Shafee fails in bid for leave to file counterclaim in tax arrears suit

Muhammad Shafee Abdullah today failed in his application to obtain leave from the High Court to file a counterclaim against the Inland Revenue Board’s (LHDN) demand that he pays income tax arrears amounting to RM9.41 million.

Judicial commissioner Roz Mawar Rozain dismissed Shafee’s application after finding that his counterclaim did not arise from the recovery of taxes but from mala fide acts by the Malaysian Anti-Corruption Agency (MACC) and the Attorney General's Chambers (AGC), which do not fall within the set scope of the rule prohibiting counterclaims.

"The court observed that the defendant’s counterclaim was against parties like the MACC and the AGC, who are not part of these proceedings," she added.

She also said that any dissatisfaction over the calculation of taxes could be dealt with before special commissioners of income tax (SCIT).

She added that Shafee's claim that tax assessments were "concocted mala fide" by the MACC and AGC could be dealt with through another avenue.

Roz said there were a slew of case laws indicating that the whole scheme of tax law in Malaysia is that payment demanded must be paid notwithstanding appeals and that the principle of "pay first, talk later" is predominant.

"There may be appeals before SCIT, but payments must be made or become debts due to the LHDN, which is legally empowered to collect tax arrears," she said, adding that Shafee was not the first taxpayer who wished to file a counterclaim in these types of proceedings.

Roz also ordered the lawyer to pay RM5,000 in costs to the government.

Meanwhile, the court fixed July 26 to hear the summary judgment by LHDN on behalf of the government against Shafee.

Shafee filed the application in May 2021 on the grounds that, among others, the tax claim was an attack on him as a political victim in his capacity as a lawyer for former prime minister Najib Razak, and that he was considered to be an Umno lawyer even though he was not.

Shafee claimed that on Aug 10, 2018, two days after the 1MDB charges were levelled against Najib, and after he had issued a series of press statements critical of the Pakatan Harapan government, he was called in by MACC to give his statement on the receipt of the RM9.5 million.
 
Following the statement to MACC, Shafee alleged that a meeting was held in September 2018 among LHDN, MACC and the AGC to discuss a plan of action to oppress and persecute him with the aim of discouraging him from acting as Najib's counsel.

On Sept 27, 2021, LHDN requested that the suit against Shafee be decided through summary judgement on the grounds that the defendant had failed to pay the income tax arrears and the tax increase imposed on him, amounting to RM9,414,708.32, within the stipulated period.

LHDN, which filed the suit on May 6, 2021, claimed that the lawyer had failed to pay the amount of income tax owed for the assessment years of 2011, 2012, 2013, 2014 and 2016, including the increase on the imposed sum.

On Oct 28 last year, the High Court acquitted and discharged Shafee of two charges of receiving money from illegal activities amounting to RM9.5 million from Najib and two charges of making incorrect statements to LHDN.

However, the prosecution filed an appeal against the court's decision on Nov 1 last year.     

Shafee was represented by Rajan Navaratnam and Muhammad Farhan Muhammad Shafee while LHDN senior counsels Al-Hummidallah Idrus, Norzilah Abdul Hamid and Muhammad Faqrol Syazreen Mohd Ghause acted for LHDN.