refer to tax accounts and tax agents and not advocates and solicitors. The use of the different words was Parliament’s recognition that “practitioner” and “advocate and solicitor” are two different persons.

Secondly, the High Court found that the words “notwithstanding the provisions of any other written law” does not exclude the application of common law. The Supreme Court in Manilal & Sons (M) Sdn Bhd v M Majumder [1988] 2 MLJ 305 defined this position by holding that “unless the statute expressly or by necessary implication excludes the common law remedy, the latter still remains“.

Therefore, the Court held the Parliament did not intend Section 142(5)(b) to affect common law on privilege. At most, it may apply to possible secondary cases.

Thirdly, the High Court held that Section 126 was a specific provision which governs privilege hence applying the principle Generalia Specialibus Non Derogant, it takes precedence over the general provision of Section 142(5). Section 126 of the EA embodies every privileged communication, including the Client Communications. However, Section 142(5)(b) of the ITA merely makes reference to the term “in connection with any client”. The terminology of “in connection with” is far from specific and is extremely general as to its meaning as well as its applicability.

Finally, the Court was convinced that the audits carried out were in the guise of a fishing expedition to unlawfully fish for information on the clients of the law firms. The conduct of the IRB in seeking to use Section 142(5) ITA as an engine of fraud is abusive, unlawful and illegal.


One can be reminded of the case of Syarikat Ibraco-Peremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2014) MSTC 30-084 where a tax advice from a tax consultant was not offered privilege. The same ruling was made in the case of R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1 where the House of Lords also found that legal privilege is not accorded to tax advice on given by a person in the accountancy profession.

In the converse, legal privilege is one of the most sacred principle and remain sacrosanct and cannot be sacrificed on the altar of the purported exercise of the statutory powers conferred by the ITA. Invoking the ITA cannot be used as subterfuge to conduct a “fishing expedition” and exculpate itself of the requirement of obtaining advance consent from the client.

Section 140 and 140A – cousins or siblings?

Section 140 and Section 140A of the Income Tax Act 1967 are common provisions used by the Inland Revenue Board (“IRB”) in investigating transactions between related/unrelated persons and in finding whether the arrangement is a tax avoidance scheme. Section 140 empowers the Director General of Inland Revenue (“DGIR”) to disregard or vary a transaction and make such adjustments where the DGIR is of the view that the transaction was a means of tax avoidance. Section 140A on the other hand allows the DGIR to substitute the price where he is of the view that a transaction is not reflective of the arm’s length principle.

At first glance, it appears that Section 140 is wider than Section 140A in that the DGIR is empowered to disregard or vary a transaction whereas Section 140A only allows the DGIR to vary the price. However, there is case law that held that the two sections are to a certain extent mutually exclusive of each other.

With the amendment of Section 140A introduced in the Finance Act 2020, the question is whether the lines between the two sections are blurred.

(I) Section 140

For ease of reference, Section 140(1) reads as follows:

“(1) The Director General, where he has reason to believe that any transaction has the direct or indirect effect of—

(a) altering the incidence of tax which is payable or suffered by or which would otherwise have been payable or suffered by any person;

(b) relieving any person from any liability which has arisen or which would otherwise have arisen to pay tax or to make a return;

(c) evading or avoiding any duty or liability which is imposed or would otherwise have been imposed on any person by this Act; or

(d) hindering or preventing the operation of this Act in any respect,

may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such adjustments as he thinks fit with a view to counteracting the whole or any part of any such direct or indirect effect of the transaction.

In simple words, where the DGIR is satisfied that a certain transaction was entered for tax avoidance, the DGIR is allowed to make any adjustment to the transaction which would be (ideally) reflective of a genuine and legitimate transaction.

In the case of Syarikat Ibraco-Peremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri, the Court of Appeal upheld the findings by the IRB that a certain arrangement entered into by the taxpayer served no purpose other than tax avoidance. In this case, the taxpayer, a property development company, had identified certain lots of land (the lands) as being suitable for long-term investment. The plan was to build shophouses and a complex on the lands and then lease the developed units for a period of time before selling the same in its entirety or units. The taxpayer approached its tax consultants which gave the following advice:

we have considered a structure which, if implemented, could result in the sales proceeds being treated as capital gains and hence, be subject to RPGT. That is, the lands will be transferred to a 100% realty company of Ibraco. Real property gains tax is payable on the market surplus of the lands. Stamp duty exemption should be available under Section 15A of the Stamp Act. As the developed properties will be held for rental for a relatively long period, say 5 years, there is a valid argument that the gain (or loss) of the investment properties is on capital account and subject to real property gains tax.”

In reliance on the above advice, the taxpayer did the following:

  • the taxpayer formed a subsidiary that transacted with the taxpayer to develop the project;
  • the principal activity of the subsidiary was investment holding and property development;
  • After the sale of the land from the taxpayer to the subsidiary, parties entered into a turnkey contract to develop the project;
  • Upon completion of the project, the taxpayer undertook a corporate restructuring exercise whereby the taxpayer’s shares in the subsidiary was sold to a related company; and
  • The subsidiary and the related company were all wound up.


The Court of Appeal rules that the above transaction was invalid. In reliance of cases such as W T Ramsay Ltd v Inland Revenue Commissioners [1981] 1 All E.R.865, [1982] AC 300 H.L., the Court of Appeal found that there was tax avoidance when the transactions entered into by the taxpayer through shell companies revealed the factual situation that the tax position was altered and that the taxpayer had implemented a scheme following the advice of the tax consultant in perpetuating one original intention of selling of the properties as it intended to do from the start.

However, in the case of Ensco Gerudi (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (unreported), the arrangement entered via a Labuan company was held to be valid. Pursuant to the Court of Appeal’s dismissal of the IRB’s appeal, several legislative changes were introduced which introduced substance requirements for Labuan companies (see Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018)

In this case, the taxpayer was in the business of providing offshore drilling services to the petroleum industry in Malaysia. The taxpayer does not own any drilling rigs hence it would enter into a leasing agreement on a bareboat basis with a rig owner within the Ensco group of companies. A Labuan company was set up to facilitate easier business dealing for the taxpayer. It must be noted that Labuan Offshore Financial Services Authority and Bank Negara Malaysia had approved the Labuan company – ENSCO Labuan Limited (“ELL”).

The IRB invoked section 140(1)(c) and disregarded the transaction between the taxpayer and ELL. The IRB alleged that the arrangement between ELL and the taxpayer amounts to tax avoidance as:

  • ELL had no economic or commercial substance;
  • The economic and absolute rights over the assets were not transferred to ELL;
  • ELL is a company under Ensco plc;
  • ELL only does business with the taxpayer to benefit from the tax incentive; and
  • There was a purported increase in rental rate compared to before, providing the impression that the taxpayer is shifting profits through ELL to Ensco Plc.

The High Court ruled in favour of the taxpayer and held the transactions between the taxpayer and ELL were legitimate and did not attract withholding tax. The unilateral imposition of requirements requiring employees in Labuan, maintaining a Labuan bank account, own the assets that will be leased, and that the Labuan company must enter into leasing business with several entities was ultra vires. In particular, the High Court held that “there is nothing artificial about the payments, and there is no circularity of payment”. In echoing the sentiments in the case of Sabah Berjaya Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [1999] 3 CLJ 587, taxpayers have the freedom to structure transactions to minimise their incidence of tax. Section 140(1) does not apply where the taxpayer obtains a tax advantage by reducing his income or by incurring expenditure in circumstances in which the taxing statute affords a reduction in tax liability.

The Court of Appeal dismissed the IRB’s appeal.

It should be noted that the Income Tax Act 1967 also places legal restrictions on the IRB to adhere to principles of natural justice. In the case of Port Dickson Power Bhd v Ketua Pengarah Hasil Dalam Negeri, the High Court found that the absence of specification of which subsection of Section 140 to be relied upon and particulars of the notice of additional assessments since Section 140 does require the DGIR to have “reasons to believe”.

(II) Section 140A

Section 140A is often related as a transfer pricing provision whereby the section mandates that transactions between related persons must be conducted at arm’s length. Ideally, the transfer price should not differ from the prevailing market price which would be reflected in a transaction between independent persons.

Section 140A(3) provides as follow:

(3) Where the Director General has reason to believe that any property or services referred to in subsection (2) is acquired or supplied at a price which is either less than or greater than the price which it might have been expected to fetch if the parties to the transaction had been independent persons dealing at arm’s length, he may in determination of the gross income, adjusted income or adjusted loss, statutory income, total income or chargeable income of the person, substitute the price in respect of the transaction to reflect an arm’s length price for the transaction.

In the case of SPSASB v KPHDN, the taxpayer’s principal activity is to provide shared central function services to companies within the group of companies. The taxpayer is part of a contractual arrangement for the sharing of services and resources within the scope of a Cost Contribution (“CCA”) within the group of companies.

Pursuant to a tax audit, the IRB imposed a mark-up on the costs recovered by the taxpayer from its related companies for services provided under the CCA. The Respondent’s basis for such is consequent to the position that the arrangement between SPSASB and its related companies is not a CCA but instead an intra-group services arrangement.


Aggrieved, the taxpayer applied for judicial review. Amongst others, the taxpayer alleged that Section 140A does not allow the Respondent to recharacterise the CCA into an intra-group services group arrangement. Based on the Supreme Court’s decision in the Hup Cheong Timber case, where if the DGIR was of the view that a transaction/arrangement had been entered into to avoid taxes, the DGIR should invoke Section 140(1) to make the adjustment, and, in doing so, must provide particulars of the adjustment made. There was failure by the IRB to observe the importance of applying OECD standards as in the case of Damco Logistics Malaysia Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2011] MSTC 30 – 033.

The High Court dismissed the taxpayer’s judicial review application but the Court of Appeal reversed this ruling.

Amendment to Section 140A in Finance Act 2020

The Finance Act 2020 amended Section 140A with, amongst others, the insertion of (3a) or (3b):

(3a) The Director General may disregard any structure adopted by a person in entering into a transaction if—

(a) the economic substance of that transaction differs from its form; or

(b) the form and substance of that transaction are the same but the arrangement made in relation to the transaction, viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner and the actual structure impedes the Director General from determining an appropriate transfer price.

(3b) Where the Director General disregards any structure adopted by a person entering into a transaction under subsection (3a), the Director General shall make adjustments to the structure of that transaction as he thinks fit to reflect the structure that would have been adopted by an independent person dealing at arm’s length having regard to the economic and commercial reality.

Essentially, the above amendments allowed the DGIR to disregard any structure and make adjustments such that it would be reflective of independent persons dealing at arm’s length. This would most likely include the power to recharacterise the nature of an agreement into another.

Vide the amendment, the differences between Section 140 and 140A are now blurred. Previously, the DGIR was only empowered to substitute the price of a transaction not deemed to be at arm’s length. However, the amendment now accords with the DGIR with wider powers to carry out other means of adjustment than mere substitution. Whether or not the ability to “disregard any structure” under Section 140A is synonymous with the DGIR’s powers to disregard or vary transactions that had the effect of altering the incidence of tax, relieving from tax liability, evading or avoiding tax, or hindering or preventing the operation of the Income Tax Act under Section 140 is an issue to be deliberated through future case laws.


PERMAI Assistance Package Tax Highlights

Earlier this week, the Prime Minister of Malaysia announced another economic stimulus package called the “Perlindungan Ekonomi & Rakyat Malaysia (“PERMAI”) Assistance Package”. This would be the 4th stimulus package announced by the government to cushion and stimulate the economy amidst rising concerns of the COVID-19 pandemic. 

The PERMAI Assistance Package is anchored in 3 main objectives: combating the COVID-19 outbreak, safeguarding the welfare of the people and supporting business continuity. In precis addition to the extension of the Temporary Measures for Reducing the Impact of COVID-19 Act 2020, the PERMAI Assistance Package provided several interim relief measures to alleviate the impact of the newly announced Movement Control Order. 

This post set out herein the key highlights from the PERMAI Assistance Package.

1/ Cash assistance

A one-off provision of RM500 to healthcare frontliners and RM300 to other frontliners will be paid in the first quarter of the year. The Prime minister stated that the special monthly allowance of RM600 to healthcare frontliners and RM200 to other frontliners will be given until the end of the COVID-19 pandemic. 

Additionally, a one-off financial assistance of RM500 to tourist guides and drivers of taxis, school buses, tour buses, rental cars and e-hailing vehicles. 

2/ Tax relief for COVID-19 screening (personal)

As stated in the Budget 2021, the tax relief for full health screening has increased twofold, from RM500 to RM1,000. The government announced that this relief includes COVID-19 screening as well.

3/ Moratorium on loans and installment reduction

The government announced that throughout this Movement Control Order 2.0, moratorium facilities such as the extension of the moratorium, restructure of loan payments and reduction of loan repayment installments will continue.

4/ Special tax relief for technology products 

Last year, the government announced a special personal income tax relief for the purchase of mobile phones, computers and tablets to ease the industry in adapting to the Work From Home arrangement. In this PERMAI Assistance Package, the government announced the extension of the special tax relief of up to RM2,5000 for the purchase of mobile phones, computers, and tablets until the end of 2021.

5/ Expenses incurred for COVID-19 testing

Under the PENJANA scheme, it was announced that tax deduction will be given for expenses incurred for COVID-19 testing. Under PERMAI, employers who bear the cost of COVID-19 screening for its employees are entitled to claim a double deduction for the payment screening costs made during the year 2021.

6/ Sales tax exemption

To boost the automotive sector, the government had announced a sales tax exemption for locally assembled and imported passenger vehicles until 31 December 2020 under the PENJANA package. This exemption will continue until 30 June 2021 to stimulate and drive momentum in the automotive sector.

7/ Revised Wage Subsidy Programme

A revised Wage Subsidy Programme called the Wage Subsidy Programme 3.0 is introduced and applies to all employers operating in areas affected by the Movement Control Order, irrespective of the industrial sector operating. For one month, employers will receive a wage subsidy of RM600 for each employee earning less than RM4,000. The number of employees for the wage subsidy limit is also increased from 200 to 500. 

8/ Special deduction for reduction of rental on business premises

During the implementation of the 1st Movement Control Order last year, the government gave a special tax deduction to a company that reduces the rental rate on business premises rented to Small and Medium Enterprises (“SME”) by at least 30% between the period 1 April 2020 to 31 March 2021. It is announced that this special deduction will be extended until 30 June 2021 and applies to rental reduction for non-SME as well.

9/ Exemption on excise duties and sales tax 

The government announced a reduction in the number of years qualified for exemption from excise duty and sales tax from seven years to five years for the transfer, disposal and private use of taxis. 


The introduction of the PERMAI Assistance Package aims to revitalise the economy and boost consumption. With a budget of RM3 billion for the COVID-19 Vaccination Programme, it is hoped that this will instill momentum for businesses to navigate towards economic recovery. 

7 tax cases in Malaysia in 2020

Within the blink of an eye, we have come to the end of 2020. Although the greater part of 2020 was spent in quarantine, it has not stopped the Inland Revenue Board (“IRB”) from conducting tax audits and neither has it prevented the Courts from conducting hearings of tax cases via Zoom or Skype.

With that being said, there are a few noteworthy tax cases that laid down important principles and applications of the law. This post outlines 7 influential tax cases in 2020.

  1. IBM Malaysia Sdn Bhd v KPHDN

This case concerns the legal status of an advance ruling under Section 138B of the Income Tax Act 1967 (“the Act”).

Briefly, the taxpayer executed a software distribution agreement with a related company which allowed the taxpayer to distribute the software programs produced by the latter in Malaysia. The taxpayer made an application for an advance ruling to the IRB for a determination on whether the distribution payment is subjected to withholding tax as being “royalty”. The IRB issued its decision and stated that payment was considered royalty and hence was subject to withholding tax. Aggrieved, the taxpayer filed a judicial review application to appeal against the IRB’s decision.

The entire edifice of the objection made by the IRB was that the judicial review application was filed prematurely. The High Court allowed the judicial review application. However, the Federal Court and Court of Appeal overturned it but no grounds have been issued by the Federal Court. In the grounds of judgment, the Court of Appeal agreed with the IRB and held that the judicial review was premature as an advance ruling “has not adversely affected the (taxpayer) until the (taxpayer) has filed its tax return and tax was assessed.

With all due respect, I find doubt in the decisions by the Court of Appeal and Federal Court and a fortiori the High Court position. It is apposite to note that the tax administration regime in Malaysia is a self-assessment system. The taxpayer decides the appropriate treatment of a certain transaction under the pre-existing laws. If in doubt, taxpayers may apply for an advance ruling to obtain clarification. This is the purpose of the advance ruling system. An advance ruling further behoves the taxpayer to be bound by the ruling with no remedy.

One of the arguments advanced by the IRB was premised upon its “Guidelines on Advance Rulings” which stated that the taxpayer may appeal under Section 99 of the Act if aggrieved by an Advance Ruling decision. A closer inspection of Section 99 does not allow for an appeal of an Advance Ruling. Therefore, there ought not to be any other remedy available to a taxpayer other than judicial review. The Court of Appeal’s decision is flawed in this perspective.

Nevertheless, unless the waters are tested once again by the apex court in Malaysia, the case as it stands, whether rightly or wrongly decided, is the law.

2. G Sdn Bhd v Ketua Pengarah Kastam Dan Eksais

This case was significant as it was a landmark decision by the Court of Appeal in recognising the application of the principle of De-minimis rule in tax cases.

In this instant case, the taxpayer was in the business of operating a chain of supermarkets and hypermarkets. Due to the change in the indirect tax regime from Sales and Service Tax to Goods and Service Tax, Section 190 and 191 of the Goods and Services Tax Act 2014 was enacted to prevent double taxation. The taxpayer made a Special Refund Application under Section 190 (“Application”) with the accompanying required documents. The Director-General of Customs refused the Application because of alleged errors made in the Application. The margin error allegedly made by the taxpayer was around the ballpark figure of 0.001388% – 0.015%. The High Court disallowed the Application and dismissed the judicial review application due to non-compliance.

The Court of Appeal reversed the decision of the High Court and allowed the claim. This is the first tax case in Malaysia that recognised the cardinal principle of De minimis Non Curat Lex This case now imbues revenue officers to exercise discretion proportional to the alleged mistakes made and are restrained from raising meagre non-compliance as grounds to reject refund claims in the entirety.

3. Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam Dan Eksais

Uniqlo was a decision by the Court of Appeal which enumerated the duty to give reasons by tax officers. The case is currently under appeal to the Federal Court.

The taxpayer in this case was retail business and imports garments. Similar to the above case, the taxpayer made an application for the special refund of sales tax under Section 191 of the Goods and Service Tax Act. The Customs Officer rejected the claim and the only reason given was “Keptusan Ketua Pengarah” and nothing else. Aggrieved, the taxpayer applied for judicial review to challenge the decision. The High Court rejected the taxpayer’s claim.

Relying on the case of Kesatuan Pekerja-pekerja Bukan Eksekutif Maybank Bhd v Kesatuan Kebangsaan Pekerja-pekerja Bank, the Court of Appeal held that there is a duty to give reasons for decision notwithstanding that the said duty is absent in statute. The guise of exercising absolute discretion offends the principle of natural justice.

This case confirms that tax officers cannot, without justifiable and express reasons, raise assessments, refuse refunds or vary transactions which prejudice the taxpayer who is left in the lurk to search for the reason. Discretion by public officers must be exercised judiciously to instill public confidence in the administration of governmental functions. The absence of providing reasons to be averse to interference and exculpate itself of liability will do more harm than good to the law-abiding citizens.

4. GCVSB v Ketua Pengarah Kastam Dan Eksais

A full analysis of the case can be found in an earlier analysis of the case here.

In essence, the case concerns the timing in which the taxpayer made its claim for the exceptional input tax claim. The taxpayer was in the business of property development and had purchased a piece of land (GST-inclusive) and thereafter sold the land on. Due to the sale of the land, the taxpayer registered to be a GST registered person and made an application (“Application”) to claim Exceptional Input Tax Claim for the refund of input tax incurred for the purchase of the land.

The GST Repeal Act was enacted which mandated all input tax claims to be made before 29 December 2018. However, the Respondent instructed the Applicant to not make an application for the Exceptional Input Tax Claim in the GST Return Form unless and until the Respondent had approved. The taxpayer obediently held its hands and submitted the first and only GST return form in September 2018, without stating the claim.

Approval was only given in March 2019 and the taxpayer accordingly claimed. However, the claim was denied on the ground that the claim ought to have been made in December 2018 as under the GST Repeal Act.

The High Court granted relief to the taxpayer and ordered that the taxpayer’s Exceptional Input Tax Claim be allowed. The Court found that the Applicant was acting at the behest of the Respondent and it would not be unconscionable for the Respondent to take a U-turn and required that the application be made before approval was given, in defiance of its own instructions. The Court established that the Taxpayer had made its claim to the Exceptional Input Tax Claim when it had submitted its tax return, therefore it was protected as an accrued right.

5. Prima Nova Harta Development Sdn Bhd v KPHDN

The taxpayer was in the business of property development. The taxpayer had applied to release housing units reserved for Bumiputera to be available for sale to non-Bumiputera. In return, the taxpayer had to pay a sum equivalent to the bumiputra discount to the state government and claimed the aforementioned payment as a deduction. The IRB and SCIT disallowed the sum as a deduction by finding that the payment was penal in nature for breaching the Bumiputra Quotas.

The High Court reversed the decision by the SCIT and allowed the payment to be deducted. In reliance of the case British Insulated and Helsby Cables Limited v Atherton, the Court found that the main purpose of the developer’s application was to allow the additional sale of houses. Without making the payment, the taxpayer would not earn any income and therefore the payment was closely connected to the generation of income of the taxpayer’s business.

6. BX Steel Posco Cold Rolled Sheet Co Ltd v Minister of Finance and others

This was a decision by the High Court in the determination of export prices to impose anti-dumping duties.

BX Steel Posco Cold Rolled Sheet Co Ltd was a company incorporated in the People’s Republic of China and exports Flat Rolled products to Malaysia. Various discussions between the parties were unfruitful and the Investigative Authority recommended an anti-dumping duty of 5.47% and this came into realisation vide Customs (Anti-Dumping) Duties Order 2019 P.U.(A) 69. Aggrieved, BX Steel applied for judicial review to quash the decision.

In allowing the judicial review application, the High Court found that there was no evidence to support the imposition of the 5.47% anti-dumping duty. It was admitted by the Respondents that the said rate had arrived using a wrong formula but no action was taken to reduce it accordingly. In the premise, the Ministry of Finance fell into error in failing act upon the uncontroverted admission when it was made known.

Furthermore, the High Court favoured BX Steel’s submission that the export price is the price paid by Malaysian importers based on a plethora of commentary support. In this case, a lower export price was used and as such artificially inflated the dumping margin.

Finally, the Ministry of International Trade and Industries’ (MITI) actions of signing the Notice of Affirmative Determination before a Final Determination Report was released falls as being Wednesbury unreasonableness. This was due to the lack of consideration given to relevant circumstances and MITI had unreasonably pre-judged the matter.

7. Bintulu Lumber v DGIR

I’ve discussed the case of Bintulu Lumber previously in this post.This case concerns the interpretation of the word “fruit” and whether it includes “palm oil fruit”. The taxpayer applied for judicial review which was dismissed by the apex court of the country.

The Federal Court held that there were no grounds appealable by way of judicial review and the matter was not a matter of public importance that would give rise to exceptional circumstances.

It is important to note that this case did not shut the doors to judicial review for tax matters. Many subsequent tax cases demonstrated that judicial review is an available relief if the taxpayer could prove that the assessments were illegal, irrational, and procedural impropriety. In this instant case, there was previous case law which held that palm oil fruit was not a fruit eligible to claim reinvestment allowance and therefore the statutory appeal to the Special Commissioners of Income Tax is the suitable forum to ventilate this matter.

Budget 2021 and Finance Bill 2020 (Part 2)

On 16 November 2020, the Finance Bill 2020 had its first reading in the Malaysian Parliament’s Dewan Rakyat. In tandem with the Budget 2021, the Finance Bill 2020 seeks to give legal effect to the proposals and amendments to the Malaysian tax legislations.

This post outlines the proposed changes to the law and its reciprocal effects  as a result of the Finance Bill 2020.

1.    Income Tax Act 1967 – Corporate Income Tax

A.     Tax Rebate for Small and Medium Enterprises and Limited Liability                         Partnership

Under the PENJANA scheme, the government had introduced an initiative for both Small and Medium Enterprises (“SME”) and Limited Liability Partnership (“LLP”) whereby a tax rebate of RM20,000 is given on the tax payable for the 3 Years of Assessment (“YA”).

The amount of rebate given shall be equal to the amount of operating and/or capital expenditure or RM20,000, whichever is lower, against the tax liability of the company. If the tax liability is lower, the excess rebate shall not be repaid back or to be treated as credit to set off the tax liability for subsequent YAs. In other words, it’s a permanent loss.

A SME / LLP for the purposes of obtaining this rebate is an entity which:

            • has a paid-up capital of RM2.5mil or less at the beginning of the basis period for a year of assessment;
            • has a gross income from source or sources consisting of a business not exceeding RM50 mil; and
            • which has commenced operation on or after 1 July 2020 but not later than 31 December 2021.

In the event that the SME / LLP is unable to fulfill any of the above conditions, in addition to subsequent conditions as may be prescribed, the SME / LLP will not be eligible to claim the rebate for that YA and subsequent YAs.

B.    Additional condition for the purposes of claiming deduction of expenses                incurred in relation to research and development activities






C.        New tax treatment for new incentives

The Finance Bill proposed the addition of a new section whereby certain persons carrying out an Approved Incentive Scheme (“AIS”) activities will be taxed at a preferential rate of 20% for 7 YAs.

It was mentioned during the Budget 2021 speech that AIS activities include:

          •     Global Trading Centre;
          •     Companies relocating to Malaysia;
          •     Companies manufacturing pharmaceutical products; and
          •     Principal Hub.

D.        New Section 103B – tax payable notwithstanding institution of                                 proceedings

Under Section 103(2), the service of an assessment by the IRB is made payable on the date that is stated on the assessment when it is served, regardless of whether or not the taxpayer is appealing the said decision or otherwise. In other words, “pay first talk later”. This applies where the taxpayer is appealing the assessment to the Special Commissioners of Income Tax (SCIT), the prescribed relief in the Income Tax Act 1967. 

The aforementioned approach may cause problems to taxpayer when faced with the impossibility of payment of the additional taxes within a very short period of time (commonly 30 days within the date of assessment). An alternate relief mechanism taxpayers often plead to the High Court for a stay order vide a judicial review application. The effect of such order, if granted, is that the taxpayer is allowed to withhold payment of the assessment until the disposal of the case, or as prayed.

The introduction of this section appears to frustrate such circumstances. Section 103B makes tax payable under the Income Tax Act payable notwithstanding the “institution of any proceedings under any other written law”. The words “other written law” would be referring to the Rules of Court 2012 where the roots of judicial review are entrenched in.

E.        Definition of the word “plant”

Presently, there is no statutory definition of the word “plant” within the Income Tax Act.

Our Malaysian Courts have therefore been applying, inter alia, the definition in Yarmouth v France that a plant “includes whatever apparatus is used by a business man for carrying on his business” in the context of the industry operating by that taxpayer.

The word “plant” is proposed to be defined as “an apparatus used by a person for carrying on his business but does not include a building, an intangible asset, or any asset used and that functions as a place within which a business is carried on”.

The effect of such a definition is that it negatives cases such as Tropiland (car park building), CIMB (database) and Infra Quest (telecommunication tower) for the purposes of claiming capital allowance.

However, of particular contention, is the effect on PU orders gazetted pursuant to Schedule 3. For example, the PU(A) 274 – Income Tax (Capital Allowance) (Development Cost for Customised Computer Software) Rules 2019 provides for the initial and annual allowance for customized software under Schedule 3 of the Income Tax Act. The new definition will have a residual effect on subsidiary legislation and thereby making certain PU orders redundant as subsidiary legislation cannot override the principle legislation.

F.        Extension of period to claim Reinvestment Allowance

For companies which had exhausted their period to claim Reinvestment Allowance in 2019 or prior YAs, the proposed amendment allows the taxpayer to claim an additional period of 3 YAs, up to YA 2022.

For companies who will exhaust their period to claim Reinvestment Allowance in 2020 or 2021, the proposed amendment allows them to claim an additional 1 / 2 years respectively, up to YA 2022.

G.        Definition of related companies

Currently, a company may surrender 70% of its business loss for the year to a related company. A related company, for the purposes of surrendering business loss, is where:

i) the surrendering and claimant company owns 70% (either directly or indirectly through a third company) of the other’s share capital; and

ii) the surrendering and claimant company is owned (directly or indirectly) by a third party company.

Where the situation falls under (ii), it is proposed that the third party company ought to be a Malaysian resident company.

2.     Income Tax Act 1967 – Transfer Pricing

A.    Penalty for failure to maintain contemporaneous transfer pricing                             documentation

The proposed Section 113B makes it an offence where a company fails to furnish contemporaneous transfer pricing documentation.

The penalty for an infringement of this section is a fine not less than twenty thousand ringgit and not more than one hundred thousand ringgit or imprisonment for a term not exceeding six months or to both.

B.    Surcharge on transfer pricing adjustment

Under the current transfer pricing regulation regime, a penalty is only imposed where an adjustment made results in additional tax payable. If it doesn’t, then no penalty may be imposed.

Vide Section 140(A) (3C), the amendment proposes a 5% surcharge be levied on transfer pricing adjustment made, regardless of whether or not such adjustment results in additional tax payable.

C.    Power of the Director General to disregard structures in controlled                           transactions

Section 140A(3A) seeks to incorporate the powers of the Director General made under Income Tax (Transfer Pricing) Rules 2012 which empowers the Director General to make adjustments deems fit if he is of the view that:

(a) the economic substance of that transaction differs from its form; or

(b) the arrangement, viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner.

The Director General may make adjustments to such transactions as if they were carried out at arm’s length.

3.     Real Property Gains Tax Act 1976

A.    Remission of Tax Penalty

Screenshot 2020-11-30 at 12.10.52 AM

B.    Revision of the retention rate by the acquirer

Screenshot 2020-11-30 at 12.13.15 AM

C.    Real Property Gains Tax for Societies

Screenshot 2020-11-30 at 12.14.06 AM

4.    Stamp Act 1949

A.    Digitalisation of the stamping process

The Act as it stands does not recognise digital stamping as a mode of stamping. It is proposed that the following incorporate digital stamping as a valid stamp.

B.    Remission of Stamp Duty

Screenshot 2020-11-30 at 12.15.43 AM

5.     Labuan Business Activities Act 1990

A.    Change in definition of “chargeable income”

Screenshot 2020-11-30 at 12.16.33 AM

B.    Control and management for non-trading Labuan entities

A Labuan company must satisfy the substance requirement (i.e. number of employees and operating expenditure) to enjoy a preferential tax rate under the Act.

However, there is an added requirement for Labuan entities carrying out non-trading activities, i.e. a pure equity holding company, that must meet the control and management test which is to be prescribed by the Minister.

C.    Election to be taxed under the Income Tax Act 1967

Screenshot 2020-11-30 at 12.17.42 AM

Budget 2021 and Finance Bill 2020 (Part 1)

Malaysia Budget 2021: Pre-Budget Experts' Roundup

With the recent shift in the power of the Malaysian government (again), many eyes were on the Budget 2021 and the measures to undertake in these challenging times. With the COVID-19 pandemic having affected many parts of our daily livelihood, the Budget 2021 would play a pivotal role to help steer out of these uncertain times.

Part 1 of this series aims to adumbrate the key proposals in Budget 2021 from the tax perspective whilst Part 2 analyses the Finance Bill 2020 in greater detail.

1. Personal tax

a) For individuals with chargeable income between RM50,001 to RM 70,000, the tax rate to be reduced by 1% from YA 2021 onwards

b) For non-Malaysians working in companies investing in new strategic investments, the income tax rate is 15%.

c) The monetary value of personal income tax relief has increased for various types of expenses/income.

d) Similarly, the government has also increased the monetary limit for income exempted from tax.

2. Corporate Tax

a) The period to claim further deductions for certain expenses is extended.

b) The period where a certain class of income is exempted from tax is extended.

c) The Budget included some review of the current incentive program structure.

3. Indirect Tax

4. Stamp Duty

Is judicial review still available in tax cases

Under the Income Tax Act 1967 (Act), all taxpayers aggrieved by the decision of the Director General of Inland Revenue (DGIR) must appeal to the Special Commissioners of Income Tax (SCIT) to have its case heard. However, in view that a decision of the DGIR is also a decision of a government servant in carrying out its duties, judicial review under the Rules of Court 2012 is an available remedy for taxpayers to seek recourse.

However, in light of the recent Federal Court decision in Bintulu Lumber v DGIR, are the doors to judicial review for tax cases now closed?

Why judicial review?

The judicial review route is often more preferred instead of appealing to the SCIT due to the benefits available to taxpayers such as:-

  1. Obtaining an injunction to restrain the DGIR from enforcing payment on additional assessments

This is perhaps the most common reason why taxpayers would want to seek the judicial review route. Under the Act, once the DGIR raises an additional assessment, such sums are payable on the due date regardless of whether or not an appeal is made:

“103. (1) Except as provided in subsection (2), tax payable under an assessment for a year of assessment shall be due and payable on the due date whether or not that person appeals against the assessment.”

There are no other sections within the Act which allows a taxpayer to withhold payment. Therefore, imagine if the DGIR suddenly lands a bombshell of RM1trillion in additional taxes to be paid within 30 days, one can only imagine the immense challenge of meeting the bill if you don’t have RM1 trillion just sitting in your bank account for easy disposal.

Vide the judicial review route, taxpayers will be able to raise Order 29 rule 1 of the Rules of Court 2012 for an injunction order to restrain the DGIR from enforcing the additional taxes and taking proceedings to enforce payment of the additional assessment after the due date.

2. Faster

An appeal via judicial review involves only exchanges of affidavits as sworn evidence. There are no witnesses required to be present in a case starting as originating summons (such as judicial review) whereas there will be examination of witnesses in the SCIT.

The duration of the whole process varies depending on the complexity of the matter. A straightforward judicial review can be disposed of within a year or two. However, cases in the SCIT do involve coordination of time with witnesses and therefore are a lot longer.

3. No other alternatives

Judicial review is an applicable route where the taxpayers have no other viable options for redress. For example, the Goods and Service Tax Act 2014 was enacted, appeals against the Director General of Customs (DGC) were to be made to the GST Appeal Tribunal. However, with the subsequent enactment of the Goods and Service Tax Act (Repeal) Act 2017, the GST Appeal Tribunal ceases to exist.

Therefore, taxpayers aggrieved with the decisions of the DGC can only bring the matter to the High Court by way of judicial review for the case to be tried.

What happened in Bintulu Lumber v KPHDN

Bintulu Lumber v KPHDN (Bintulu Lumber) concerns the question of whether oil palm fruits can be considered to be a “fruit” under Schedule 7A of the Act to claim reinvestment allowance. The Taxpayer was in the palm oil plantation business and had claimed reinvestment allowance on a few occasions. This resulted in 2 separate suits relating to different assessments – Year of Assessment (YA) 2008 and 2011.

In the first suit corresponding to YA 2008, the SCIT allowed the Taxpayer’s claim but that was subsequently overruled by the High Court and Court of Appeal.

In the second suit corresponding to YA 2011, the Taxpayer applied for judicial review. This was dismissed in both the High Court, Court of Appeal and also the Federal Court.

The Federal Court found that the matter was not a matter of public importance giving rise to special circumstances warranting a judicial review. The Federal Court further held that the DGIR had acted lawfully in the circumstance.

What happens now

Whilst the Federal Court did say that judicial review was not suitable in Bintulu Lumber, it did not put the nail to the coffin to judicial review for tax cases. To date, the Federal Court has yet to release the grounds of judgment and many high court cases after Bintulu Lumber had allowed judicial review as an available remedy for relief.

That being said, taxpayers must take note that judicial review is only applicable to exceptional circumstances as held in Government of Malaysia & Anor v Jagdis Singh [1987] 2 MLJ 185:

  1. Clear lack of jurisdiction; or
  2. Blatant failure to perform statutory duty; or
  3. A serious breach in the principles of natural justice.

Examples of cases where judicial review are suitable are where there are case law to support a certain proposition but the DGIR contends otherwise, acting arbitrarily by failing to give reasons and acting unreasonably in the Wednesbury sense.

Finally, the Federal Court in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Glugor dengan Tanggungan [1999] 3 CLJ 65 held that the existence of an alternate remedy does not automatically shut off judicial review but the merits of the case would be one that gives rise to exceptional circumstances:

“The reason for this is that whilst in theory the courts there frequently recite the incantation that alternative remedies must be exhausted before recourse may be had to Judicial Review, in practice, the courts are often much kinder to the application with a good case on the merit, who is faced with this hurdle to clear…”


Therefore, Bintulu Lumber ought not to be treated as a revolutionary or landmark case as it merely recanted the position that judicial review is not suitable where there is a dispute on the question of fact. This is not the first time the Federal Court has ordered that a case ought to start by appealing to SCIT as in Bandar Nusajaya Development.

Judicial review is always available for taxpayers seeking recourse from the additional tax assessments by the DGIR but the added burden is on taxpayers to prove special circumstances warranting the court’s discretion.

High Court held Exceptional Input Tax Claims are made when GST Forms are submitted

Recently, the High Court held in a judicial review application in relation to an Exceptional Input Tax Claim (“Claim”) made under the Goods and Service Tax Regulations 2014 (“Regulations”) and Goods and Services Tax Act (“Act”) that an Exceptional Input Tax Claim which requires the Director General of Excise and Customs’ (“DGEC”) approval is deemed to be made when the GST Return Form is submitted. The DGEC had rejected the Taxpayer’s Claim by reason that the Claim was time-barred due to enactment of the Goods and Services Tax Repeal Act 2018 (“Repeal Act”).

The Repeal Act mandated all Goods and Services Tax (“GST”) input tax claims to be made before 29 December 2018 (“Prescribed Date”). However, the DGEC failed to appreciate that the Taxpayer was at all times acting in according with instructions directed from the DGEC and the Claim was made within time when the Taxpayer submitted its GST Return Form in September 2019 i.e. before the Prescribed Date.

Upon hearing the respective parties’ submissions, the High Court ordered that the Taxpayer’s Claim be allowed.

Background facts

The Taxpayer is in the business of property development. In 2017, the Taxpayer had purchased a piece of land for RM 91 million wherein RM 5 million was incurred as GST. In July 2018, the Taxpayer sold the land and, as required by the Act, registered to be a GST-registered person.

The Taxpayer proceeded to make the Claim under Regulation 46 of the Regulations. Regulation 46 allows a taxpayer to make an input tax claim in relation to GST incurred before a taxpayer was a GST-registered person. However, such claim would require the pre-approval of the DGEC. Accordingly, the Taxpayer made an application to obtain approval in July 2018.

The Repeal Act came into force on 1.9.2018 which, amongst others, mandated all unclaimed input tax claims to be made before 29.12.2018 (“Prescribed Date”). At the behest of the DGEC, the Taxpayer made its first and only GST return in September 2018 without stating the Claim.

Approval by the DGEC was finally given in March 2019. The Taxpayer then made the Claim vide an Amended GST return (“Amended Return”) as instructed by the DGEC. However, the DGEC subsequently rejected the Taxpayer’s Claim on grounds that the Claim was time-barred as it was made after the Prescribed Date and that the Amended GST return does not fulfill the conditions of Regulation 46 i.e. an Amended Return was not the first return as required under Regulation 46.

Aggrieved by the DGEC’s rejection, the Taxpayer filed this judicial review to seek relief.

Decision of the High Court

The Taxpayer’s main thrust of argument is that the Claim was protected under the Interpretations Act 1967 and 1948 and Regulation 4 of the Regulations. It was submitted that when the Taxpayer had made an application to make the Claim and submitted the GST Return before the Prescribed Date, the Taxpayer had an accrued right which is well protected under statutes and seminal case laws. In the premise, the DGEC ought to be precluded from hiding behind the veil of the Repeal Act to exculpate itself of liability.

Furthermore, in absence of clear and unambiguous language, laws are presumed to be interpreted prospectively and not retrospectively. Reliance was made on the case of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri [2018] 1 MLJ 376 where the court held:

But the amendment Act A471 did not also expressly provide that Part I of the Interpretation Acts 1948 and 1967 (Act 388) which includes the said s 30 of the Act shall not apply… As there is a doubt the ambiguity must be construed in favour of the tax payer as the said exemption from tax has not been removed by sufficiently clear words to achieve that purpose.

Since there were no words to exclude, extinguish or affect claims which were made pending the DGEC’s approval, such claims ought to be considered as “accrued rights” established when the taxpayers made the GST Return Form. Insofar as the Taxpayer recognised it’s rights and pursued it within time, it ought not be prejudiced by the delay DGEC’s approval.

Secondly, it was also evident from contemporaneous correspondences that the Taxpayer was acting strictly according to the DGEC directions in that the Taxpayer ought not to state the Claim in the GST Return unless and until approval was obtained. It is then irrational and unreasonable for the DGEC to reject the Amended Return which was made after approval was given.

Furthermore, the DGEC had represented to the Taxpayer that the raison d’être of the Claim is that DGEC’s approval was necessary. The blithered fixation on the Prescribed Date without taking into consideration the DGEC’s own representations had therefore violated the Taxpayer’s legitimate expectation when rejecting the Taxpayer’s Claim after approval was granted. Legitimate expectation had been recognised by the Malaysian Courts to be a right protected under the law as held in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan:

“Given the duty of a public body not to fetter its discretion under what circumstances will a legitimate expectation be protected in the face of a change in policy. Clearly, the change of policy must be ‘a lawful exercise of discretion”

The High Court agreed with the Taxpayer and ordered the DGEC to allow the Claim.


This case affirms the cardinal principle that statutes are presumed to be interpreted prospectively and does not affect anything act done and rights accrued before the implementation of any repeal or amendment.

Furthermore, this decision would hold tax authorities responsible for their own words to maintain public confidence in the government. Instructions ordered by tax authorities of its own volution would now be prevented from canvassing arguments to the opposite effect.

Case Update: Tax authorities’ obligation to give reasons

A recent decision by the Court of Appeal affirms a principle that although taxation laws do not impose a legal duty on revenue officers to provide reasons, there is nevertheless a duty to give reasons as a public decision-making body. In the grounds of judgment of the case Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam dan Eksais dated 9-07-2020, the court held that the High Court was wrong in finding that since the Goods and Services Tax Act 2004 (“the Act”) did not impose a legal duty to give reasons, the Director General of Customs and Excise (“Respondent“) is therefore excused from giving reasons.


The case concerns a claim for a special refund of sales tax for goods held by Uniqlo (Malaysia) Sdn Bhd (“Uniqlo”) under Section 191 of the Act.

Briefly, Section 191 of the Act was a transitional provision that allowed businesses, especially in the manufacturing and retail sector, to avoid the imposition of 6% GST upon the price of goods which already contained the 10% Sales Tax. If the claim is above RM 10,000, the claim must have the claim certified by a chartered accountant. In this case, Uniqlo’s claim was duly certified by Ernst and Young.

The Respondent requested supporting documents and carried out an audit on Uniqlo’s premises. The Respondent had conducted stock takes and requested details of stock movement in furtherance of its verification of the Uniqlo’s claim.

Vide a letter dated 16-11-2016, the Respondent issued a letter informing Uniqlo that it’s special refund application was rejected due to “Keputusan Ketua Pengarah” (“Decision“). Uniqlo’s request for reasons why the application was rejected was akin to throwing a stone in the ocean as letters went unanswered. Uniqlo then applied for a judicial review to quash the Respondent’s decision.

In the High Court:

The High Court found in favour of the Respondent and held that the Decision was valid in law.

The first ground for rejection was due to inaccurate information provided by Uniqlo. The High Court found that the Respondent’s findings after conducting physical audits were different from the refund application. This allowed the Respondent to reject Uniqlo’s claim.

Secondly, the High Court was of the view that Section 191 of the Act does not make it mandatory for the Respondent to provide reasons for rejection. It favoured the position of Pendaftar Pertubuhan v Datuk Justin Jinggut [2013] 3 MLJ 16 (“Justin Jinggut”) in finding that the GST does not mandate an obligation for the Respondent to give reasons.

Additionally, the High Court considered an undated letter after the filing of the juridical review from the Respondent which stated the reasons for rejection were due to inaccurate information and failure to remove the sales tax element from the selling price for stocks on hand.

Aggrieved by the decision of the High Court, Uniqlo filed an appeal to the Court of Appeal.

In the Court of Appeal:

The Court of Appeal allowed the appeal and overturned the decision of the High Court and quashed the Respondent’s decision.

On the point of inaccuracies, the Court Appeal found:

  1. The Respondent did not challenge the certificate issued by Ernst & Young; and
  2. The verification physical audit was conducted 6 months after the claim was made hence the goods held by Uniqlo as of 1.4.2015 would naturally be different from October 2015.

On the second point, the Court of Appeal distinguished the case of Justin Jinggut and instead found reliance in the case of Kesatuan Pekerja-Pekerja Bukan Eksekutif Maybank Bhd v Kesatuan Kebangsaan Pekerja-pekerja Bank & Anor [2018] 2 MLJ 590. Accordingly, the Court of Appeal held that silence on the duty to give reasons in the Act cannot be equated to the same as no reasons need to be given, and duty to give reasons can be implied. This approach was favoured on the concept of fairness and inculcates transparency and accountability.

Similarly, the Court found that the High Court erred in considering the undated letter as it was filed after the filing of the judicial review.


The Decision is welcome to encourage accountability by public servants and ensure that discretion was exercised properly. The practice to give reasons further instills confidence and provides an opportunity to taxpayers and to remedy mistakes/ discrepancies, if any.

It is noted that the Respondent had since filed an appeal to the Federal Court.