This is not the first time the utility group has faced additional tax assessments. In 2020, TNB challenged IRB’s additional assessments in court, where both the High Court and later the Court of Appeal ruled in TNB’s favor.
A recap of this case:
1. Initial Dispute: TNB claimed Reinvestment Allowance (RA) for the year of assessment (YA) 2018. After submitting the required documents, the IRB disallowed the RA claim in July 2020, leading to a notice of additional assessment against TNB for RM1.8 billion.
2. IRB's Argument: The IRB argued that TNB did not qualify for RA tax relief, stating that TNB’s generation, distribution, and transmission of electricity did not constitute “manufacturing of electricity” but was instead a service provision.
3. High Court Ruling: In 2022, the High Court ruled in favor of TNB, recognizing its operations as manufacturing—a key factor in determining eligibility for the allowance.
4. IRB's Appeal: The IRB appealed the High Court’s decision.
5. Court of Appeal's Decision: The Court of Appeal upheld the High Court’s ruling and dismissed the additional tax assessment against TNB.
6. Precedents cases referred: Both the lawyers and courts referenced precedents from the United Kingdom, Canada, and India, which held that generating, transforming, and distributing electricity are integral parts of the manufacturing process.
Recommendations:
This case highlights the complexity of tax law interpretation, particularly concerning what qualifies as "manufacturing" for tax purposes. While this ruling may influence future disputes, it may not apply to cases involving the generation, transmission, or distribution of other energy types, or RA claims made from YA 2009 onwards due to changes in the tax law.
Our clients are advised to review IRB’s pronouncements to ensure eligibility, including:
1. Public Ruling No 10/2022 — Reinvestment Allowance Part I: Manufacturing Activity
2. Public Ruling No 11/2022 — Reinvestment Allowance Part II: Agricultural and Integrated Activities
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