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High Court allows Sarawak Energy's unit to challenge MOF's rejection of its RM10.9 bil tax incentive

4 August2022

KUALA LUMPUR (Aug 4): The High Court here on Thursday allowed a subsidiary of Sarawak Energy Bhd (SEB) to have RM10.9 billion be considered as investment tax allowance in 2019, after the Finance Ministry had earlier rejected the claim.

This follows the court granting the judicial review application made by SEB's subsidiary Baleh Hydro Power Generation Sdn Bhd to challenge the Minister's decision.

SEB's subsidiary, Baleh Hydro Power Generation Sdn Bhd, which was appointed to construct a hydroelectric power plant in Kapit, Sarawak, had applied to the Ministry to claim the investment tax allowance, a type of tax incentive granted based on the capital expenditure a company incurs on approved projects.

According to Baleh Hydro's application, the Finance Minister at that time, Lim Guan Eng, rejected the company's application without providing any reason, although Baleh Hydro claimed it had met all the required conditions for the tax incentive.

Lim, in his affirmed affidavit in response to the Baleh Hydro's claim, which named the Finance Ministry as the respondent, said the hydroelectric project was not a project of national importance as justification for his rejection of the company's claim.

Senior Federal counsel Shamsul Bolhassan told the court that under the Income Tax Act 1967, the Minister was not required to provide reasons for rejecting the tax incentive application.

Judge Datuk Wan Ahmad Farid Wan Salleh, in allowing the judicial review application, accepted the submission made by Baleh Hydro's counsel, S Saravana Kumar, that the Minister's decision should be deemed erroneous since the company had met all the conditions it needed for the tax incentive.

The judge also accepted the claimant's argument that the Finance Minister does not enjoy unfettered discretion in deciding whether to approve a company's tax incentive application.

He further agreed with Baleh Hydro's arguments that Lim had failed to provide reasons for his decision, which gave rise to the inference that the Minister had no good reason for rejecting its claim.

Baleh Hydro's senior manager of contract and procurement, George Albert William Chapman, affirmed in an affidavit that the company was applying for a certiorari order to quash the Finance Minister's decision dated Oct 2, 2019, to arbitrarily reject the pre-package tax incentive scheme under Income Tax (Exemption) (No 12) Order 2006.

“The company owns, operates and maintains the 1,285 mw hydroelectric power plant located at Kapit (Project Baleh). The estimated total project cost of Project Baleh is RM10.9 billion, with the project timeline from 2017/2018 to 2026/27.

“The project is part of the Rural Electrification scheme initiative in Sarawak,” he added in his affidavit.

Saravana Kumar, who is from the law firm Rosli Dahlan Saravana Partnership, confirmed the court's decision when contacted by The Edge.

He said with the court's ruling, his client will be entitled to claim the investment allowance, which will be 100% of the qualifying capital expenditure incurred between 2018 and 2027.

“This is the first case of its kind where the Finance Minister’s refusal to grant a tax incentive was successfully challenged by the taxpayer and one that involves a multi-billion ringgit tax incentive claim,” he added.

Last February, Saravana Kumar successfully represented Tenaga Nasional Bhd in halting the Inland Revenue Board from getting RM1.8 billion in additional tax assessments from the national utility company, when High Court Judge Datuk Noorin Badaruddin allowed TNB to challenge the tax imposed, and to have the sum be considered as reinvestment allowance (RA) instead.

The judge ruled that TNB was entitled to the RA as it manufactures electricity and that the generation of electricity is a type of manufacturing activity.

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