High Court Ruling: Etiqa Family Takaful Berhad & Etiqa General Insurance Berhad v. DGIR

Overview of the Case In a recent ruling, the High Court (HC) made a significant decision in the case of “Etiqa Family Takaful Berhad & Etiqa General Insurance Berhad v. Director General of Inland Revenue (DGIR).” This case primarily revolves around the deductibility of interest and profit payments under Malaysian tax law, specifically under Section…

High Court Ruling: Etiqa Family Takaful Berhad & Etiqa General Insurance Berhad v. DGIR

Overview of the Case

In a recent ruling, the High Court (HC) made a significant decision in the case of “Etiqa Family Takaful Berhad & Etiqa General Insurance Berhad v. Director General of Inland Revenue (DGIR).” This case primarily revolves around the deductibility of interest and profit payments under Malaysian tax law, specifically under Section 33 of the Income Tax Act 1967 (ITA). The detailed report is available on the Inland Revenue Board of Malaysia (HASiL) website.

Case Facts

Taxpayers Involved

  1. Etiqa Family Takaful Berhad: Specializes in general takaful, family takaful, and takaful investment-linked businesses.
  2. Etiqa General Insurance Berhad: Focuses on general insurance, life insurance, and investment-linked businesses.

Dispute Summary

The taxpayers argued that the interest and profit payments on Tier 2 subordinated bonds and sukuk were incurred to meet Bank Negara Malaysia’s requirements. They believed these payments should be deductible under Section 33 of the ITA. However, these expenses were not claimed in their tax returns for the years of assessment (YAs) 2014 to 2018. Instead, the taxpayers filed appeals to the Special Commissioners of Income Tax (SCIT).

SCIT’s Decision

The SCIT dismissed the taxpayers’ appeal, stating that the deductions for interest and profit payments were not allowable under Section 33(1) of the ITA. This decision was based on the specific provisions governing takaful and insurance businesses, namely Sections 60AA(9)(b)(iii) and 60(3A)(b)(ii) of the ITA. These sections do not list such payments as deductible expenses.

Taxpayers’ Argument

The taxpayers contended:

  • The profit and interest payments were deductible under the general provision of Section 33(1) of the ITA.
  • Sections 60(3A) and 60AA(9) do not preclude the application of Section 33(1), which should apply to all businesses.
  • These payments met the criteria under Section 33(1)(a) and were not prohibited by Section 39.
  • The expenses were necessary to comply with Bank Negara Malaysia’s requirements.

DGIR’s Argument

The Director General of Inland Revenue (DGIR) argued:

  • The payments were not deductible under Sections 33(1), 60AA(9)(b)(iii), and 60(3A)(b)(ii) of the ITA.
  • Section 60AA, introduced via the Finance Act 2007 for YA 2008 and subsequent years, addresses the taxation of takaful businesses specifically.
  • Section 60, existing since the ITA’s inception, governs the taxation of insurance businesses.
  • The principle of generalia specialibus non derogant (specific provisions override general ones) should be applied, making Section 33 inapplicable due to the specific provisions of Sections 60AA(9)(b)(iii) and 60(3A)(b)(ii).

Legal Issue

The core issue was whether the profit and interest payments on Tier 2 subordinated bonds and sukuk were deductible under Section 33(1) of the ITA.

High Court Decision

On February 8, 2024, the High Court ruled against the taxpayers, upholding the SCIT’s decision. The HC found no merits in the taxpayers’ appeals and dismissed them, awarding costs of RM3,000 for each case.

Conclusion

The High Court’s decision emphasizes that specific statutory provisions for the taxation of particular business activities override general tax provisions. This ruling highlights the importance of adhering to the specific tax codes applicable to the insurance and takaful sectors, demonstrating that regulatory compliance does not automatically equate to tax deductibility under general ITA provisions.

For more detailed information, you can access the full case report on the HASiL website.