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Free Malaysia Today
26-05-2025
- Business
- Free Malaysia Today
Stamp duty crackdown: legacy of lax enforcement or legal duty ignored?
From Andrew Ewe The Inland Revenue Board's (IRB) recent focus on unstamped employment letters, service contracts, and other instruments has caused understandable alarm among employers across Malaysia. What many are only now discovering is that the legal obligation to stamp these documents has existed since the Stamp Act 1949 – a statute that turns 75 this year. The sudden enforcement drive, under the newly released Stamp Duty Audit Framework effective Jan 1, 2025, raises a fundamental question of fairness and principle: Can a law that was dormant for decades suddenly be brought to life, with penalties imposed on businesses that have long followed an unofficial industry norm? A legacy of lax enforcement For over half a century, the IRB rarely enforced the stamping of employment contracts or service agreements with periodic payments. Companies – large and small – operated under the reasonable assumption that such documents were not subject to stamping, or that even if they were, it wasn't practically required. This long period of non-enforcement effectively shaped market behaviour. Employers routinely issued letters of appointment, fixed-term contracts, and professional engagement agreements without stamping, and the IRB neither objected nor intervened. The role of legitimate expectation In public law, the concept of legitimate expectation arises when a public authority acts consistently over time, and individuals or entities rely on that conduct to guide their decisions. Many taxpayers now argue that IRB's decades-long silence constituted an implicit assurance – that unstamped employment documents were acceptable. And thus, they say, the IRB should not now impose penalties or retroactively enforce duties that were never seriously applied before. But here lies the legal reality: while legitimate expectation is recognised in Malaysian administrative law, it cannot override express statutory obligations. The courts have consistently ruled that a taxpayer cannot rely on past lax enforcement to avoid current legal duties,especially where the law itself is clear. So, while legitimate expectation may support an argument for fairness, grace periods, or waiver of penalties, it will not succeed as a full defence against the requirement to pay stamp duty. A fairer way forward The IRB is not wrong to enforce the law. But fairness demands that enforcement be proportionate and forward-looking, not punitive for past inaction that it tacitly allowed. Employers are now in a compliance bind: penalised for something they were never previously warned or reminded about. To move forward constructively, the following approach is advisable: 1. Review all contracts – particularly employment letters, fixed-term service agreements, and any instrument involving reward payments. 2. Identify instruments that should have been stamped, especially those executed within the past three years as these are within audit range as indicated in the Audit Framework. 3. Voluntarily stamp those documents, where possible, to avoid penalties under audit. 4. Adopt a proactive stamping policy moving forward, making it part of your standard HR or legal process. 5. Engage with the IRB, where audited, to seek mitigation – citing widespread historical practice, absence of past guidance, and willingness to comply moving forward. You may wish to wait for IRB's decision on an amnesty period during which they may not impose any late stamping penalty. Final thoughts This is not merely a compliance issue. It's a reflection of how tax enforcement must evolve -with transparency, predictability, and fairness. When a law has been neglected in enforcement for 75 years, it is not just a taxpayer oversight — it is a systemic policy failure. The solution lies not in finger-pointing, but in balancing legal enforcement with administrative justice. Employers deserve clarity. And tax authorities owe it to the business community to enforce the law not just strictly, but sensibly. Andrew Ewe is a Fellow of the Chartered Tax Institute of Malaysia and a former chairman of its Northern Branch. The views expressed are those of the writer and do not necessarily reflect those of FMT.
Free Malaysia Today
19-05-2025
- Business
- Free Malaysia Today
Misapplied compliance: e-invoicing and charitable organisations
From Andrew Ewe With the full implementation of Malaysia's e-invoicing regime underway, many charities and non-profit organisations are facing pressure – often from tax advisers and even Inland Revenue Board (LHDN) officers – to issue e-invoices for donations, especially when requested by corporate donors. The logic appears straightforward: companies want e-invoices to support their tax deduction claims. And so, many have concluded that charitable organisations must comply. This view is flawed, both legally and practically. The law is clear: e-invoices are only required for business activities The statutory requirement to issue e-invoices arises not from guideline language or professional commentary, but from Section 82(c) of the Income Tax Act 1967, which states: 'A person shall, for each year of assessment, issue an electronic invoice in respect of each transaction relating to goods sold or services performed by that person which constitutes the carrying on of a business.' This provision unambiguously limits the e-invoicing obligation to transactions that are business in nature. Receiving a donation – an unrequited, voluntary transfer – does not constitute the sale of goods or provision of services. It is not a business transaction. Therefore, there is no legal basis to compel a tax-exempt charitable organisation to issue e-invoices for such donations. IRB guidelines misinterpreted The IRB's e-invoicing guidelines refer broadly to 'companies, bodies of persons, associations, etc' as being within the scope. However, they do not emphasise clearly enough that this only applies where those entities are carrying on business. As a result, many readers have mistakenly assumed that all such entities, including tax-exempt NGOs, are automatically included. This is a misreading. In law, it is the activity, not the entity form, that triggers e-invoicing. A flawed practical justification Some advisers have gone further to suggest that NGOs should secure e-invoices for all expenditures – 'just to be prudent'. This view, too, does not withstand scrutiny. Why would a charitable organisation with tax exemption under Section 44(6) need to compile e-invoices to support tax deductions? If the organisation is not taxed on its income, and if it is not engaged in a business, there is no necessity to compile deductible expense records for tax reporting. Unless an NGO undertakes separate business activities, there is no tax reporting reason to issue and collect e-invoices. Where a charity does undertake business (for example, a social enterprise), only those business-related transactions would fall within the e-invoice requirement. The rest – donations, grants, sponsorships – remain outside its scope. The receipt is still the legally recognised document for donations Donors, both corporate and individual, must provide valid proof to claim tax deductions. This has always been, and remains, the donation receipt in the prescribed format, issued under IRB guidelines. There is currently no legal requirement for e-invoices to support a Section 44(6) deduction. Until and unless the IRB explicitly states otherwise – with reference to the law, not mere administrative convenience – it is inappropriate to insist that charitable organisations issue e-invoices for donations. A call for legal clarity We respectfully urge the IRB to clarify its guidelines, and affirm that non-business charitable organisations are not legally obligated to issue e-invoices. Without such clarity, the sector is at risk of expending limited resources on systems and processes that are neither required by law nor meaningful for compliance. In our effort to modernise tax infrastructure, let us not abandon the foundational principles of our legal system. E-invoicing has its place – but it must stay within its lawful boundaries. Andrew Ewe is a Fellow of the Chartered Tax Institute of Malaysia and a former chairman of its Northern Branch. The views expressed are those of the writer and do not necessarily reflect those of FMT.
