• Tenaga Nasional (TNB) has received a notice of additional tax assessment of RM1.8bil from the Inland Revenue Board of Malaysia (IRB) for YA2018.

• The notice is similar in nature to previous notices of additional tax assessments, which are currently pending in court.

• TNB will be appealing against the notice of additional assessment for YA2018.

• We are neutral on this development. TNB did not record any tax liability in respect of the previous notices of additional tax assessments and we expect the same for the additional tax assessment for YA2018.

• TNB’s additional tax assessments amount to RM7.9bil in total from YA2013 to YA2018 (YA2013: RM985.6mil, YA2014: RM1.1bil, YA2015: RM1.4bil, YA2016: RM1.3bil, YA2017: RM1.3bil and YA2018: RM1.8bil).

• The additional tax assessments were in respect of reinvestment allowances for TNB’s capex for the expansion and upgrading of its electricity infrastructure.

• TNB had recognised the reinvestment allowances as there was a letter of approval dated 21 January 2013 from the IRB.

• For the additional tax assessments for YA2013 and YA2014, TNB had filed an appeal to the Special Commissioners of the Income Tax. The outcome depends on the judgment by the Special Commissioners of the Income Tax and the Kuala Lumpur High Court. This is still pending.

• For the additional tax assessments for YA 2015 to YA 2017, the hearing date for the judicial review leave application is 3 September 2020.

• The High Court has extended the interim stay of all proceedings including the enforcement of the tax assessments until the hearing on 3 September 2020.

• We maintain Buy on TNB with a fair value of RM13.95/share.

Source: AmInvest Research - 15 Jul 2020