Commencing disputesi Income taxThe self-assessment system
The self-assessment system has been implemented in Malaysia since 2001 for companies and since 2004 for businesses, partnerships, cooperatives and salaried individuals. Under the previous official assessment system, taxpayers would be assessed on income tax under the ITA by the IRB pursuant to the tax returns they filed. By contrast, taxpayers under the self-assessment system would file their tax returns based on computations of their own tax liability, resulting in deemed assessments and payment of taxes accordingly.
To ensure compliance and to avoid tax leakages under the self-assessment system, the IRB is equipped with wide powers by the ITA. Among others, Sections 78 to 81 of the ITA grant the Director General of Inland Revenue (DGIR) the power to call for specific returns and production of books, bank account statements, access to buildings and documents, and for all such information that may be relevant. Armed with such powers, audits are carried out by the IRB on a post-assessment basis, including desk audits (from the IRB's office) and field audits (at the taxpayer's premises with prior notice).
Preliminary findings letters are issued to taxpayers, who will usually be afforded a chance to respond to any issues raised. Audits are concluded with a final audit findings letter pursuant to which taxpayers can choose to sign a letter of acknowledgment of the IRB's position and to pay. Where taxpayers decline to do so, notices of assessment (Form J) or notices of additional assessment (Form JA) will be issued in respect of such taxes alleged to have been underpaid. Section 91 ITA only allows assessments to be raised within a period of five years after a year of assessment (YA), except in circumstances of fraud, wilful default or negligence. In practice, time-barred assessments are common as the IRB appears to adopt the view that negligence exists where taxpayers' tax treatment differs from their own.Disputing assessments
There are two ways for taxpayers to dispute tax assessments by the IRB: they may appeal to the Special Commissioners of Income Tax (SCIT) or undergo judicial review.SCIT appeal
A taxpayer aggrieved by an assessment raised against him or her can file a notice of appeal (Form Q) to the SCIT together with the grounds of the appeal within 30 days from the date of service of the assessment upon him or her. Upon receipt of the Form Q, the DGIR has a 12-month review period during which dispute resolution proceedings will be conducted to explore the possibility of an amicable settlement. Such proceedings can result in an agreement under Section 101(2) between the DGIR and the taxpayer on the proper amount of taxes payable.
If no agreement is reached during the review period, the Form Q will be forwarded to the SCIT for registration of the appeal. Case management will be conducted, during which directions are given for the filing of cause papers and for a hearing date to be fixed. Recently it has become common for hearing dates to be fixed two to three years after registration because of the large number of appeals pending. At any time before completion of the hearing, the taxpayer may arrive at an agreement for settlement with the DGIR that can be recorded before the SCIT.
Where there is no settlement, the SCIT will hear the case and give its deciding order for the assessments to be confirmed or discharged. Parties dissatisfied with a deciding order may appeal to the High Court on questions of law by requiring the SCIT to state a case for the opinion of the High Court (appeal by way of case stated). Upon hearing and determining the question of law in such an appeal, the High Court may, inter alia, order such assessments to be confirmed, discharged or amended. Parties dissatisfied with the High Court's decision have a further right of appeal to the Court of Appeal. A taxpayer cannot appeal to the Federal Court for a matter originating at the SCIT.Judicial review
Under certain circumstances, a taxpayer may also file a judicial review application at the High Court to challenge a tax assessment.
Taxpayers cannot commence judicial review as of right but must first obtain leave of the court to so. The threshold for leave to be granted is ordinarily low and will be satisfied where it is proven that the application is not frivolous. Even where an alternative remedy exists in the form of an SCIT appeal, the courts have held that taxpayers would not be barred from judicial review so long as exceptional circumstances are proven. The three categories of exceptional circumstances are a clear lack of jurisdiction, blatant failure to perform some statutory duty and a serious breach of the principles of natural justice. Decisions of the High Court in judicial review proceedings are appealable to the Federal Court.
Judicial review is especially apt where the dispute involves questions of law as opposed to factual disputes, which should be resolved by the SCIT as the tribunal of fact. Judicial sentiment on the role of judicial review in challenging abuses of power is perhaps best reflected in the Federal Court's recent pronouncement in the landmark case of Indira Gandhi that 'the boundaries of the exercise of powers conferred by legislation is solely for the determination by the courts' and that 'if an exercise of power under a statute exceeds the four corners of that statute, it would be ultra vires and a court of law must be able to hold it as such'.
However, the courts have also dismissed judicial review applications where it was held that exceptional circumstances did not exist. Taxpayers intending to pursue judicial review should thus obtain legal advice at the earliest opportunity to evaluate whether this is suitable.Stay or payment
Once an assessment is raised, taxes are ordinarily due and payable whether or not an appeal is made. Payment have to be made within 30 days of service of the notice of assessment upon the taxpayer, failing which the amount of taxes unpaid shall be increased by an amount of 10 per cent. Where taxes have been increased under Section 103(5) ITA, a further increase of 5 per cent of any amount of taxes remaining will be made after the expiry of 60 days from the date of such increase.
Unlike the High Court, the SCIT does not have the power to grant a stay of the effect of tax assessments raised by the IRB. Where payment has not been made and the courts have not granted a stay, the government of Malaysia may commence civil recovery proceedings against the taxpayer to seek recovery of such taxes as a debt due to the government.
However, taxpayers may still be able to obtain a stay of the civil recovery proceedings if special circumstances can be proven. The courts have held that Sections 103 and 106 ITA do not prevent the court from exercising its inherent jurisdiction to grant a stay where special circumstances exist. This has recently been confirmed by the Court of Appeal in Berjaya Times Square. The IRB has since withdrawn its motion for leave to appeal to the Federal Court.ii Goods and services tax
The Goods and Services Tax Act 2014 (the GST Act 2014) was repealed in 2018 by the Goods and Services Tax (Repeal) Act 2018 (the GST Repeal Act 2018). This section will briefly address common issues in GST appeals since there are still such appeals pending resolution.
Under the short-lived GST regime, taxable persons must furnish returns on a monthly or quarterly basis depending on the total amount of their taxable turnover. Where such returns have not been filed or contain incorrect information, best judgement assessments may be issued by the Director General of Customs (DGOC) against the taxable person.
A person dissatisfied with any decision by a GST officer may make an application for review to the DGOC within 30 days upon notification of the decision. The DGOC will aim to arrive at his decision within 60 days of receiving the application; in practice, however, decisions on such applications can generally be expected within six months.
A person dissatisfied with the DGOC's decision may file an appeal to the GST Tribunal within 30 days after the decision is communicated to him. The hearing will be conducted before a single Tribunal member or a panel of three members, and the appellant may opt to represent himself or appoint representatives. Decisions of the GST Tribunal can be appealed to the High Court, which can then be further appealed to the Court of Appeal.
The authors are aware of no appeals that have been made from the GST Tribunal to the High Court in the few years that the GST Act 2014 had been in force. Since the GST Act 2014 was abolished by the GST Repeal Act 2018, pending appeals at the GST Tribunal will now be heard by the Customs Appeal Tribunal (Customs Tribunal).
Decisions of the Customs Tribunal are deemed to be an order of a Sessions Court and are enforceable as such. Parties dissatisfied with the Customs Tribunal's decision may appeal to the High Court on a question of law or of mixed law and fact, and there is a further right of appeal to the Court of Appeal.iii Sales and service tax
The process for filing returns, and the raising of and appeals against assessments is similar under the Sales Tax Act 2018 and Service Tax Act 2018 regimes.
Taxable persons must file their returns by the last day of the month following the end of the taxable period to which the return relates. Where such returns have not been furnished or contain incomplete or incorrect information, or where a taxable person has failed to apply to be registered as such, best judgement assessments may be raised by the DGOC against him or her.
A person aggrieved by the DGOC's decision may make an application for review to the DGOC within 30 days after being notified of such decision. The DGOC will then review his decision and aim to decide on the application within 60 days after receiving it. In practice, however, applicants may have to wait up to six months for the DGOC's decision.
The DGOC's decision on an application for review may be appealed to the Customs Appeal Tribunal in writing within 30 days after the decision is communicated to the taxable person. The legal effect of the Customs Tribunal's decision, and the appeal process, have been discussed in Section II.ii.