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Malaysian Tax Cases - P Jaya SB v. Ketua Pengarah Hasil Dalam Negeri : Double deduction for freight charges and insurance premium for exports 07/08/2008

Facts : The taxpayer is a sawmill operator located in the state of Sarawak. For the years of assessment (YA) 1996 to 2000 (CYB), freight charges and insurance premium amounting to RM191,904.98 and RM14,408.00 respectively were incurred for transporting its laminated boards by boats from its factory at Tanjong Manis to ocean-going vessels further out at Tanjong Manis. The taxpayers claimed double deduction on the above expenses pursuant to the Income Tax (Deductions for Freight Charges) Rules 1990 and the Income Tax (Deductions of Insurance Premiums for Exporters) Rules 1995 (hereinafter refer to as "the Rules"). The Director General of Inland Revenue (DGIR) disallowed the claim for the incentives on the basis that for goods to be considered as "exported", the requirements of the Customs Act 1967 must be met. The taxpayer disagreed with the DGIR's treatment and appealed to the Special Commissioners of Income Tax (SCIT) . The taxpayer contended that since the purpose of the Rules is to encourage the export of products, they should be eligible for the incentives as long as when the deductions were claimed, the products had been exported. Held: The taxpayer's appeal is allowed. The SCIT had adopted the purposive approach when interpreting the Rules. There is nothing in the Rules to suggest that the framers of these Rules are concerned with the methods or actions involved (i.e. stages of transportation) in the actual exportation process. Since the word "export" is not defined in the Rules, the dictionary meaning i.e."the whole process of bringing goods or merchandise out of the country" should apply. The transportation of laminated wood boards within the country on their way out of the country would be covered under this definition and as such the freight charges and the insurance premium incurred by the taxpayer for the YAs 1996 to 2000 would be eligible for double deduction under these Rules.

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