KUALA LUMPUR — Tenaga Nasional Bhd (TNB) could be liable for an outstanding tax bill of RM5.05 billion following a Federal Court decision which ruled the utility giant was not entitled to claim a reinvestment allowance (RIA) intended for manufacturers, The Edge reported, citing the company’s 2024 annual report.
The apex court sided with the Inland Revenue Board (IRB) over a disputed RM1.25 billion tax assessment for the 2018 financial year, overturning earlier lower court rulings that had favoured TNB.
The judgment found that as a utility provider, TNB did not qualify as a manufacturer and should have applied for investment tax allowance (ITA) under Schedule 7B rather than RIA under Schedule 7A.
TNB said it now intends to pursue claims under the appropriate ITA provision. However, it warned that the ruling may have implications for its earnings and net assets in the financial year ending 2025.
The dispute between TNB and the IRB stretches back to 2015.
Between 2013 and 2021, the IRB issued additional tax assessments totalling RM9.25 billion. After the waiver of RM2.44 billion in penalties via settlements, TNB’s net tax exposure was brought down to RM6.81 billion.
Of this, the utility paid RM1.76 billion in December 2020, leaving RM5.05 billion still unresolved.
Despite the dispute, TNB continued to apply for RIA in 2022 and 2023, and had planned to do so for 2024 as well, claiming it was allowed under existing tax legislation.
The market reacted negatively to the news. Tenaga shares dropped by as much as 74 sen—more than 5%—to RM14.02 yesterday, their lowest level since June 3, erasing over RM3 billion in market capitalisation. Trading activity surged to more than four times the 20-day average.
Analysts flagged potential downside risks from the sizeable provision and warned that the case could have broader legal ramifications.
Nevertheless, sentiment remains broadly constructive, with Bloomberg data showing 19 “buy” calls, four “hold” and no “sell” recommendations. The stock is down about 6% so far this year, but its average 12-month target price stands at RM16.28, indicating a potential 16% upside.
CIMB Securities cautioned that if Tenaga is required to pay the full RM5.05 billion, it could trim its fair value estimate by 87 sen or 5.5%.
On the other hand, if the company successfully switches its claim to ITA, its core earnings may be preserved.
The tax hit, while significant enough to potentially wipe out the group’s forecasted RM3.78 billion net profit for FY2025, is expected to be a one-off.
Tenaga’s financial performance in FY2024 showed a robust recovery, with net profit surging 69.3% to RM4.69 billion—the highest since FY2018—largely driven by foreign exchange gains and stronger electricity sales. Annual revenue climbed 6.9% year-on-year to RM56.74 billion.
In the first quarter of FY2025, the group posted a net profit of RM1.1 billion, up 48% year-on-year, although this was partially offset by increased tax costs. Quarterly revenue rose 17.6% to RM16 billion.
As at end-March, Tenaga reported RM16.8 billion in cash reserves, alongside RM7.05 billion in receivables, deposits and prepayments. — July 4, 2025
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