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Transcript of Legal cauldron 2 of 2014
PETALING JAYA
Unit 612, 6th Floor, Menara Mutiara
Majestic, No. 15, Jln Othman, 46000 PJ, Selangor.
T: 03-7784 7255 F: 03-7781 7255
Issue no. 2
of 2014
LE
GA
L C
AU
LD
RO
N Iss
ue N
o 2
of 2014
LEGAL CAULDRON Jayadeep Hari & Jamil
Advocates and Solicitors
The Whistle Blower An overview of the Whistleblower
Protection Act 2010
EDITOR:
Adeline Chin
DESIGN & LAYOUT:
Andrew Chee & Adeline Chin
CONTRIBUTORS:
Shobana Padmanathan
Ng Chin Han
Barvina Punnusamy
Vijayandran Balsingam
Andrew Chee
Abuse of IT in Office How using the company’s IT facili-
ties can get you fired
Is There No Way Out? Bankruptcy and it’s ramifications
The Malaysian GST You can’t afford to be complacent
In this Issue:
KUALA LUMPUR
Suite 2.03 (2nd Floor) Block A, No 45, Medan Setia Satu,
Plaza Damansara, Bukit Damansara, 50490 Kuala Lumpur.
T: 03-2096 1478 F: 03-2096 1480
An Affair with RPGT Tax classification, a dangerous game
KOTA BHARU 1
2713, 1st Floor, Section 22, Batu 2
Jln Kuala Krai, 15050 Kota Bharu, Kelantan.
T: 09-7412050 F: 09-7412051
KOTA BHARU 2
Tkt 2, Lot 11, Bgn Tabung Haji,
Kompleks Niaga, Jln Dato’ Pati, 15050 Kota Bharu, Kelantan,
T: 09-7479749 F: 09-7474733
MELAKA
No.54-1, Jalan TU 2, Taman Tasik Utama,
75450 Ayer Keroh, Melaka.
T: 06-2347330 F: 06-2344800
IPOH
No. 76 (1st Floor), Jalan Raja Ekram,
35450 Ipoh, Perak.
T: 05-2411837 F: 05-2412057
Since the publication of our last Legal Cauldron
(Issue 1 of 2014) in January, a storm of calamities has swept
across the globe much to the devastation of many. We had
losses to mourn for, and yet the incredible manifestation of
faith, courage and unity to be grateful for.
This year, we took our motto of “We Care” a
notch further by entering into collaboration with a Hong
Kong based organisation known as Running To Stop Traffic
(RTST) in the fight against human trafficking through hosting
an internship programme in preparation for the upcoming
24-Hour Race which is to be held in Kuala Lumpur for the
very first time come November 2014. Lacing the topic of
anti-human trafficking was a gracious invitation extended to
us to attend the insightful Asia Pacific NGO Conference on
Human Trafficking: Focus on Girls, Young Women & Chil-
dren which was jointly organised by the Malaysian Council
for Child Welfare (MKKM) and the Asian Pacific & South-
east Asia Women’s Association (PPSEAWA) with support
from the Ministry of Home Affairs and the Ministry of
Women, Family & Community. No words could describe
the knowledge we gained from the 3-day conference on the
subject matter, and for that, we extend our heartfelt grati-
tude to the organisers for having us participate in this jour-
ney to enlightenment.
On a separate note, JHJ is also proud to announce
that we have officially launched a new branch office in Ipoh
to serve you better. After all the hard work coupled with
incredible design efforts from the brilliant Sacha & Tan Ar-
chitects, we successfully accomplished our vision of setting
up an environmentally friendly office with zero carbon foot-
print, utilizing only recycled materials in the construction of
the office. Albeit the unconventional office layout, our belief
in providing excellent service to our clients remains reso-
lute.
In this Issue of the Legal Cauldron, the selection of
featured articles are aimed to offer our readers some useful
information on various matters involving fiscal management
which includes an overview of the upcoming Goods & Ser-
vices Tax as well as a general write up on tax classification,
specifically between the Real Property Gains Tax (RPGT)
and the Income Tax in relation to the disposal of immovable
property in line with the escalating trend in our country’s
property investment industry. Picking up from other topics
making the headlines in recent times, our associates have
prepared a brief overview of the Whistleblower Protection
Act 2010 and elaborated on the subject matters of bank-
ruptcy and information technology usage in the work place.
The mission of setting up a 100% eco-friendly
branch office and learning about the brutal odyssey of vic-
tims living in the world of human trafficking has taught us
that despite failures and downfalls, we still have so much to
be grateful for.
We at JHJ thank you for your continuous support
and we hope you enjoy reading this issue of the Legal Caul-
dron.
Legal Cauldron 2 of 2014 | 2
Sincerely,
Adeline Chin Knowledge Department
EDITOR’S NOTE
“We are all equal in the fact that we are all different. We are all the same in the fact that we will never be the same. We are united by the reality that all colours and all cul-tures are distinct & individual. We are harmonious in the reality that we are all held to this earth by the same gravity. We don't share blood, but we share the air that keeps us alive.”
- by C. Joybell C.
Legal Cauldron 2 of 2014 | 3
JHJ 360˚ STUDENT ATTACHMENT PROGRAMME 2013/2014
From left: Isabell, Daryl and Joanna
From the pen of Isabell Zubinsha Bt Iskandar Zakaria, LLB (Hons) University of Reading
“As a fresh law graduate the working world to me is like a jungle and my academic qualifications merely the small pocket knife I arm
myself with. This experience with the JHJ 360˚ Attachment Program was like being given a survival kit. In this kit I have been supplied
with an ample amount of personal development, binoculars to view the working culture, and a whole host of tools to adapt and blend with
the natives of this foreign world.
The culture at JHJ of having a low power distance between the partners and their employees allowed me to grow my confidence and to
appreciate that authority should be respected and distinguished from fear which is unnecessary with your employers. It is the concept that
everyone’s opinion is valued. Each person’s work is important to them as mine is to me, and with mutual respect and advanced planning
we can work in synchronicity to allow the firm to function better as a whole.
No longer only armed with the small pocket knife that is my academic qualifications I am truly grateful to have been part of the living and
breathing mechanics of this firm. I now step into the working world with a survival kit and can appreciate better the journey that lies
ahead in my legal career.”
From the pen of Daryl Khor Tet Woei, LLB (Hons) University of London (External)
“I got to know of the JHJ 360˚ Student Attachment Programme through one of my lecturers who also happens to be an associate in JHJ.
He introduced this programme to us during my final year in LLB, and it ignited my interest to join this programme as I understand the
importance for a law student, especially while sitting for the CLP course, to gain practical experience in the legal field.
Upon joining the firm for the programme, I was exposed to various types of training in JHJ. All three of us were provided with a list of
tasks which are divided into the four main departments in JHJ, namely the Corporate, Conveyancing, Conflict Resolution and Knowledge
department. It was truly an eye opener to be exposed to all these different aspects of the legal practice. The unique style of work and types
of matters handled by the different departments have assisted me in the decision-making process on which route to take in the future.
Having joined this programme with zero experience, it is an honour to have the lawyers, pupils in chamber and staff of JHJ providing me
with constructive advice and guidance throughout the duration of my participation. I truly believe that this programme is a good kickstart
to my future legal practice as it helped to sharpen my skills and to gain valuable industry experience. Thank you JHJ for providing me this
opportunity.”
From the pen of Joanna Ka-Yi Bux, LLB (Hons) University of Reading
“By shadowing the lawyers on their daily official duties, I was able to gain insight in a day of a life as a lawyer. The experience to observe
how the lawyers advocated in court and how client meetings were handled was invaluable. It had also given me a sense of fulfilment, ap-
preciation and recognition for the importance of the role of a lawyer.
Another plus factor of the programme was the company (people in the firm). After having interned at different law firms previously, I can
say that the atmosphere at JHJ certainly was a breath of fresh air considering after hearing stories of how stressful the working culture at
a law firm can get. The friendly and camaraderie atmosphere made it easier to approach the lawyers for guidance on certain tasks. De-
spite their busy schedules, the lawyers, chambering students and the staff have never turned me down and were always willing to help.
Their generosity of time and effort taken to explain the tasks, even up to the smallest of details really encouraged and inspired me to be
like them one day. I, for one can truly say that JHJ cares.
This experience has truly been beneficial and would be of tremendous help to my future career. To the JHJ team, I would like to express
my utmost appreciation and thanks for giving me this wonderful and invaluable experience that I will remember for a lifetime.”
Since the launch of our JHJ 360˚ Student Attachment Programme in year 2011, the
programme has grown to receive a positive response from students sitting for
their Certificate in Legal Practice (CLP).
We had the pleasure of knowing and working alongside three talented law students
throughout the course of the programme from November 2013 to March 2014.
Their amicable character and integrity have garnered appreciation and respect
from the JHJ team, and we believe that they, like their predecessors, will also make
valuable additions to the legal fraternity in the near future.
JHJ extend our warmest congratulations for the successful completion of the JHJ
360˚ Student Attachment Programme to Isabell, Daryl and Joanna.
The Corruption Perceptions Index 2013 which ranks
countries and territories based on how corrupt their
public sector is perceived to be has ranked Malaysia to
be the 53rd most corrupt country among 176 others.
Recently, Malaysia became a member of the United Na-
tions Convention against Corruption where the country
pledged to be committed in implementing legislative and
administrative measures to ensure compliance of its
obligations to the Convention, which is to prevent and
combat corruption. This and the Government Transfor-
mation Plan [GTP]’s National Key Results Area [NKRA]
which aims to eliminate corruption are reasons behind
the enactment of the Whistleblower Protection Act
2010 [“the Act”].
To “blow the whistle” means to inform on a person or
to expose an irregularity or crime.
Howard Dean, former American politician once said
“When law enforcement and whistleblowers threaten
their corrupt allies, they change the rules of the game”.
Whistleblowing, whether under duty or voluntary, con-
tributes in no small measure to good corporate govern-
ance which is said to encourage both transparency and
accountability.
THE ACT
The Act that came into force on 15 December 2010
extends beyond combatting corruption by also promot-
ing and facilitating disclosure of any improper conduct
in both public and private sectors.
Before the implementation of the Act, protection for
whistleblowers was provided in different aspects
through the Companies Act 1965, Capital Services Act
2007, Malaysian Anti-Corruption Commission Act 2009,
Anti-Money Laundering and Anti-Terrorism Financing
Act 2001, Income Tax Act 1967, Excise Act 1976 and
the recent Personal Data Protection Act 2010.
What sets the Act apart from its predecessors men-
tioned above is that this Act introduces employment-
specific criminal liability for retaliatory action taken at
the workplace against an honest whistleblower.
Employees of an organization are often faced with the
dilemma of whether to disclose information they rea-
sonably believe to be an improper conduct of their em-
ployers or colleagues as they risk severe reprisal if their
identity was known to the person complained about.
REQUIREMENTS OF DISCLOSURE
The Act defines a whistleblower as a person who makes
a disclosure of improper conduct to the enforcement
agency based on his reasonable belief that any person
has engaged, is engaging or is preparing to engage in
improper conduct provided that such disclosure is not
prohibited by any written law.
The phrase ‘reasonable belief’ is not defined in the Act
but the Court of Appeal in the UK case of Babula v
Waltham Forest College [2007] IRLR 346 held that
for an employee to be protected against detriment or
dismissal on the grounds of making a protected disclo-
sure under whistleblowing provisions, it will be sufficient
for the employee to reasonably believe that the employ-
er is in breach of a legal obligation, whether or not such
belief turns out to be wrong.
Improper conduct is defined under Section 2 of the Act
to mean any conduct which if proven, constitutes a dis-
ciplinary offence or a criminal offence. A disciplinary
offence is further defined to mean any action or omis-
sion which constitutes a breach of discipline in a public
or private body as provided by law, a code of conduct, a
code of ethics or even a contract of employment.
To be protected under the Act, a whistleblower’s dis-
closure must be made to an enforcement agency.
A whistleblower is under obligation to make the disclo-
sure to an enforcement agency which includes any Min-
istry, department, agency or body set up by the Federal,
State or local Government which has investigation or
enforcement powers. The protection under the Act
does not extend to disclosures made to the employer,
media, internet, non-governmental organisations etc.
The broad definition of the term “enforcement agency”
creates ambiguity as the Act does not list down which
Legal Cauldron 2 of 2014 | 4
Featured Article Legislation Overview
The
Whistle Blower
About The Author:
SHOBANA PADMANATHAN
graduated from the Malacca Multi-
media University with honours &
has experience in handling various
civil matters.
An overview of the Whistleblower Protection Act
2010
Legal Cauldron 2 of 2014 | 5
agencies would fall in this category. However, the Act is
said to be implemented in 7 government agencies i.e.
the Royal Malaysian Police, the Malaysian Anti-
Corruption Commission, the Royal Malaysian Customs
Department, the Immigration Department, the Road
Transport Department, the Companies Commission of
Malaysia and the Securities Commission.
PROTECTION CONFERRED
The Act promises three forms of protection for a whis-
tleblower and any person who is related to or associat-
ed with the whistleblower:
The identity of whistleblower, the person against whom
a disclosure is made and the information disclosed by a
whistleblower.
Immunity from any civil or criminal liability [including
liability from administrative or disciplinary proceedings]
for making disclosure of improper conduct.
Protection against “detrimental action” in reprisal for a
disclosure made by him. This includes any action or
threat to take an action that causes injury, loss or dam-
age, intimidation or harassment, discrimination, demo-
tion, suspension, termination or adverse treatment in
relation to his employment.
An aggrieved whistleblower may make a complaint to
any enforcement agency of any detrimental action com-
mitted against him and upon conviction, the aggressor is
deemed to have committed an offence and will be liable
to a fine not exceeding RM100,000.00 or to imprison-
ment for a term not exceeding 15 years or both.
The burden is on the aggressor to prove that the unfa-
vourable action taken against a whistleblower is not
taken as a consequence of the disclosure made.
The Act now allows a person who commits a detri-
mental action against a whistleblower to be held per-
sonally liable for damages and compensation. Previously,
the aggrieved employee had no option but to leave his
employment to only make a claim for constructive dis-
missal against the employer later.
When a whistleblower is subjected to a detrimental
action or a threat thereof, he may apply to the Court
for an injunction to prevent his employer from continu-
ing, repeating or threatening to continue to repeat the
detrimental action or request the enforcement agency
to apply in writing to his employer for a relocation of
his place of employment.
Even better, the Act empowers enforcement agencies to
reward whistleblowers as an initiative to increase effica-
cy of the Act.
LOSS OF PROTECTION
A whistleblower loses his protection if he has participat-
ed in the improper conduct complained of or where he
willfully makes a material statement which he knew or
believed to be false in his disclosure.
A whistleblower who willfully makes false material state-
ment in his disclosure of improper conduct will be liable
to a fine not exceeding RM20,000.00 or to a term of
imprisonment not exceeding 5 years or both.
INVESTIGATION BY ENFORCEMENT AGENCY
By virtue of the Act, the enforcement agency is under
duty to investigate any disclosure of improper conduct
and any complaint by a whistleblower of detrimental
action taken against him.
After the investigation is conducted, a report of the
finding and recommendations of further steps to be tak-
en must be prepared by the agency where the agency is
obliged to inform the whistleblower of the investigation
results.
CONCLUSION
It is the author’s opinion that an independent panel or
body is to be set up to investigate complaints of improp-
er conducts and acts of reprisal suffered thereof. At
status quo, these complaints will be investigated by gov-
ernment agencies and this might affect public confidence
as to the impartiality and transparency of the investiga-
tion especially if the complaint is made against the same
body that will be conducting the investigation.
It is also the author’s opinion that a whistleblowing poli-
cy should be established in every organisation as a tool
to promote good corporate governance practice.
The one thing that the Enron scandal taught us was that
whistleblowing could have prevented the downfall of an
organization only if the warnings had been heeded in the
first place. The whistleblower in this case tried to warn
her boss and company founder that the company can
“implode in a wave of accounting scandals” and her ef-
forts fell on deaf ears only five months before Enron
collapsed into bankruptcy.
Featured Article Legislation Overview
‘To “blow the whistle” means to
inform on a person or to expose an
irregularity or crime.’
With the advancement of technology today, it is be-
coming increasingly difficult to operate a business with-
out the usage of information technology or better
known as “IT” in short.
IT in this context would refer to anything which relates
to the usage of computer technology for the purposes
of storing, retrieving, transmitting and manipulating data
through a intricate combination of network systems,
computer hardware and software, and last but not
least, the Internet. In fact, it is fast becoming a norm for
almost every company to utilise the IT available to
optimize the company’s productivity. This would in turn
mean that you being the company’s employee are ex-
pected to utilize this technology for the benefit of the
company.
Nonetheless, I’m sure that many of you would agree
with me if I were to say that most of you are guilty for
using the same technology that was provided by your
company for your personal use. Personal use here
would include checking your own personal email,
watching live-streaming videos, commenting or posting
on social network sites, downloading non-work related
files or storing personal files in the your company’s
computer.
However, it is pertinent for one to realise that any
company would want to resolve this problem as the
excessive use of the company’s IT facilities by their em-
ployees not merely result in the possible loss of produc-
tivity and profits to a company but, it could also put the
company at risk of facing potential legal suits for in-
fringement of copyright , defamation, or even for the
company’s failure to provide safe working environment
whereby the abuse of IT (e.g. circulation of pornograph-
ic or other inappropriate materials) leading to instances
of assault or harassment. The possibilities are endless.
The key question here would be:-
i. What are the consequences that may arise from the
abuse of IT provided by your company?
ii. Does the law allow companies to terminate one’s
employment for the abuse of IT usage?
The Industrial Court in the case of Bax Global Import
(Malaysia] Sdn Bhd v Saravanan Rajagopal [2007]
ILR 434 has stated that “The provision of internet facility is
basically for work related matters…” Therefore, any abuse
of such facility may amount to misconduct on part of an
employee.
Furthermore, some companies have now adopted an
internal policy [hereinafter referred to as the “internet
access policy’”] in hopes to resolve the problems or
risks they may encounter due to the abuse of the facility
by their employees. Essentially such internet access poli-
cy provides employees with rules and guidelines about
the appropriate use of the company’s IT technology.
Such rules and guidelines also serve to raise awareness
amongst employees as to the repercussions of the
abuse of the company’s IT facilities.
Several clauses that you may find in the Internet Access
Policy are as follows:-
Company employees are expected to use the inter-
net responsibly and productively.
Internet access is limited to job-related activities
only and personal use is not permitted.
The installation of any software on company com-
puter is strictly prohibited.
Company employees are strictly prohibited from down-
loading, copying or pirating software and electronic files
that are copyrighted or without authorization.
Company employees are strictly prohibited from steal-
ing, using, or disclosing someone else's password with-
out authorization.
Legal Cauldron 2 of 2014 | 6
Featured Article HR & Industrial Relations
Abuse of IT in
Office
How using the company’s IT facilities can get you
fired
About The Author:
NG CHIN HAN graduated from
the University of London
(External) with honours & handles
an array of civil matters including
employment disputes.
‘Excessive use of the company’s
IT facilities … could also put the
company at risk of facing potential
legal suits.’
Legal Cauldron 2 of 2014 | 7
Based on the above, an internet access policy essentially
contains clauses that restrict the usage of the company’s
IT facilities to job related activities only or clauses that
prohibit all personal use or abuse of the IT facilities at
workplace. Such internet access policy normally also
contains clauses stating that any violation of any such
clauses in the internet access policy may result in disci-
plinary and/or legal action which may include termina-
tion of employment.
But can a company enforce such an internet access poli-
cy and dismiss you on grounds of misconduct?
The implication of the internet access policy can be
seen in the case of Kelana Sidek v Petronas Maritime
Services Sdn Bhd [2011] 1 ILR 155 where the indus-
trial Court held that the Company has dismissed an em-
ployee with just cause and excuse when the employee
breached the company’s Internet Policy.
In this case, the employee with an impeccable record
and performance was dismissed by the company when
the Domestic Inquiry found that the employee had been
distributing and storing pornography material using the
company facility. The Industrial Court agreed with the
findings of the Domestic Inquiry and held that the act
of breaching the Internet Policy does amount to a mis-
conduct that could warrant a dismissal.
In simple words, the decision of the Industrial Court
would suggest that any breach of the internet access
policy by an employee may constitute a misconduct that
would justify dismissal.
This would mean that you are running the risk of being
found to have committed misconduct or at least sub-
jected to a disciplinary inquiry when you are using your
company’s IT facilities for your personal.
Thus, while you expect your company to understand
that you have other responsibilities or obligations apart
from your job, it is equally important to bear in mind
that theoretically, an abuse or misuse of the company’s
IT facilities may bring about whereby your misuse of
company’s IT may amount to misconduct that warrants
your dismissal from the company.
Featured Article HR & Industrial Relations
‘Any breach of the internet access
policy by an employee may constitute
a misconduct that would justify
dismissal.’
JHJ IPOH BRANCH OFFICE
Conference Room
Work Area
War Room
Stairway Terrace
Bankruptcy used to be a taboo word. The word was not
used in daily conversations or even spoken in public as it
carried a negative connotation.
However, you would find that recently more and more peo-
ple are talking about bankruptcy. In fact, the Star newspaper
had reported on 9th April 2014 that bankruptcy cases are on
the rise in Malaysia. This was based on an alarming figure
from the Malaysian Department of Insolvency that the total
number of bankrupts as of December last year was 253,635.
The rise of the number of bankrupts in Malaysia raises a
cause of concern as not many people are aware of the im-
pact or consequences of being made a bankrupt.
So what should one know about this once forbidden word?
How does one become bankrupt and what happens after
becoming a bankrupt? Is there no way out of bankruptcy?
Firstly, a person is made a bankrupt in two ways. Either a
creditor i.e. a person to whom money is owed commences
bankruptcy proceedings against you or you may voluntarily
seek for a court order to be made a bankrupt. For a credi-
tor to commence bankruptcy proceedings against you, the
debt must be more than RM30,000.00 meanwhile voluntary
bankruptcy happens when you realize that you are unable to
pay the debts.
There are even some who were not aware that they have
been made a bankrupt until they apply for a loan and find
out from the bank that they were made a bankrupt some
time ago. How does that happen?
Now in making a person bankrupt, the creditor has to serve
the bankruptcy papers on you which mean that if your ad-
dress is not updated then they will not be able to serve the
papers on you. In that instance, the creditor will resort to
substituted service i.e. advertise in the newspaper and you
are deemed to have received notice of the bankruptcy pro-
ceedings against you. So, if you did not update your address
or read the newspapers especially the classified column then
you will not be aware that steps are being taken in court to
make you a bankrupt.
Following an order declaring you as a bankrupt, you will
have to face the consequences of the bankruptcy order. You
must attend to the Malaysian Department of Insolvency’s
branch that administered your bankruptcy case where you
will be required to provide through enquiries details of your
background, family and causes for bankruptcy. You will also
be required to file a Statement of Affairs whereby you will
have to disclose all your assets and liabilities. This is to allow
the Malaysian Department of Insolvency to assess your fi-
nancial position and determine how to administer your as-
sets.
As a bankrupt, your assets vest with the Director General
of Insolvency. It is important to know that as soon as you
are declared as a bankrupt, any of your property will be
automatically vested upon the Director General of Insolven-
cy. This means that you cannot transfer your property to a
third party once you have been adjudged as a bankrupt. If
there a secured creditor i.e. loan bank then the property
would be seized by the bank and upon selling the property if
there is any balance money after paying the debt, it will be
returned to the Director General of Insolvency so that it
can go towards your estate account.
Apart than that, you will also find that your existing bank
account will be deactivated and you will be barred from
withdrawing money from the account. However you can
open a bank account or continuing using your existing ac-
count to credit salary/any profit with the permission of the
Director General of Insolvency. You would have to apply for
permission from the Director General of Insolvency to reac-
tivate the account.
If you loved travelling prior to being made a bankrupt, well
then it is a thing in the past. This is because a bankrupt is
not allowed to travel overseas unless you obtain a written
permission from the Director General of Insolvency or a
court order. You will need to state your intention, reasons
and duration of travelling in applying for permission from the
Director General of Insolvency.
Legal Cauldron 2 of 2014 | 8
Featured Article Bankruptcy & Insolvency
Is There
No Way Out?
About The Author:
BARVINA PUNNUSAMY gradu-
ated from the National University
of Malaysia & has experience in
handling various civil disputes
including bankruptcy matters.
A brief on Bankruptcy
and it’s Ramifications
‘There are even some who were not
aware that they have been made a
bankrupt until they apply for a loan
and find out from the bank…’
Legal Cauldron 2 of 2014 | 9
Although being a bankrupt does not prevent you from being
employed but it is subject to your employer as some corpo-
rate companies do have clauses in the employment contract
preventing an employee from continuing employment if
made a bankrupt.
If you are a director of a company or partner in a firm, then
you will have to obtain permission from the Director Gen-
eral of Insolvency or obtain a court order to continue with
your position. You also cannot work in the business of a
relative without permission from the Director General of
Insolvency. Other disqualifications relates to holding the
office of a member of Parliament/public office, practising in
certain professions, maintaining an action in court for dam-
ages related to injuries without permission, receiving pen-
sions and enforcing rights under the law.
So, is there no way out for you once you are made a bank-
rupt? As the saying goes “there is light at the end of the every
tunnel, some tunnels just happen to be longer than others”.
Here, the light comes in three forms for you to be dis-
charged as a bankrupt: -
i) you can apply to court for the bankruptcy order to be
annulled once you have fully paid the debt or if there
were errors in the bankruptcy papers; or
ii) you can apply to court for a discharge on the basis that
you are good bankrupt but this application is subject to
stringent requirement and report from the Malaysian
Insolvency Department; or
iii) you can apply to the Director General of Insolvency for
a discharge after 5 years had lapsed from the time you
were made a bankrupt but this is subject to the discre-
tion of the Director General of Insolvency.
From the above, it is apparent that bankruptcy proceedings
will put you in a difficult position and although you would be
able to come out of the difficult situation but it will leave a
mark on your life as well as your loved ones. Rather than
having to struggle through bankruptcy, it would be ideal if
money is managed well and prudent decisions are made for
the future. You can even make use of government agency
such as Agensi Kaunseling dan Pengurusan Kredit [AKPK]
which can help to manage debt, give financial education and
provide financial counselling. To quote Ernest Hemingway,
“How did you go bankrupt? Two ways; gradually, then suddenly”,
don’t let that be you.
Featured Article Bankruptcy & Insolvency
‘if you did not read the newspapers
… you will not be aware that steps
are being taken in court to make you
a bankrupt.’
Asia Pacific NGO Conference
on Human Trafficking: Focus on Girls, Young Women & Children
The representatives of JHJ had attended the conference held on
the 19th to 21st March 2014 at Istana Hotel Kuala Lumpur.
The conference drew the attention of many interested NGOs
such as Malaysian Council for Child Welfare (MKKM), Asian
Pacific and Southeast Asia Women’s Association (PPSEAWA)
and Council for Anti-Trafficking in Persons (MAPO) as well as
distinguished speakers who champion the fight against human
trafficking both locally and internationally.
From left:: Tan Sri Zaleha Ismail, Datuk Dr. Wan Junaidi Tuanku Jaafar, Datuk
Rahmah Abdul Hamid & Datuk Alwi Hj, Ibrahim
JHJ representatives with Ms Rahayu Saraswati (middle), founder of Indonesia
for Freedom movement, TV presenter, politician and entrepreneur.
When disposing an immovable property, the average person
walking on the street would generally concern themselves
with Real Property Gains Tax (hereinafter referred to as
“RPGT”) especially with the significant increase of the
RPGT rates pursuant the proposal under the Budget 2014.
However, even if you have duly paid your dues under RPGT
to the last cent, there is a fair chance for officers from the
Inland Revenue Board (hereinafter referred to as “IRB” or
better known as the Lembaga Hasil Dalam Negeri in Malay)
to show up at your doorstep and greet you with: “Good
afternoon, here is a letter from IRB informing you of your
debt owed to IRB under income tax.”
Keeping in mind that there remains a fine line of distinction
between the classification of your income, let us explore
further the realm of Income Tax against RPGT to examine
what may be the factors in determining such classification
when it comes to the disposal of immovable properties.
We shall begin by examining what falls under the realm of
RPGT and it starts with the explanation of what amounts to
“gains”. In the investment industry, “gains” is essentially the
positive difference between the purchase price and the sale
price of a property. According to the Real Property Gains
Tax Act 1976 (the “RPGT Act”), the word “gains” is defined
as “gains other than gains or profit chargeable with or ex-
empted from income tax under the income tax law …”.
Therefore statutorily, it seems clear that gains taxable under
RPGT would not be taxable as Income Tax.
If that is the case and if there is no issue of double taxation,
why would IRB’s officers come after you for Income Tax
when you have paid your RPGT?
Well, this is where it gets tricky. Let us proceed with an
illustration of the case of MR Properties Sdn Bhd v Ketua
Pengarah Hasil Dalam Negeri [2005] 7 MLJ 260. On the
facts of this case, the Appellant (“MR Properties”) has duly
paid the required tax under the RPGT Act at the time they
disposed of the land but was subsequently informed by the
Respondent (“IRB”) that the sale transaction was actually
subjected to Income Tax instead. For the understanding of
our dear readers on why the difference in assessments (to
be either RPGT or Income Tax) would matter, MR Proper-
ties was assessed under RPGT for the sum of
RM1,080,768.48 and after that, under income tax for the
sum of RM4,220,064.26.
Clearly the different assessments made a fiscal impact on MR
Properties. What happened next saw the IRB filling a notice
of appeal against the assessment under Income Tax to the
Special Commissioners, and the Special Commissioners had
decided in favour of the IRB which prompted MR Properties
file for an appeal in the High Court.
To summarize matters, the High Court ultimately agreed
with the finding of facts of the Special Commissioners and
dismissed MR Properties’ appeal with cost. In coming to
their decision, the High Court held that the IRB was not
precluded from raising the assessment under the Income
Tax Act after reviewing the earlier assessment made under
the RPGT Act. The IRB are entitled to vacate the earlier
assessment of RPGT payable by MR Properties in lieu of
Income Tax.
Separately, in the case of Teruntum Theatre Sdn Bhd v
Ketua Pengarah Hasil Dalam Negeri [2006] 4 MLJ 685,
the Court of Appeal held that there was no rule of law pre-
cluding the Respondent (“IRB”) from discharging the assess-
ment under the RPGT Act and proceeding with an assess-
ment under the Income Tax Act instead. The court further
held that if the circumstances warrant it, the Respondent
(“Teruntum Theatre”) is free to revise and discharge the
assessment under the RPGT and to raise an assessment un-
der Income Tax.
Legal Cauldron 2 of 2014 | 10
Featured Article Property & Taxation
An Affair with
RPGT
About The Author:
VIJAYANDRAN BALSINGAM
graduated with honours from the
University of London (External) &
is an associate in the Corporate &
Commercial Department.
When income classification turns into a game of
roulette
‘Statutorily, it seems clear that gains
taxable under RPGT would not be
taxable as Income Tax.’ ‘If there is no issue of double taxation,
why would IRB’s officers come after
you for Income Tax when you have
paid your RPGT?’
Legal Cauldron 2 of 2014 | 11
Parties in the case of Teruntum Theatre have tried to
bring in the Doctrine of Estoppel but the doctrine was held
not to apply in instances which involves the collection of
taxes. The regulation and collection of taxes falls under the
purview of the Director General of Income Tax and taxpay-
ers merely bears the duty to obey the law. A long line of
cases such as Government of Malaysia v Sarawak Prop-
erties Sdn Bhd [1994] 1 MLJ 14 and Kerajaan Malaysia
v Eng Sim Leong @ Ng Leong Sing [2010] MLJU 354 are
amongst the many other cases that dismissed the application
of the Doctrine of Estoppel in taxation cases in this matter.
A possible justification for the courts for such decision
could be seen in the case of Nike Sales (M) Sdn Bhd v
Jabatan Kastam Diraja Malaysia & Ors [2013] 5
MLJ 21 where the Federal Court had, in consideration for
the interpretation of revenue/tax related statute, referred
to the case of National Land Finance Co-operative
Society Ltd v Director-General of Inland Revenue
[1994] 1 MLJ 99 which among many other things states
that revenue from taxation is essential to enable the govern-
ment to administer the country and that the courts should
help in the collection of taxes whilst remaining fair to tax-
payers.
In order to determine the guidelines on the which type of
gains will fall under RPGT and under Income Tax, a refer-
ence to the case of MR Properties mentioned supra
would be helpful. In the case of MR Properties, the court
has agreed with the finding of the Special Commissioners
whereby the relevant determining factors laid down in cas-
es such as Leeming v Jones, E v Comptroller-General of
Inland Revenue and NYF Realty Sdn Bhd v DGIR were put
into consideration, and further addressed the issues such as
the intention, method of finance, alteration to the property,
treatment to the account, location, period of retention,
subject matter of transaction and circumstances of realisa-
tion. Therefore, it would seem that the applicable tax would
be the tax as deemed by IRB based on the facts presented.
In conclusion, the IRB shall in their discretion amend any
assessment made under the RPGT Act subject to the rules
under the Income Tax Act. Hence in principle, no rule of
law shall prevent IRB from switching an assessment from
RPGT to income tax, and that dreadful knock from the IRB
officers may still happen.
Featured Article Property & Taxation
‘The [IRB] is free to revise &
discharge the assessment under the
RPGT & to raise an assessment
under the Income Tax Act.’
LEGAL UPDATES
1. Permodalan Kedah Berhad v Jalur Canggih Sdn
Bhd & Anor [2013] 6 MLRA 68
An oral agreement was held not to be legally valid as
commercial agreements requiring considerable details
particular to the industry needs to be clearly put into
writing.
2. Malaysia Building Society Berhad v Dato’ Yusuf
bin Sudin [2014] 1 AMR 632
A company director was held to be in breach of his
fiduciary duties for approving a loan sum on behalf of
the company in favor of a third party without the ap-
proval from the company’s Board of Directors.
3. Piccolo Mondo Gastro Sdn Bhd v Absolute Pres-
tige Sdn Bhd [2014] 1 CLJ 387
The rental sum assessed to be paid as damages for the
act of trespass was held to be rightfully calculated at the
property’s market rental value, and not the rental rate
payable by the owner to the local council.
4. Kesavaram Velasamy v Chong Kian Heng [2013]
6 MLRA 199
Generally, ownership of a vehicle would be evidence
that the driver is an agent of the owner, hence the
owner would be liable for the driver’s negligence. How-
ever, the driver would not be an agent of the owner if
the vehicle was not driven for the owner’s purpose.
5. Ingat Kawan (M) Sdn Bhd v Boustead Naval
Shipyard Sdn Bhd [2014] 7 MLJ 24
Licence to deal with second-hand goods given to com-
panies or individuals are restricted to the state it was
issued. Without a valid licence, all agreements entered
pertaining to the transaction of relevant goods are
deemed void and unenforceable.
6. Au Kean Hoe v Persatuan Penduduk D'Villa
Equestrian [2014] 3 MLRA 211(Court of Appeal)
The residential association of a gated residential area
had not committed any nuisance by setting up a guard
house and boom gates to secure the safety of their resi-
dents. Mere inconvenience was distinguished from ob-
struction of access into the residential area.
7. Ahmad Shazilly Ismail Bakti v Nik Salma Zaidah
Hj Wan Mohd Zaid [2014] 3 MLRA 188
(Court of Appeal)
Only rights registrable under the National Land Code
could constitute legal ownership to a property. The
registered proprietor of the property (i.e. owner whose
name is registered in the Land Registry) has all the
rights to request for the equitable owner (i.e. owner by
way of a Statutory Declaration or a Syariah Court Or-
der) to vacate the property upon serving proper notice.
1st April 2015 is when the Goods and Services Tax Act
will come into force; less than a year from the time of
writing. The similarity in nomenclature to the Govern-
ment Service Tax (also GST and also 6%), among other
factors, may lull many into thinking that the new GST
operates in largely the same way and hence conclude that
not much preparation may be needed. This is absolutely
the wrong attitude to approach the new GST. Businesses
need to immediately relook their practices and incorpo-
rate the new GST mechanisms.
GST necessitates businesses to modify internal account-
ing practices affected with shorter timelines (depending
on amount of annual sales) to submit the tax return
forms, change informational disclosures on invoices, to
play the role of tax collector (due to provisions requiring
or allowing a taxable person to set off “input tax”), and
to relook employee benefits among other things. All this
will have to be achieved before 1st April 2015. Awareness
is important.
Salient Features of the GST
The draft GST Bill is approximately 180 pages long but
the following are some of the more salient features of
the new GST:
1. Multi-layered Taxation System
The GST (also sometimes known worldwide as VAT
(value added tax)) repeals the Service Tax Act 1975
(“Service Tax”) and the Sales Tax Act 1975 (“Sales Tax”).
These two previous taxes only operate at one level; Sales
Tax (10%) imposed only on manufacturers (e.g. on the
sale of a product to a wholesaler) and Services Tax (6%)
only on services provided to consumers (e.g. on the pro-
vision of a service by a service provider to the consum-
er).
Now under the new GST, all layers of the supply chain
are affected by the imposition of a 6% tax. So if a product
goes through a manufacturer, wholesaler, and retailer
before it ultimately reaches you, then that product has
been taxed 6% at every level by the time you have paid
the purchase price. This may or may not ultimately in-
crease the price of the product for the consumer as we
will see later.
2. Input/Output Tax
An interesting feature of the new GST is the ability for
businesses to claim back “input tax” that it has paid in the
course of the supply of the good or service. Basically, you
deduct the GST payable to your suppliers/vendors (Input
Tax) from the GST you collect from your customers
(Output Tax) and pay the net amount to the Royal Malay-
sian Customs (RMC). For example:
(i) Manufacturer sells RM10 worth of product to
Supplier
Selling price: RM10 x 6% GST = RM10.60
GST collected/Output Tax = RM0.60
(payable by Manufacturer to RMC)
Nothing deducted since there is no input
tax in this example
(ii) Supplier sells the product + RM10 profit to
Consumer
Selling price:
[RM10 (cost) + RM10 (profit)] x 6% GST
= RM21.20
GST collected/Output tax = RM1.20;
GST paid/Input tax = RM0.60;
Output tax – Input tax = RM0.60
(payable by Supplier to RMC)
(iii) Consumer pays RM21.20 – final price paid by
Consumer.
The new GST effectively makes you (apart from the ulti-
mate consumer) the tax collector for RMC. You are re-
quired to make the necessary calculations/deductions and
pay the net amount to RMC (and of course keep the nec-
essary records). There are penalties for wrong calcula-
tions (if not rectified in time) and naturally for tax eva-
sion.
3. Broad-based Taxation System
Whereas Sales Tax only applied to manufacturers and
Legal Cauldron 2 of 2014 | 12
Featured Article Business & Taxation
The Malaysian
Goods & Services
Tax
About The Author:
ANDREW CHEE graduated with
honours from the University of
London (External) and is an
associate in the Corporate &
Commercial Department.
[email protected] You can’t afford to be complacent
Legal Cauldron 2 of 2014 | 13
Service Tax is not applicable unless expressly prescribed,
the GST applies to any and all supply of goods and ser-
vices into Malaysia unless exempted. This means that
some businesses which may not have incurred taxes un-
der the Sales or Service Tax previously may now incur
GST. More specifically, all goods and services will now
carry GST unless they are “zero-rated” or “exempted”.
There is a technical difference between “zero-rated” and
“exempted”. An exempt supply is a supply of goods or
services which are not subject to GST, whereas a zero-
rated supply is a supply which is subject to GST but at
rate of 0%. Businesses providing zero-rated supplies will
still need to register for GST if it breaches the threshold
amount of RM500,000 worth of supply per annum. Cur-
rent zero-rated and exempt supplies for the time being
include certain essential items like rice, unprocessed
meats, salt, sugar, and flour, public transportation, educa-
tion, sale and rental of property, and electricity consump-
tion up to 200kwH (presumably per month).
Being broad based means that certain types of business
will fall under the GST net for which Sales or Service Tax
did not apply; thereby probably increasing the costs of
certain items. For services provided by professional
firms, you need to note that even disbursements are sub-
ject to GST; not just the professional fees. Furthermore,
without going into detail, employers now need to consid-
er the provision of employee benefits which now is also
subject to GST (but with various exceptions).
Whether or not GST becomes more applicable to more
types of businesses also needs to be also looked at in
light of the new threshold amount for which GST be-
comes applicable; i.e. RM500,000 worth of supply per
annum.
The streamlining of the threshold criteria to just one
number makes things simpler but may both increase or
decrease costs to the ultimate consumer. For example,
the threshold for “restaurants located outside hotels”
was RM3,000,000 per annum under the Service Tax but
now, such restaurants will have to impose GST if supply
exceeds RM500,000 per annum.
However, the threshold previously for a car park opera-
tor was set at RM150,000 per annum but now they need
not impose GST unless supply exceeds RM500,000 per
annum.
The fear for the average consumer of course is not only
the increase of prices, but also unscrupulous abuse of
GST to rake in more profits or to raise prices indiscrimi-
nately. But together with GST, the Anti-Profiteering Act
was also tabled which will hopefully deter such practices.
4. Modification of Internal Accounting Proce-
dures
Among the need for businesses to immediately make
preparation for GST are due the changes in taxable peri-
ods and informational disclosures. The taxable periods
are:
(i) For businesses below RM5,000,000 annual
turnover: 3 month taxable period; and
(ii) For businesses above RM5,000,000 annual
turnover: 1 month taxable period.
The Service Tax Act previously mandated a two-month
reporting cycle but if you have more than RM5,000,000
turnover per annum, you must now acclimatise to a one-
month taxable period. You will now need to beef up in-
ternal reporting and data compilation to meet the shorter
timeline and hence advance planning and sufficient human
resource become vital.
Further to that, the new GST mandated invoice requires
more thorough disclosures than under the Service Tax.
Systems used by existing businesses may not simply sub-
stitute the words “Service Tax” for “GST” in their invoic-
es and expect to be compliant. This requires your ac-
counting software and systems to be relooked… immedi-
ately.
5. Invoice basis not Cash basis
Previously Service Tax was payable only when received
from the customer or when 12 months have elapsed
since the invoice date (cash basis). The new GST howev-
er works on an “invoice basis” where GST returns must
be submitted and paid within one month after the taxable
period whether or not the customer has actually paid.
This will affect the cash flows of business which extend
credit periods of more than a month and like it or not,
you will have to fork out GST payments before actual
collection from the customer. Cash flow planning be-
comes crucial here.
Conversely however, input tax can be claimed even
though you have not actually paid your supplier/vendor
yet. But there is a six-month “no pay rule” which revers-
es such claims if you do not pay your suppliers/vendors
within such time.
Featured Article Business & Taxation
‘Businesses need to immediately
relook their practices and incorporate
the new GST mechanisms.’
Legal Cauldron 2 of 2014 | 14
Why You Cannot Afford to be Ignorant
From the salient features described above, summarily,
you cannot afford to be ignorant because:
a) You are playing the “role” of a tax collector
which means your internal accounting processes
have to be prompt and thorough or face penal-
ties;
b) You have to acclimatise to new (1 or 3 month)
accounting periods and this period is now short-
ened by half to 1 month (from 2 months under
the Service Tax regime) if you have a turnover
of more than RM5,000,000 per annum; and
c) New cash flow processes need to be imple-
mented to accommodate the “invoice basis”
mechanism, subject to some reversals, you will
have to pay GST whether or not you have re-
ceived payment from your customers or clients.
So does this makes things more expensive for you
as a consumer?
No discourse on GST is complete if it does not discuss
what the average Malaysian is now very concerned with.
Apart from features and consequences of the new GST,
the question that has been on everybody’s mind is: does
it make things more expensive for me? The answer is it
depends.
When someone says “more expensive” in this context, it
can be taken to mean more expensive as compared to
the existing Sales and Service Tax regime. In reality there
are very few goods and services for which the consumer
currently incurs both Sales and Service Tax. Hence for
the purposes of comparison, we may make three.
(i) No Service Tax but 6% GST – same price
Let’s say a manufacturer supplies rice at RM10 to a res-
taurant that sells it you with RM10 profit.
(ii) No Sales Tax but 6% GST – cheaper price
Let’s say a manufacturer sells a t-shirt to a retail outlet
for RM50 and the retailer sells it to you at RM20 profit.
(iii) No Sales or Service Tax but 6% GST – more
expensive
Let’s say a manufacturer sells a camera at RM100 (for
which no Sales Tax applies) to a retailer who sells it to
you at RM50 profit (for which no Service Tax applies).
Notwithstanding however, in light of the broader cover-
age of the GST, it is generally expected that prices for
most things for the consumer will increase simply due to
the fact that GST is imposed on more goods and services
than the current Service and Sales Tax. The fact that dis-
bursements for professional services are also subject to
GST is an indicator; you can expect to pay that much
more toward your lawyer’s or accountant’s fees.
Conclusion
The coming into force of the GST signifies to businesses
that it becomes imperative that action be taken immedi-
ately. The fact that the new tax regime, on the surface,
sounds similar to the deceptively (albeit unintentionally)
camouflages very fundamental and critical differences that
one must take cognisance of. You will be penalised if you
are not in compliance and you will start losing profits if
you do not address cash flow issues that now arises. You
must get the necessary advice and consult your tax, ac-
counting or legal consultants without delay.
Featured Article Business & Taxation
6% Service Tax 6% GST
Manufacturer sells to
restaurant at RM10 (no
Service Tax);
Restaurant sells to con-
sumer at RM20 (+6%
Service Tax);
Ultimate price to con-
sumer = RM 21.20
Manufacturer sells to
restaurant at RM10
(6% GST) = RM10.60;
Restaurant sells to
consumer at RM10
(cost) + RM0.60 (GST)
+ RM10 (profit) +
RM0.60 (GST);
Ultimate price to con-
sumer = RM21.20
(same)
10% Sales Tax 6% GST
Manufacturer sells to
retailer at RM50 (10%
Sales Tax) = RM55;
Retailer sells to consum-
er at RM50 + RM5
(Sales Tax) + RM20
(profit) (no Sales Tax);
Ultimate price to con-
sumer = RM75.00
Manufacturer sells to
retailer at RM50 (6%
GST) = RM53;
Retailer sells to con-
sumer at RM53 + RM3
(GST) + RM20 (profit)
+ RM1.20 (GST);
Ultimate price to the
consumer = RM74.20
(cheaper)
No Sales or Service Tax 6% GST
Manufacturer sells to
retailer at RM100 (no
Sales Tax);
Retailer sells to consum-
er at RM100 + RM50
(profit) (no ServiceTax);
Ultimate price to con-
sumer = RM150.00
Manufacturer sells to
retailer at RM100 (6%
GST) = RM106;
Retailer sells to con-
sumer at RM100 + RM6
(GST) + RM50 (profit)
+ RM3 (GST);
Ultimate price to the
consumer = RM159.00
(more expensive)
Legal Cauldron 2 of 2014 | 15
Photo Article Charity & Family Day 2014
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