The Taxpayer’s Investment
In April 2014, two taxpayers made what seemed like a strategic investment. For RM100, they acquired 100 shares in Impian Dupleks, a company soon to acquire a one-and-a-half-story factory, transforming it into a Real Property Company (RPC). The taxpayers’ stake grew as they purchased an additional 99,900 shares for RM99,900.
Four years later, in March 2018, they sold their entire 100,000 shares to Merit Energy Sdn Bhd for RM4.2 million. The profit seemed straightforward—until the tax authorities intervened.
The Taxman’s Notice
Based on the Real Property Gains Tax Act 1976 (RPGTA), the Director General of Inland Revenue (DGIR) issued Notices of Additional Assessments to both taxpayers under Paragraph 34A(4), Schedule 2, RPGTA. The additional tax amounted to RM368,631 each.
The taxpayers, however, pushed back. They argued that the DGIR had miscalculated the acquisition price. “The correct acquisition price is RM4,056,888,” they claimed, linking it to the factory’s acquisition price in 2014. They contended that Paragraph 9, Schedule 2 of the RPGTA should apply, as the transaction was conducted at arm’s length under Paragraph 23.
The Clash of Interpretations
The DGIR was resolute. “The wording of Paragraph 34A(4) is explicit,” the DGIR’s representative stated. “The disposal price is the amount or value of the consideration in money or money’s worth for the chargeable asset. Paragraph 9 is irrelevant here because the acquisition and disposal prices were clearly documented.”
The taxpayers maintained that the DGIR’s calculation was flawed and that Paragraph 34A(4) shouldn’t override the broader context of the RPGTA.
The Judgment
On 22 April 2024, the High Court upheld the SCIT’s decision, confirming that the DGIR had applied the law correctly. “The disposal price under Paragraph 34A(4) is based on the documented consideration,” the judge ruled. The taxpayers’ appeal was dismissed, with costs of RM2,500 each.
The Lesson Learned
This case underscores the critical importance of understanding tax provisions related to property and share disposals. In transactions involving Real Property Companies, the calculation of acquisition and disposal prices hinges on specific provisions, such as Paragraph 34A(4), which prioritize documented values over other interpretations.
For taxpayers, the takeaway is clear: robust documentation and a deep understanding of the applicable tax rules are crucial in structuring and reporting transactions. Misinterpretations or reliance on provisions that don’t apply can lead to costly disputes and penalties.
In the complex landscape of real property gains tax, precision and adherence to statutory provisions are not just advantageous—they’re essential.
