A Tax Surprise for a Property Developer
A property development company in Johor had just finished a major project, building condominiums from 2013 to 2018. Their profits were tax-exempt under a special order in Malaysia’s Income Tax Act. Everything seemed to be going according to plan.
The Problem Arises
Not all buyers were able to pay in full. Some sales had to be cancelled, and the company received:
- Forfeited deposits (non-refundable down payments)
- Cancellation fees
- Late payment charges
In November 2020, the tax department delivered an unexpected letter:
“These forfeited deposits, cancellation fees, and late payment charges do not qualify for the tax exemption. They are additional income and must be taxed.”
The Dispute
The company disagreed, arguing that these payments were part of their regular property sales and should be included in their tax-exempt income.
But in April 2021, the tax department issued an official notice demanding extra taxes for 2015 to 2019.
The Legal Battle
Frustrated by the decision, the company sought a judicial review in the High Court, hoping to overturn the extra tax assessment.
The tax department countered:
“This case should be heard by the Special Commissioners of Income Tax (SCIT), where witnesses and evidence can be fully examined—not the High Court.”
The Court’s Decision
The High Court agreed with the tax department:
“This matter must be handled by the SCIT, where detailed evidence can be considered.”
The company’s request to cancel the tax assessment was dismissed. They were ordered to pay RM5,000 in costs.
Next Steps for the Company
- The company could apply for a temporary pause on the tax payment within one month.
- They also had 30 days to appeal to a higher court.
Lessons Learned
This case highlights key takeaways for businesses:
- Know the Right Forum: Tax disputes often need to be resolved by specialized courts like the SCIT.
- Tax Exemptions Have Limits: Even with exemptions, businesses must justify all types of income.
- Be Prepared for Scrutiny: Every financial detail can be examined closely by tax authorities.
In the world of taxation, understanding the rules and the proper channels for dispute resolution is crucial for success.
