Indirect Tax Alert
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Issue No. 2/2025 | 3 March 2025
Judicial Restraint on Tax Matters Unless They Are Clearly Illegal
It was recently reported in a news that the Chief Justice Tun Tengku Maimun Tuan Mat addressed the critical role of judicial restraint in economic and fiscal matters, particularly concerning tax measures. She emphasized that the court should proceed warily or with restraint as the judiciary is not an expert in economic and fiscal matters such as tax measures unless they are “shockingly arbitrary”, “clearly illegal” or unconstitutional.
This perspective was highlighted during discussions on Datuk Seri Najib Razak’s challenge against a RM1.69 billion tax charge by the Inland Revenue Board. The chief justice also cited the Malayan Banking Bhd case where the Federal Court refused to grant leave to appeal against the Court of Appeal's decision and reaffirmed the position that the taxpayer had not exhausted local remedies on challenging an income tax matter with the Special Commissioners of Income Tax before initiating a judicial review in High Court.
PwC Comment
Any disputes with the Royal Malaysian Customs Department (RMCD) on indirect taxes, such as customs duties, excise duties, sales tax and service tax, that cannot be resolved through the Customs Review Panel would normally be brought to the first level of judiciary which is the Customs Appeal Tribunal (CAT) to hear the disputes or appeals.
However, there have been cases where businesses brought the disputes or appeals straight to the High Court through judicial review to get a stay of execution of tax payment. It appears that the court would now want the appellants to have their appeals first be heard in CAT before the disputes are appealed further to higher courts unless they are, as what the chief justice said, “shockingly arbitrary” or “clearly illegal”.
Unlike the High Court, CAT does not have the power to grant stay of execution on tax payment for bills of demand (BOD) that have already been raised by the RMCD.
We are of the view that the legislation could be amended by allowing the following flexible plans to help businesses to minimise cash flow problems arising from having to pay upfront the full amount of tax payable in the BOD pending their appeals to be heard in CAT:
(1) Part payment (10%) plus bank guarantee (90%)
Under this plan, business that has already lodged its appeal to CAT be allowed to pay 10% of the tax payable in the BOD raised by RMCD and to give a bank guarantee with amount equal to 90% of the tax payable in the BOD to RMCD.
(2) Bank guarantee (100%)
Under this plan, business that has already lodged its appeal to CAT be allowed to give a bank guarantee with amount equal to 100% of the tax payable in the BOD to RMCD.
The plans suggested above would allow RMCD to collect part of the tax raised in the BOD and at the same time have the security that they can claim the guarantee if the business does not pay the tax after the disputes or appeals are resolved or decided in CAT or courts.
If your business has any disputes on indirect tax matters with RMCD and would like to explore avenues of appealing to the judiciary or if you have any questions on the above matters, please do not hesitate to contact us and we would be happy to assist you.
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