INCOME TAX APPEAL IN MALAYSIA - JR Ng & Chin

Authored by Dylan Chong

Table of Contents

Income tax assessment

In Malaysia, the tax system is run by the Inland Revenue Board. Individual practices self-assessment regime, this means that every year by the end of April, the individual has to submit their tax return to the Inland Revenue Board either manually or through the online system.

The tax payment of the individual taxpayer is assessed by on a year of assessment (“YA”). Ie, from January 1, 2020 until January 1, 2021.

One an individual taxpayer has submitted their return, and it was found that the submission of income has been understated, the individual taxpayer will be issued a notice of additional assessment known as Form JA. This means that tax penalties will be imposed on the individual taxpayer as well under section 113(2) of the Income Tax Act 1967.

On the other hand, if the individual taxpayer has failed to submit his return on time, a notice of assessment known as Form J) will be issued against the individual taxpayer.

Upon receiving the income tax assessment, the individual taxpayer may file an appeal to the Special Commissioners of Income Tax (SCIT) within 30 days to appeal on the assessment imposed. The individual taxpayer has to file 4 copies each of Form Q from the date the individual taxpayer received the form J/JA from the Inland Revenue Board.

What can the individual taxpayer do?

Section 99 of the Income Tax Act 1967 provides that the taxpayer may exercise its statutory right to the Special Commissioners of Income Tax on any tax dispute in relation to the Form J/JA imposed on the taxpayer individual. There is a mandatory timeline of 30 days that the individual taxpayer has to comply with in filling the form Q.

In the Federal Court’s case of Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent Malaysia Sdn Bhd [2017] AMTC 1, it was held:

“if it is dissatisfied with the assessment with the assessment or notice of assessment issued by the appellant, the first respondent ought to have exercised its right to appeal under section 99 of the Act. Before the Special Commissioners of Income Tax, the first respondents would have an opportunity to make know its dissatisfaction. It will have the opportunity to tender exhibits, and give evidence of necessary.”

Who can appear before the Special Commissioners of Income Tax?

Aggrieved taxpayer can be represented by tax agent or lawyer to appear before the Special Commissioners of Income Tax. It is advisable to have both the tax agent and lawyer to appear together before the Special Commissioners of Income Tax. The lawyer can forward legal argument and interpretation on the taxation law while tax agent can advise and submit on the individual tax documentations. The combine of both the legal and documentary evidences can assist in getting the best result for the taxpayer either to paying reduce tax to settlement with the Inland Revenue Board.

What if the hearing before Special Commissioners of Income Tax is taking long time.

It is common that the hearing fixed before the Special Commissioners of Income Tax may be heard one or two years later due to the number of backlog cases registered before the tax tribunal.

The aggrieved taxpayer has to “first pay the tax, and only get it back later when it win before the tax tribunal”.

A lot of taxpayer may not be able to afford for such forum. Therefore, they may go for the second option which is to file a judicial review.

Filling a judicial review for tax matter before the High Court

The taxpayer may commence a judicial review application before the High Court. There are two applications involved namely:

the leave stage; and
the substantive stage

The individual taxpayer can challenge the jurisdiction and decision of the Inland Revenue Board for:

any decision made in contravention of existing decided law or provision within the Income Tax Act 1967
in contravention to the Inland Revenue Board’s own Public Ruling
against latest decided case law

Challenging on the latest development on the tax law

In the case of Prima Nova Harta, the taxpayer has filed an amendment to its leave application to challenge on the current development on the law on tax deductibility of the bumiputera release fee.

In this case, the taxpayer individual has filed for an amendment to include the provision on the deductibility of section 33 of the ITA 1967. On the hearing of the matter, the Court has allowed.

Fundamental pleading rule, the cause of action and the law relied upon by the taxpayer individual has to be pleaded within the cause paper for the court to grant the order sought for.