Appeal Against Tax Recovery by the Revenue (Published in Westlaw Asia Law Review Article Citation: [2020] LR 364)

Appeal Against Tax Recovery by the Revenue

Dr Benjamin Poh

Citation: [2020] LR 364
*364 Appeal Against Tax Recovery by the Revenue


This article examines the Revenue’s tax recovery powers and legal remedies the taxpayer may have to protect against arbitrary actions of the Revenue’s officers to collect certain publicly declared targeted amount of taxes, with little concerns on the correctness of the assessment. The author also offers some pointers on tax reforms of the tax recovery and collection procedures that the government should adopt to align with the Federal Constitution.


“ Tax is to be paid irrespective of excessiveness, incorrect assessment, under appeal or incorrect increase ” – s 106(3) of the Income Tax Act 1967 (“the Act”). Most of the tax practitioners in Malaysia would argue that the tax recovery and collection procedures used by the Revenue are draconian, unconstitutional and against natural justice, especially tax assessments that contain clerical errors, unreasonable estimations or misinterpretation of tax laws by Revenue officers. The taxpayers have to pay their tax liabilities first according to the tax assessments and it may take many years for them to get back their tax refunds without interest, if their appeals to the Revenue and the court are successful later on. In addition, the taxpayers have to spend time and pay substantial fees to accountants and lawyers to prepare their tax appeals and even if they were to win their case, they are entitled to very minimal costs in court from the Revenue.

Revenue’s tax recovery power and procedure

Section 103(1) of the Act states, “… 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 ” and s 106(3) of the Act states, “ In any proceedings under this section the court shall not entertain any plea that the amount of tax sought to be recovered is excessive, incorrectly assessed, under appeal or incorrectly increased under section 103(1A), (3), (4), (5), (6), (7) or (8) ”. Additionally, s 142(1) of the Act states, “ In a suit under section 106 the production of a certificate signed *365 by the Director General ( “DG”) giving the name and address of the defendant and the amount of tax due from him shall be sufficient evidence of the amount so due and sufficient authority for the court to give judgment for that amount ”.

The above sections summarise the Revenue’s tax recovery powers under the Act. The Revenue can apply for a summary judgment to recover tax assessments under Order 14 of the Rules of Court 2012 (“the ROC”), without going for a full trial. The preliminary requirements to be satisfied before the Revenue can obtain summary judgment are:1
(a) The taxpayer must have entered an appearance;
(b) The statement of claim must have been served on the taxpayer; and
(c) The application must be supported by affidavit.

The affidavit must satisfy the following requirements:2
(a) It must be made by the plaintiff or by any person duly authorised to make it and who can swear positively to the facts;
(b) It must verify the facts on which the claim or part of a claim to which the application relates is based; and
(c) It must state the deponent’s belief that there is no defence to that claim or part or no defence except as to the amount of damages claimed.

Once the above requirements are satisfied, the Revenue is required to produce a certificate signed by the DG under s 142(1) of the Act to obtain summary judgment against the taxpayers in court. After obtaining summary judgment, the Revenue can apply to the court to enforce the judgment and such enforcement actions include a company winding-up petition, personal bankruptcy petition, garnishee proceedings and writ of seizure and sale. The Revenue may also issue a stoppage order or blacklist the taxpayers from leaving the country under s 104 of the Act without first obtaining judgment.

To prevent the Revenue from obtaining summary judgment, the taxpayers can raise issues on non-compliance with procedural requirements, such as defects in the affidavit or notice of tax assessments not properly served, certificate not properly signed or authorised to sign by DG. If the Revenue applies for summary judgment based on tax evasion or fraud, the taxpayer may raise the issue of fraud to preclude a summary judgment application under Order 14 r 1(2)(b) of the ROC. However, the issue of negligence or time-barred under s 91 of the Act, will not prevent the court from giving *366 summary judgment to the Revenue. The Federal Court in Sun Man Tobacco Co Ltd v Government of Malaysia ,3 summarised the taxpayers’ rights of appeal against summary judgment used by the Revenue to recover tax due to the government as follows:

A taxpayer has no right to by-pass the Board of Review and take his complaint direct to court. And when the Comptroller of Income Tax sues a taxpayer to recover tax due under a notice of assessment, the taxpayer cannot be heard to say that the assessment on which tax has been levied was not made in accordance with the provisions of the Ordinance. Such a complaint must in the first instance be laid before the Board of Review. The provisions of Order XIV of the Rules of the Supreme Court must be read together with the provisions of the Income Tax Ordinance. If this is not done every unwilling taxpayer will refuse to pay tax and when sued in court, will challenge the merits of the assessment, thus causing considerable delay in the collection of the tax. The proper course for every aggrieved taxpayer is to pay his tax and present his arguments against the assessment made upon him before the Board of Review … In place of a Board of Review we now have the Special Commissioners of Income Tax. It is open to a taxpayer to go before them and prove that he is not liable to assessment. The doors of justice are not shut to him merely because the claimant is the Government, but he has to enter the doors of the Special Commissioners first to raise the plea of non-observance of the principle of natural justice or to establish that the Director-General acted arbitrarily and in a non-judicial manner. It is only after he has availed himself of that remedy as laid down by the law that he has a right to come to the courts.

Case precedents on Revenue’s recovery powers

Over the years, taxpayers have raised triable issues as a defence for summary judgment by the Revenue to recover taxes, such as incorrect assessment; assessment was still under appeal; excessive assessment; the assessment was time-barred etc. were not successful.4 In Arumugam Pillai v Government of Malaysia ,5 Gill CJ said, “The court to put it bluntly, had only one function to perform, and that was to give judgment in favour of the Government”. In Kerajaan Malaysia v Dato’ Hj Ghani Gilong ,6 a plea of limitation based on s 91(1) and (3) of the Act was not a defence in summary judgment though the issue could be brought before the Special Commissioners pursuant to the appeal procedure under the Act. This was further affirmed by subsequent cases of *367 Government of Malaysia v Dato’ Mahindar Singh7 and Integrated Credit and Leasing Sdn Bhd v Kerajaan Malaysia .8

Stay of execution

Fortunately, avenues of challenging the Revenue’s tax recovery powers are not closed entirely to the taxpayer. Taxpayers may apply to court to stay the execution of summary judgment based on special circumstances of their case. Some of these cases are discussed below.

In Leong Chee Kong & Anor v Tan Leng Kee ,9 Abdul Malik Ishak J said the following considerations would be taken into account in deciding whether a stay ought to be granted:
(a) Merits in the appeal are not special circumstances to justify a stay;
(b) Whether a successful appeal would be rendered nugatory (e.g. successful appeal should not be rendered futile) by a refusal to grant a stay;
(c) Whether irreparable damage would be done to the appellant should the stay be refused;
(d) Whether the stay will be granted in order to maintain the status quo until all the disputes between the parties have been resolved;
(e) Even in a situation where there are no special circumstances present but where the appellant would be irremediably injured if there was no stay should their appeal succeed;
(f) Whether the appellant has an arguable appeal; and
(g) Where the appeal emanates from an interlocutory application (e.g. interim order or summary judgment).

In Chong Woo Yit v Government of Malaysia ,10 the Supreme Court exercised its inherent jurisdiction to stay execution until determination by the Special Commissioners of the taxpayer ’s appeal against the assessment raised against him, as his appeal to the Special Commissioners had not been heard over four years. In Kerajaan Malaysia v Jasanusa Sdn Bhd ,11 the Supreme Court held that neither s 103(1) nor s 106(3) barred a court, in appropriate circumstances, from exercising its inherent powers of granting a stay, even in tax cases. In this case, the government had obtained summary judgment against the taxpayer, but the taxpayer succeeded in obtaining a six months’ *368 stay to enable it to provide the voluminous information which the government sought. Subsequently, the taxpayer applied for an extension of the stay, one of the grounds being that the Revenue had still not forwarded the taxpayer’s appeal to the Special Commissioners. The High Court judge then granted an extension of the stay for the purpose of facilitating the taxpayers’ appeal to the Special Commissioners. In granting the stay, Edgar Joseph J said this about the exercise of the discretion to stay:

Matters of this nature involve, inter alia, balancing the need of the government to realise the taxes and the need of the taxpayer to be protected against arbitrary or incorrect assessments. The court should be ever vigilant against taxpayers who may use the procedure of the court, like applying for a stay of execution, to defer or postpone payment of his just dues or to abscond by migration or to dissipate the assets to defeat the judgment. The court should also bear in mind the possibility of arbitrary or incorrect assessments, brought about by fallible officers who have to fulfil the collection of a certain publicly declared targeted amount of taxes and whose assessments, as a result, may be influenced by the target to be achieved rather than the correctness of the assessment . It should not be much of a difficulty for the court to see the genuineness of an appeal or the willingness of the taxpayer to comply with all reasonable requests of the director, if they exist, and thus move the court to stay the execution. Having so apprised myself of the legal principles, I will now apply them to the facts and deliver my decisions. (Emphasis added.)

Judicial review

The taxpayer may seek leave from the High Court to apply for judicial review under Order 53 of the ROC, to expedite the tax appeal only in exceptional circumstances. Such exceptional circumstances include blatant failure by the Revenue to perform its statutory duty; failure to apply case precedents in similar fact situations; misinterpretation of tax laws applicable to clear and admitted facts; and serious breach of natural justice. In Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan ,12 Edgar Joseph FCJ said the situations may give rise to judicial review in public law as follows:13

There are certain classes of cases such as planning, employment and tax cases whereby a statute provides for a specialised appeal procedure, and so the courts understandably may not grant judicial review. However, this is always subject to the grant of review in certain cases, for example, where an applicant is able to demonstrate excess or abuse of power, or breach of the rules of natural justice . Though planning cases come under an extensive appellate structure provided for by the Town and Country Planning Act 1976, this does not prevent the court in appropriate cases from entertaining an application for judicial review in a planning case where the statutory scheme provides no equally convenient remedy.

*369 In the present case, main grounds on which the Society sought judicial review were based on distinct principles of public law or general issues of law, in particular, the Society had clearly raised an arguable case that the Council, a public body, had acted unfairly, abused its powers and had raised the general question of the extent to which representations can bind public bodies. These grounds involve a consideration of generalised principles of public law developed by the courts to control the exercise of power by public authorities, and as such, judicial review would be the appropriate route to follow rather than appeal. Judicial review in this case, rather than appeal, would be the appropriate route to follow, because by their application, the Society had raised issues of law of public importance, going beyond the significance of the case itself. The issues which arose for decision were based substantially, if not wholly, on established or admitted facts, and so the only question was their legal significance . The greater speed of judicial review as compared to appellate procedures is a factor which can rightly be put in the balance and weighed and tip the balance in favour of judicial review . The court is concerned here with a planning case involving a housing project, the object of which was to provide homes for members of a cooperative society belonging to the less affluent section of society. It was not disputed that many of the flats to be erected had been sold. In such a situation, a swift means of redress was indicated and judicial review would be the natural choice of remedy rather than appeal. (Emphasis added.)

Recent Federal Court ’s decisions14 on judicial review for tax cases have made it clear that taxpayers should exhaust domestic tax appeal procedures under the Act before resorting to judicial review, unless the taxpayer can show exceptional circumstances. Furthermore, if the taxpayer and the Revenue have disputes over the facts of the case, the Special Commissioners of Income Tax should be the proper fact-finder of the case rather than the court via judicial review.

Constitutionality of Revenue’s tax recovery power

Some court cases had argued against the Revenue’s tax recovery power from a constitutional law point of view. In Comptroller-General of Inland Revenue v NP ,15 one of the arguments raised was that s 82 of the Income Tax Ordinance 1947 (which required taxes to be paid notwithstanding an appeal to the authorities on the amount of tax to be imposed) read with s 86(3) of the same statute, were unconstitutional as they contravened Article 13 of the Federal Constitution which states that “ No person shall be deprived of property save in accordance with law ” . One of the issues was the meaning of “save in accordance with law” under Article 13. The court held that tax legislation was duly passed by the Parliament and such enactment was within the *370 competence of the Legislature, and therefore, was in accordance with the law. In Arumugum Pillai v Government of Malaysia ,16 the court also took a rigid and literal interpretation of the meaning of “law” and said, “ Whenever a competent Legislature enacts a law in the exercise of any of its legislative powers, destroying or otherwise depriving a man of his property, that latter is precluded from questioning its reasonableness by invoking Article 13(1) of the Constitution, however , arbitrary the law might palpably be ”. Furthermore, the law does provide for an appeal against taxation to Special Commissioners of Income Tax from which there is a further right of appeal to the High Court and Court of Appeal.

In Ong Ah Chuan v Public Prosecutor ,17 there was an appeal on the constitutional validity of s 15 of the Misuse of Drugs Act, from Singapore to the Privy Council. The Privy Council rejected the literal interpretation of the word “law” in Article 9(1) of the Singapore Constitution (similar to our Federal Constitution, Article 5(1): “ No person shall be deprived of his life or personal liberty save in accordance with law ”). Lord Diplock said that the word “ law” in any Westminster based Constitution, particularly in the Fundamental Liberties chapters, must refer to a system of law which incorporates the fundamental rules of natural justice. Otherwise, the purported protection of the fundamental rights of citizens would be “full of sound and fury, signifying nothing”, if such rights can be regulated and curtailed by an ordinary law which flouts natural justice rules.18 The rules of natural justice were noted by Court of Appeal in Haji Ali bin Haji Othman v Telekom Malaysia Berhad19 as “The audi alteram partem and nemo judex rules which were directed at ensuring impartiality and fairness in public decision making. These were encompassed in Article 5(1) and Article 8(1) of the Federal Constitution and are directed at giving a citizen the minimum standard of fairness in all forms of State action”. In Re Tan Boon Liat20 where the learned Chief Justice held that “ … in accordance with ‘ law’ in Article 5 of our Constitution is wide enough to cover procedure as well. Here the point is not whether the question of procedure is more important under one Constitution than under the other. If the expression ‘in accordance with law’ were to be construed as to exclude procedure then it would make nonsense of Article 5 ”. This was further affirmed by the Federal Court in Lee Kwan Woh v Public Prosecutor ,21 where Gopal Sri Ram FCJ said, “ The expression ‘law’ in Article 5(1) includes written law and the common law of England, that is to say , the rule of law and all its integral components and in both its procedural and substantive dimension ”. The Federal Court affirmed the interpretation of law in Badan Peguam Malaysia v Kerajaan Malaysia ,22 and said, “ Principles of constitutional interpretation are not the same as the ones normally used in *371 interpreting an ordinary statute or law; that a constitution should be construed with less rigidity and more generosity than other statues ”.

Recent judicial decisions have abandoned the rigid and literal interpretation of constitutional law in the 1970s, and moved to a more purposive interpretation of our constitutional law. This is an encouraging move for Malaysia, as the world’s economic and social conditions become more integrated, protection of human rights and private property against arbitrary actions of states and governments become more significant to developing countries. As the Malaysian government aims to be a developed nation, it should reform the country ’s tax recovery and collection procedures to align with the Federal Constitution, to protect the people from arbitrary actions of its officers to collect certain publicly declared targeted amount of taxes, with little concerns on the correctness of the assessment.

Legislative reforms on tax recovery procedure

It is time for the Malaysia government to reform the existing tax recovery procedures by incorporating due process procedures. The American taxpayer advocate, Nina E Olson’s lecture before the American College of Tax Counsel “Taking the Bull by Its Horns: Some Thoughts on Constitutional Due Process in Tax Collection”,23 provides further thought for Malaysia government to reform its tax recovery and collection procedures:
(a) The value of procedural due process goes beyond protecting an individual’s interests, as important as that is. Procedural due process raises the question of what it means to be constituted as a government. It provides the individual with the ability to interact with the government, to be treated as a person and with dignity. It requires that there be a conversation about what is being done to that person and why it is being done. Even when the outcome of the dialogue is clear – indeed, especially when the outcome will be unchanged – the right to be heard, that is, to explain to the sovereign how its action will affect you, and the right to have that government action explained to you, make individuals feel that their government is acknowledging their individual circumstances and importance even as it acts for the benefit of the whole. Procedural due process, then, is an aspect of procedural justice, which many commentators believe is a necessary component for individuals to come together and voluntarily consent to be governed.
(b) Other than when government takes a person ’s life or deprives a person of liberty, I can think of a no more significant interest than a person’s means to have life, liberty, and property. In our modern society, money is that means. On a weekly if not daily basis, the Service is the sovereign ’ s agent for taking from the populace its means to secure significant individual interests .
3. Keep that consent in mind as we turn Bull v United States on its head for a bit : If taxes are the life-blood of government, then it is the taxpayers who provide that life-blood. So, if the government wants a long life, it is in its self-interest that taxpayers remain financially viable and in long-term tax compliance. For many taxpayers, their financial viability and long-term tax compliance are most affected by Service collection activities, because it is at that point that tax assessments have an actual financial impact. While the courts may say that this impact doesn ’ t rise to a constitutionally significant taking, money is the life-blood of taxpayers to the same extent that money is the life-blood of government. For that reason, even though the government doesn ’ t have to do it, it is good government policy to provide extra measures of protection against abuse in the collection arena .

The author suggests that the government considers the following tax reforms:
(a) Legislation to include a pre-trial collection hearing. The pre-trial collection hearing can either be held formally in court, or informally with a panel of Revenue independent from assessment officers, to determine arguments from the taxpayers and the Revenue regarding the genuineness and merits of the tax appeal. If the tax appeal has merits, the Revenue should consider staying the execution of the notice of assessments until the outcome from the Special Commissioners.
(b) Legislation to impose certain monetary threshold for different entities such as private and public limited companies, limited liability partnerships, associations, individuals, etc. before a pre-trial collection hearing is allowed to be held.
(c) Legislation to allow the Revenue to exercise its discretion to consider the current level of income and economic hardships that might be imposed on the taxpayers, if the Revenue were to collect taxes first from the taxpayers before allowing the taxpayer ’s appeal later. If necessary, taxpayers should be allowed to pay their tax assessments by instalment without further tax penalty being imposed.


The author concludes this article with Nina E Olson’s quotation below: In large and powerful sovereign agencies like the Service, accuracy and consistency very quickly become equated with efficiency, economy, and expediency. To these three “ Eses” I would like to add two others – effectiveness and efficacy. That is to say, a practical due process analysis not only weighs the government’s need to operate with efficiency but also evaluates what the action is actually accomplishing in light of the stated goals for that action.

*364 Appeal Against Tax Recovery by the Revenue
*. Advocate and Solicitor, High Court of Malaya, specialising in tax and commercial litigation and private wealth advisory. He is also a Chartered Accountant of Singapore and Malaysia, CFA Charterholder, RICS Chartered Surveyor and Fellow of Chartered Tax Institute Malaysia. He holds a PhD in Tax Law from Washington School of Law, MBA (with Merit) degree from Manchester University and LLB (Hons) from London University. This article was also published by the Chartered Tax Institute of Malaysia in Tax Guardian, Vol. 4/No. 2/2011/Q2 Issue.

  1. Binariang Communication Sdn Bhd v I & P Inderawasih Jaya Sdn Bhd [2000] 3 AMR 3198; [2003] 3 MLJ 321, CA.
  2. Chai Cheon Kam v Hua Joo Development Co Sdn Bhd [1989] 2 MLJ 422.
  3. [1973] 2 MLJ 163, FC.
  4. Government of Malaysia v DC [1973] 1 MLJ 161, HC; Sun Man Tobacco Co Ltd v Government of Malaysia [1973] 2 MLJ 163, FC; Arumugam Pillai v Government of Malaysia [1975] 2 MLJ 29, FC; Government of the Federation of Malaysia v Lee Tain Tshung [1979-1996] AMTC 1512; [1992] 1 MLJ 629, HC.
  5. [1975] 2 MLJ 29, FC.
  6. [1995] 2 AMR 1465; [1995] 2 MLJ 119, FC.
  7. [1979-1996] AMTC 1819; [1996] 5 MLJ 626, HC.
  8. [2009] 7 AMR 1; (2008) MSTC 4,371, HC.
  9. [2001] 1 AMR 1117, HC.
  10. [1989] 1 MLJ 473, SC.
  11. [1995] 2 AMR 1477, SC.
  12. [1999] 3 AMR 3529; [1999] 3 MLJ 1, FC.
  13. WSW Davidson, “Recovery of Taxes, The Authorities Enforcement Strategy” (2006).
  14. Ketua Pengarah Hasil Dalam Negeri v Bandar Nusajaya Development Sdn Bhd [2018] AMTC 19; (2016) MSTC 30-117, CA and Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent (M) Sdn Bhd & Anor [2017] 1 AMR 231; [2017] AMTC 1, FC.
  15. [1973] 1 MLJ 165, HC.
  16. [1975] 2 MLJ 29, FC.
  17. [1981] 1 MLJ 64, CA (Sing).
  18. Kevin YL Tan and Taho Li-ann, Constitutional Law in Malaysia and Singapore, 3rd edn, p 747.
  19. [2003] 4 AMR 441; [2003] 2 MLJ 29, CA.
  20. [1977] 2 MLJ 108.
  21. [2010] 2 AMR 231; [2009] MLJU 0620, FC.
  22. [2009] 2 AMR 1; [2008] 2 MLJ 285, FC.
  23. Tax Lawyer, Vol 63, No. 3 (2010), pp 227-238.
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