High Court dismisses IRB’s RM1.8 billion tax case against TNB

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The High Court in Kuala Lumpur today ruled in favour of Tenaga Nasional Berhad, which was opposing an Inland Revenue Board (IRB) RM1.8 billion tax assessment for the year 2018.

In her ruling, judge Noorin Badaruddin agreed that the RM 1.8 billion was considered reinvestment allowance (RA).

TNB counsel S Saravana Kumar said the dispute arose when the IRB disallowed TNB’s RA claim under schedule 7A of the Income Tax Act 1967 (ITA) on the basis that TNB’s generation, distribution and transmission of electricity is not a manufacturing of electricity, and argued that TNB was only a service provider.

“The judge, in disagreeing with the IRB’s argument, held that TNB is in the business of manufacturing electrical energy and that the generation of electricity is a manufacturing activity.

“The judge observed that TNB transforms electrical energy into a form that can be used by the customers, so this transformation must be considered to be part of the manufacture and production of electricity.

“The court also commented that the electricity was not precluded as a manufacturing activity for either schedule 7A of the ITA or the Gazette Order issued by the Minister of Finance.

“The court went on further to rule that the IRB’s internal interpretation, as contained in its Guidelines and Public Rulings, are not binding on taxpayers,” he said.

Saravana said today’s decision was considered a landmark, which may have a favourable impact on the other ongoing tax appeals lodged by TNB.

“It is understood that this is in relation to its RA for the earlier years of assessment 2003 to 2007 and 2009 to 2017, which amounts to RM5.8 billion in additional taxes and refunds,” he said.

TNB was represented by counsel Nur Amira Ahmad Azhar, while IRB was represented by IRB’s deputy solicitor Hazlina Hussain.

On July 21, 2020, TNB filed for a judicial review of IRB’s decision dated July 13, 2020, which rejected TNB’s claim that RM1.8 billion of revenues was reinvestment allowance.

The company also sought a declaration that it is entitled to claim the RA under schedule 7A of the Income Tax Act 1967.