Recently, the Kuala Lumpur High Court allowed a taxpayer’s appeal in challenging the decision of the collector of stamp duties to refuse to grant a stamp duty remission under the Stamp Duty (Remission)(No.2) Order 2012 to the taxpayer, who was successfully represented by the authors.
Background to the case
A letter of offer was executed between Alliance Bank Malaysia Berhad (Alliance Bank) and the taxpayer on December 27 2018. Pursuant to the letter of offer, Alliance Bank agreed to provide a credit facility amounting to RM 105,000,000 ($24.5 million) to the taxpayer. This letter was sent for stamp duty adjudication, where the taxpayer sought the remission of stamp duty granted under the Order.
The Order provides that “The amount of stamp duty that is chargeable under subsubitem 22(1)(b) of the First Schedule to the Act upon a loan agreement or loan instrument without security for any sum or sums of money repayable on demand or in single bullet repayment under that subsubitem which is in excess of zero point one per cent (0.1%) is remitted.”
However, on January 31 2019, the collector informed the taxpayer that the instrument in the form of the letter of offer does not qualify for the stamp duty remission under the Order.
Subsequently, the collector took the position that the letter of offer is subjected to stamp duty at the ad valorem rate as prescribed under sub-item 27(a)(iii) of the First Schedule to the Stamp Act 1949 (the Act). On February 13 2019, the collector raised a stamp duty assessment.
On February 14 2019, the taxpayer paid the stamp duty under protest and filed an application to object against the assessment pursuant to Section 38A(1) of the Act. On 8.3.2021, the taxpayer’s application was rejected by the collector, with no reasons provided. Being aggrieved by the assessment, the taxpayer subsequently filed an appeal to the High Court pursuant to Section 39(1) of the Act.
The legal arguments
The taxpayer submitted that the assessment issued by the collector should be set aside and the letter of offer should qualify for the remission under the Order. The reasons given are below:
- In order to fall under sub-item 22(1)(b) of the First Schedule to the Act, the instrument must be for the term of life or any other indefinite period. In the present matter, the letter of offer clearly falls under sub-item 22(1)(b) of the First Schedule of the Act, in that the letter of offer is for an indefinite period.
- This is evident from the fact that the availability of the facility is subject to Alliance Bank’s right to recall or cancel the facility, or any part thereof, at any time it deems fit, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand.
- The letter of offer falls under the scope of sub-item 22(1)(b) of the First Schedule of the Act. It then follows that the letter of offer falls squarely within the Order and should be stamped at the rate of 0.1%. As such, the excess stamp duty paid should be remitted to the taxpayer, pursuant to paragraph 2 of the Order.
- The collector has failed to consider the clear wordings of the Order which clearly stipulate that any loan under the scope of sub-item 22(1)(b) of the First Schedule to the Act which has no security whatsoever and is either repayable on demand or repayable in a single bullet repayment is eligible for the remission of stamp duty under the Order.
The taxpayer added that there is no specific requirement under the Order for the sums of money to be paid under the letter of offer to be by way of demand or a single bullet repayment in the ordinary course of things.
The significance of the Court’s decision
The High Court’s decision is much welcomed, as it serves as a reminder that an aggrieved taxpayer is not left without any recourse. When a stamp duty assessment is raised by the collector, the said assessment can be challenged, especially when an error of law has been committed by the collector.
While the collector has the power to collect stamp duty from the taxpayer, the collector shall not arbitrarily raise a notice of assessment for stamp duty.
This is in line with the taxpayer’s right not to pay unauthorised taxes, pursuant to Article 96 of the Federal Constitution which provides that “No tax or rate shall be levied by or for the purposes of the Federation except by or under the authority of federal law.”
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