PUTRAJAYA: The Federal Court has dismissed appeals by Najib Razak and his son, Nazifuddin, from summary judgment entered against them for non-payment of some RM1.7 billion in income tax to the Inland Revenue Board (LHDN).
Delivering the unanimous judgment of the court today, Justice Nallini Pathmanathan said the “pay first, talk later” principle stands, meaning that those who owe LHDN must settle the outstanding amount before making any appeal to the special commissioners of income tax.
In its decision, the apex court dismissed a contention by the duo that section 106(3) of the Income Tax Act, 1967 ran afoul of the Federal Constitution.
“The appellants (Najib and Nazifuddin) complain that section 106(3) puts them on an unequal footing with the government as it confers wide powers on the latter in respect of tax matters and is consequently violative of their right to equal treatment under Article 8,” Nallini said.
However, she said Article 8, which stipulates that all persons must to be treated equally before the law, is not infringed when the government acts in its public capacity.
“The function of levying tax is a sovereign function of the government and cannot therefore be treated as a private function of the government so as to make it a ‘person’ within the meaning of Article 8,” she said when delivering the judgment of the five-member bench.
The bench, chaired by Court of Appeal president Abang Iskandar Abang Hashim, also comprised Chief Judge of Malaya Zabidin Diah, as well as Justices Mary Lim and Abu Bakar Jais.
Nallini said tax legislation must be subject to a less rigorous anti-discrimination test.
She said the economic wisdom of tax law is within the exclusive province of the legislature. Therefore, questioning the legislative policy is beyond the domain of the judiciary.
According to her, the object of the Income Tax Act 1967 is to ensure that taxes are collected efficiently and expeditiously in the interests of the citizens of the nation.
“For the purposes of enforcement, this section precludes matters which are deferred to the dispute resolution mode specified in the statute,” she said.
The Federal Court also dismissed the appellants’ contention that section 106(3) of the Income Tax Act 1967 violated Article 121 by usurping judicial power by expressly limiting the defences available to a taxpayer.
Instead, Nallini said, section 106(3) was enacted by Parliament to enable timely recovery of tax. She said striking it down would necessitate a full adjudication of LHDN’s claim by the courts rather than the special commissioners at first instance and the courts on appeal.
That would also mean that the procuring of payment of tax upon assessment would be delayed until the completion of the entire court proceedings, she said.
The court also dismissed complaints by Najib and Nazifuddin that they were deprived of a fair trial or access to justice as set out in Article 5 of the constitution.
Nallini said the power of constitutional review is a formidable instrument and should be wielded by the judiciary with great care.
“If it were to be used indiscriminately or where there is no substantive basis for its invocation, the results could cause considerable damage,” she said, adding that it would stultify the tax collection system of the nation and adversely affect the functioning of the government.
Today’s ruling allows LHDN to resume proceedings on bankruptcy notices served two years ago on Najib and Nazifuddin.
In July 2020, Justice Ahmad Bache, sitting in the High Court, ruled that Najib had to pay LHDN RM1.69 billion for the assessment years from 2011 to 2017.
In the same year, High Court judge Ahmad Zaidi Ibrahim, who now sits in the Court of Appeal, ordered Nazifuddin, a businessman, to pay RM37.6 million in unpaid taxes from the same period.
On Sept 9, 2021, a three-member Court of Appeal panel chaired by Justice Abdul Karim Abdul Jalil, who is now a Federal Court judge, upheld the decisions of the High Courts.
