Wednesday, 25 April 2018

The ECRL GST controversy: Have the floodgates been opened?

Dave Ananth is a senior lawyer, a former Magistrate and advocate in Malaysia before taking up a position with the Inland Revenue Department in New Zealand as a Prosecutor. He now practises as a Tax Barrister, based in Auckland. He is an expert on Malaysian GST and a familiar speaker on the local Malaysian circuit. He also writes extensively on GST in Malaysia and other taxation issues in New Zealand.  He is a consultant for Wolters Kluwer on Malaysian GST. He can be reached at

The revelation that the Government has granted GST relief to China Communications Construction (ECRL) Company Sdn Bhd (CCCC) on the East Coast Rail Link (ECRL) project has led to heated discussions throughout Malaysia. Some arguments are utterly flawed as it does not take into account the legislation surrounding reliefs. This project is worth RM55 billion hence the GST impact is substantial, regardless of how one looks at it.

The Government has found itself defending its position.

The Royal Malaysian Customs Department (RMCD) Director-General Subromaniam Tholasy said that the GST relief was granted by the Ministry of Finance based on a recommendation by the department.[1]
“We made the recommendation after considering the pros and cons of the GST on the project, and how it could benefit the people and the country. We don’t simply recommend tax exemption or relief without any basis. Any company and anyone can apply for GST exemption or relief, as long as they are in the transport, telecommunication and utility sectors. The question is whether that project can benefit the government or the people. If it’s not, then it would be difficult.”
Treasury Secretary-General Mohd Irwan Serigar Abdullah supported this.[2]
“The ECRL project was given a waiver of goods and services tax to ensure that the construction cost remained at the original estimate of RM55 billion, Otherwise, the project would cost about 6% more if GST was imposed. The ECRL is a government project. If we were to impose GST, then it is as if we are imposing the tax on ourselves.”
At the outset, it must be said that the grant of reliefs from payment of tax or tax exemption is a common practice. In most countries, tax waiver or exemptions are given for various reasons, primarily to attract foreign investments.  Investors appreciate tax breaks because they will be spending millions and above in a country to set up hubs, R&D centres, etc. They apply for incentives and tax reliefs, with the reasoning that their investments allow for the creation of employment, transfer of technology, provision of skills for locals, etc. It is not an easy process – lengthy submissions must be made by their advisors to demonstrate their eligibility for the relief. Also, it is common for Governments to be stringent in granting tax reliefs as it affects the country’s revenue.

Granting of GST relief


Section 56 of the GST Act 2014 (the Act) gives the Minister power to grant GST relief under the Act. There are various ways that the Minister can grant GST relief under s 56:

Section 56(1) 
“The Minister may, by order in the Gazette and subject to such conditions as he deems fit to impose, relieve any person or class of persons from the payment of the whole or any part of the tax which may be charged and levied on any taxable supply of goods or services or any importation of goods or class of goods.”

Section 56(3)(a)
“The Minister may, in any particular case and subject to such conditions as he deems fit to impose, relieve any person or class of persons from the payment of the whole or any part of the tax which may be charged and levied on any taxable supply of goods or services or any importation of goods or class of goods.”

Section 56(3)(b)
The Minister may, in any particular case and subject to such conditions as he deems fit to impose, relieve any taxable person or class of taxable persons from charging and collecting tax on any taxable supply of goods or services.”

Section 56(4)
“Where a taxable person supplies goods or services to a person or a class of persons referred to in subsection (1) or paragraph (3)(a), the taxable person shall be relieved from charging and collecting tax due and payable on the supply.”

If one examines the wordings of s 56, the intention of Parliament is clear – to give specific relief to person or class of persons, from the payment of the whole or in part of tax. Although the Act does not define what a “person” is for GST purposes, it is safe to infer that it includes companies.[3]

Applying legislation in the real world

Based on the abovementioned legislation, it is at the Minister’s discretion to relieve all the tax or any part of the GST payment in a given set of facts. Generally, what happens is – submissions are made by the taxpayer’s advisors to RMCD for the application for relief. The application will detail the advantages and benefits to the country. Public interest and revenue loss are material considerations. This usually culminates in a meeting(s) between RMCD and the advisors before RMCD makes a recommendation to the Minister through the Ministry of Finance. It is not automatic that a relief will be granted. Rather, it is granted sparingly, after much consideration by the Government.

A key difference between a relief granted under s 56(1) or s 56(3)/s 56(4) is that for a GST relief to be granted under s 56(1), it must be laid down before the Dewan Rakyat. This is provided under s 56(2) which states Any order made under subsection (1) shall be laid before the Dewan Rakyat.” A relief that is granted under s 56(1) will be considered as subsidiary legislation, and generally takes a longer time for it to be approved.


In this case, where CCCC is concerned (based on pictures of documents uploaded by the vice-president of Parti Amanah Negara), the Minister granted the relief under s 56(3)(a). This highlights two matters:

  • This relief was granted at the discretion of the Minister of Finance. It was not discussed at Parliament level.
  • CCCC is relieved from paying GST on the acquisition of goods or services or any importation of goods or class of goods in relation to the ECRL project.

Foreign jurisdiction

There is no equivalent provision in Australia and New Zealand to relieve any person or class of persons from payment of GST. Singapore has a comparable provision in s 89(2) of the Singaporean GST Act as follows:
“The Minister may, if he thinks fit, and upon such conditions as he may impose, give to any person or class of persons—(a) relief from, or a remission or refund of, the whole or part of any tax chargeable on the importation of goods or supply of goods or services by that person or class of persons;
(b) a refund of the whole or part of any tax on the supply of goods or services to that person or class of persons—
(i) which, if he or they were taxable persons, would be his or their input tax; or
(ii) for which, as a taxable person or as taxable persons, he or they would not be entitled to any credit as input tax under this Act; or
(c) relief or remission from the whole or part of any penalty payable by that person or class of persons.”

Is Malaysia on the right track?

The power given to the Minister under the Act must be exercised responsibly. In this case, a level playing field should be given to applicants under similar circumstances in the future. The Minister has, in law, exercised his power under the correct legislation. Whether the discretion has been exercised rightly with all the factors considered, is another matter altogether. That is the crucial question that needs to be answered. Presumably the Ministry of Finance has a set of internal guidelines with recommendations from RMCD when deciding whether grant the GST relief.

To argue that GST will increase the cost of the project does not hold water unless the project cost was quoted exclusive of GST. In any project, a quotation would usually consider levies, duties and tax imposed. To quote a project of this size exclusive of GST does not make sense, unless the contracting party has been told in advance to do it and a relief will be considered.

To argue that relief minimise paper work is perhaps the shallowest of all reasons; I would not even want to go there. It is not a consideration for the granting of relief.

It is worth noting that the Export-Import Bank of China has granted soft loans to finance the ECRL project. It is also worth noting that in roundtable meeting in July 2017, the chairman of CIMB Group Nazir Razak raised questions on whether Malaysia will be able to generate sufficient tax revenue to repay such loans.[4]

Whatever the reasons given by the Government, the relief, is a discretion exercised by the Minister based on recommendation by RMCD. A precedent has been created and I would expect more application for reliefs to be made in the near future quoting CCCC case. Has the Government open the floodgates? We will just have to wait and see.

[1] Shahar, F. M., 2018. (Update) Tax exemption also given to mega projects during Dr M's time, says Customs DG [NSTTV]. [Online] Available at: [Accessed 20 April 2018].

[2] Free Malaysia Today, 2018. Irwan: GST waiver is to keep ECRL cost down. [Online]  Available at: [Accessed 20 April 2018].

[3] We look at the following Acts for the definition of “person”:
      - Interpretation Acts 1948 and 1967 - “person” includes a body of persons, corporate or unincorporate.
      - Income Tax Act 1967 - "person" includes a company, a body of persons, a limited liability partnership and a corporation sole.

[4] Azman, S., 2017. Nazir urges govt to scrutinise benefits of Chinese-led deals. [Online] Available at: [Accessed 23 April 2018].

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