Malaysia: High Court Quashes Travel Ban Over GST Liabilities

In brief

In a recent decision, Wong & Partners successfully represented three former directors in a judicial review application before the Malaysian High Court, which set aside a travel ban imposed on them for approximately seven years in connection with alleged outstanding goods and services tax (GST) liabilities owed by a company to the Royal Malaysian Customs Department ("Customs").

The decision is significant for taxpayers, company directors and former directors because it confirms that tax-related travel bans cannot be imposed automatically or mechanically merely because a company has alleged outstanding tax liabilities. The High Court held that the Director General of Customs and Excise must first have evidence and good reasons to form a reasonable belief that the individuals concerned are about to leave, or are likely to leave, Malaysia without paying the relevant tax.

Importantly, the Court also held that the former directors were not personally liable for the company’s alleged GST liability, as they had ceased to be directors before the relevant liability arose.

In the circumstances, the travel ban was held to be invalid, unlawful, unreasonable and in breach of natural justice. This decision provides important guidance on the limits of the tax authorities’ travel restriction powers and reinforces that such powers must be exercised based on proper factual grounds, not as a default recovery mechanism.

Background

The applicants were formerly directors of a Malaysian company that was alleged to have outstanding GST liabilities. The key dates in the dispute were as follows:

Date	Event
27 August 2016	Following the completion of a share sale transaction, the applicants resigned as directors and handed over the management and operations of the company to the new management and board on 27 August 2016. However, the change in directorship was not immediately registered with the Companies Commission of Malaysia (CCM).
7 June 2017	CCM registry records only reflected the applicants as having ceased to be directors on this date.
13 June 2017	The relevant invoice giving rise to the GST liability was issued.
30 June 2017 – 31 May 2018	The bill of demand issued by Customs relates to this taxable period.
8 July 2019	The Customs, through the Immigration Department, imposed a travel ban on the applicants from leaving Malaysia on the grounds of an alleged outstanding amount of GST owed by the company.

This chronology was central to the judicial review. Even if Customs relied on the later resignation date reflected in CCM’s records, namely 7 June 2017, the relevant invoice and taxable period arose only after the applicants were no longer directors.

Despite this, Customs imposed and maintained a travel ban against the applicants under Section 49 of the GST Act 2014 in respect of the company’s alleged outstanding GST liabilities.

The applicants challenged the travel ban by way of judicial review. By the time of the substantive hearing, the travel ban had been maintained for approximately seven years.

Key arguments

Customs’ contentions

Customs contended that:

The travel ban was lawful because the company had outstanding GST liabilities, and the existence of unpaid GST was sufficient to justify imposing and maintaining the travel ban against the former directors under Section 49 of the GST Act.
Customs relied on CCM registry records to assert that the former directors remained directors during the relevant period, i.e., June 2017, and could therefore be held responsible for the company’s outstanding GST liabilities.
A person who was a director during the relevant month could be made liable for the full GST sum for that period, without apportionment based on the actual period of directorship, as Customs’ practice was not to split GST liability by reference to changes in directors or directorship periods.

The applicants’ contentions

The applicants argued that the travel ban was unlawful for the following reasons:

No evidence that the applicants were a flight risk: Section 49 of the GST Act requires Customs to have reason to believe that the Applicants were about to leave, or likely to leave, Malaysia without paying the tax. The applicants contended that this threshold was not met: they were elderly individuals with permanent homes, families, businesses, and substantial ties in Malaysia. They had consistently engaged with Customs, provided explanations and supporting documents, and paid RM 190,000 under protest. They also travelled overseas and returned to Malaysia after interim relief was granted, which was inconsistent with any suggestion that they intended to evade the disputed GST liability.
The applicants were no longer directors when the GST liability arose: They had ceased involvement in the company from 27 August 2016. Even on the CCM's registered date of 7 June 2017, the relevant invoice was dated 13 June 2017, and the bill of demand covered 30 June 2017 to 31 May 2018, after their directorship had ended.
The GST liability was already settled in judicial management: The applicants relied on evidence that the judicial manager had made payments to Customs and confirmed under oath that the alleged GST liability had been settled. Customs, therefore, should not maintain a personal travel ban against them in respect of a company liability that had already been dealt with through judicial management.

High Court's decision

The High Court allowed the judicial review application and quashed the travel ban imposed against the applicants. The Court held that the travel ban was illegal, unreasonable and in breach of natural justice.

Travel bans against directors cannot be imposed automatically

The High Court held that Section 49 of the GST Act does not allow Customs to impose a travel ban automatically merely because there are outstanding taxes.

Customs must first have evidence and good reasons to form a reasonable belief that the person is about to leave Malaysia, or is likely to leave Malaysia, without paying the relevant tax. The existence of outstanding taxes alone is insufficient.

On the facts, the Court found that there was no flight risk posed by the applicants. The Court also recognised that the freedom to travel abroad should not be lightly curtailed.

The former directors are not liable for taxes arising after their directorship ended

The High Court further held that the applicants were no longer directors when the relevant GST liability arose.

The Court accepted that the applicants had ceased to be directors from 27 August 2016, following the completion of the share sale of the company, where the company's subsequent letter confirmed that the directors had resigned. Although CCM registry records reflected the cessation of directorship on a later date on 7 June 2017, the Court held that registry records are prima facie evidence only and may be rebutted by other evidence.

In any event, even if the later CCM's registry date of 7 June 2017 were taken as the resignation date, the relevant invoice giving rise to the GST liability was dated 13 June 2017. The bill of demand also related to the taxable period from 30 June 2017 to 31 May 2018. The applicants cannot be held personally liable for the outstanding GST sum that arose after the end of their directorship.

Key takeaways

This decision is an important judicial development as it confirms that a tax-related travel ban is not a routine collection tool that may be imposed simply because a company has outstanding tax liabilities.

The High Court’s decision makes clear that the tax authority must first satisfy the statutory threshold, i.e., there must be proper evidence and good reasons to support a reasonable belief that the individual is about to leave, or is likely to leave, Malaysia without paying the relevant tax.

Although the case concerned the GST Act 2014, the reasoning is relevant to travel restriction provisions under the Customs Act 1967, Sales Tax Act 2018 and Service Tax Act 2018, which are in pari materia with Section 49 of the GST Act 2014. The decision may also be persuasive in challenges involving the Inland Revenue Board’s travel ban powers under the Income Tax Act 1967, particularly where the restriction is imposed mechanically or without evidence of flight risk.

The decision is also a timely reminder that directors and former directors should not be made personally liable for company tax debts unless the liability is properly attributable to them during the relevant period. Where the alleged liability belongs to the company and has been addressed through company-level processes, such as judicial management, the continued imposition of a personal travel ban is susceptible to challenge.

For taxpayers, the key takeaway is clear: the mere existence of alleged tax arrears does not, by itself, justify a travel ban. The authorities must act lawfully, reasonably and based on the facts of each case. Where those requirements are not met, affected individuals may have grounds to challenge the restriction.

As the High Court only delivered its oral grounds at this juncture, the reasoning may be further developed in the written grounds, and the decision remains subject to any appeal.