Latest news with #StampDutyAuditFramework
The Sun
3 days ago
- Business
- The Sun
Tax Matters – Should contracts related to employment be stamped?
THERE is significant discussion in the media and in various publications on whether contracts related to employment should be stamped. This has arisen because the Inland Revenue Board (IRB) has recently been visiting taxpayers and advising them that their contracts of employment and other documents relating to employment should be stamped, and late stamping penalties will be applicable. The visits to taxpayers were conducted under the new Stamp Duty Audit Framework issued on Jan 1, 2025. To add weight to the current treatment, the Malaysian Industrial, Commercial and Service Employers Association (Micsea) has issued a statement mentioning that it has agreed with the IRB a concession that the penalty will be waived for all employment contracts stamped on or before Dec 31, 2025. The self-assessment system for stamp duty purposes will only be applicable from Jan 1, 2026, which allows the IRB to conduct audits and make additional assessments for any shortfalls for up to five years after the duty is paid or would have been paid. As to whether the IRB can go back prior to Jan 1, 2026 (i.e. before the self-assessment kicks in) is debatable. The normal understanding is: You should not apply the law retrospectively; and secondly the issue of whether the IRB has the right to impose stamp duty will only be confined to instruments which are mandatorily required to be stamped. At the moment, the assessment of stamp duty is on an official system where the taxpayer sends the document for adjudication and seeks an assessment. Although there is an audit framework applicable from Jan 1, 2025 which allows the IRB to visit taxpayers, the findings from the audit cannot invoke additional taxes unless there is a mandatory requirement in the legislation for the instruments to be stamped. There is significant discussion and publications by learned parties who have expressed the view that all written instruments must be stamped. The justification for their position is not clear as there is difficulty in finding the necessary legislation to support their position. When it comes to employment contracts, Micsea states in its publication that employment contract, letter of transfer (where it will be perceived as a new employment) and fixed term contracts (including each contract issued after the expiration date) should be stamped. Promotion and bonus letters, annual increment letters, letter of transfer within the company which does not amount to a new employment and secondment letters which do not amount to a new employment contract are 'exempted' from stamping. This appears to be their understanding with the IRB. All the above written documents are 'instruments' as defined under Section 2 of the Stamp Act 1949. Where is the authority to dissect the above instruments between subject to stamping or exempted from stamping? This position does not seem to resonate with the law. There is no specific provision in the Stamp Act 1949 that states that employment contracts are required to be stamped other than the fact that employment contract is an 'instrument' under the Stamp Act 1949. Based on this analysis, up to Dec 31, 2025, before the self-assessment system kicks in, there does not seem to be a need to stamp employment contracts and contracts related to employment. To allow businesses to carry on without this ambiguity, it will be best if the visits by the IRB are clearly done with the intention of educating and preparing taxpayers for 2026 to get them ready for the self-assessment system. In such visits, taxpayers should have the benefit of our esteemed IRB officials who will be up-to-date technically and knowledgeable on the workings of the stamp duty system to help taxpayers comply with their responsibilities.
The Star
4 days ago
- Business
- The Star
‘Stamp duty for job contracts another burden for businesses'
PETALING JAYA: Exempting employment contracts from stamp duty would ease unnecessary financial and administrative burdens, say industry players. They argue the added pressure is especially difficult for businesses, particularly small and medium enterprises (SMEs), already grappling with economic uncertainty and labour shortage. The appeal comes as the Inland Revenue Board (LHDN) begins actively enforcing stamp duty payments on employment-related documents under the Stamp Duty Audit Framework, effective Jan 1. Associated Chinese Chambers of Commerce and Industry of Malaysia treasurer-general Datuk Koong Lin Loong said employment contracts should be specifically exempted from stamp duty, similar to what is practised in Singapore and Thailand. 'Employment contracts are a day-to-day matter. This is not a one-off legal document. 'Especially in Malaysia's current situation, where we are already struggling with talent outflow to Singapore and elsewhere, this is not the right time to add another burden,' he said when contacted yesterday. Koong added that the law, enacted in 1949, is 'very outdated' and should be amended before any enforcement framework is applied. While the legal requirement to stamp employment contracts has existed under the Stamp Act 1949, it had not been widely practised until now. Under the Act, employers must stamp all employment contracts – including full-time, part-time, fixed-term and short-term – within 30 days of execution, at a flat rate of RM10 per contract. However, failure to comply can now trigger a late penalty of up to RM100 per instrument, compounding costs for businesses with high staff turnover or a large workforce. 'The exemption would also remove unnecessary bureaucracy from HR departments, which already have more strategic tasks to focus on,' Koong said. In Singapore, even letters of appointment are considered non-dutiable, Koong added. 'We need that kind of business-friendly environment if we want to remain competitive and attract foreign direct investment.' Echoing this, national president of the Small and Medium Enterprises Association Datuk William Ng criticised the abrupt nature of the enforcement. 'There was insufficient notice, engagement or support from authorities. It feels more punitive than developmental,' he said, adding that the costs would go beyond the RM10 per document. 'The automatic late penalty of up to RM100 per contract means businesses with hundreds of employees, including those hired years ago, are facing a significant retrospective burden. 'HR teams must now comb through old contracts, stamp minor amendments and issue backdated documents. This is overwhelming for small teams,' he said. Ng proposed either exempting standard employment contracts or implementing a simplified compliance mechanism such as optional stamping unless required in court or a digital self-declaration model for SMEs. SME Association of Malaysia president Ding Hong Sing said stakeholders should have been consulted first. 'We are already dealing with so much – minimum wage increases, inflation, recruitment challenges. Now this? 'Even if it's a small amount, it adds up fast when you have many staffers. At least inform us before enforcing,' he said. MCA vice-president and Economic and SME Affairs Committee chairman Datuk Lawrence Low also called for an amnesty period to allow employers to stamp past contracts without penalty. He warned that the current approach could disrupt business operations, hinder hiring and even affect salaries. While the stamp duty is legally enforceable under the Act, Low said clearer guidelines and more communication are urgently needed.
New Straits Times
6 days ago
- Business
- New Straits Times
LHDN's stamping rule sparks debate
KUALA LUMPUR: The Inland Revenue Board's (LHDN) reported push to enforce the stamping of employment contracts has sparked a wider conversation on the balance between legal compliance and regulatory fairness. While industry experts agree that stamping employment contracts may be a necessary step to align with the Stamp Act 1949, many are calling for the measure to be applied transparently, consistently and with adequate transition measures. Federation of Malaysian Manufacturers recently claimed that there has been an intensified audit since the Stamp Duty Audit Framework was introduced on Jan 1 this year. While there is a legal provision under the Stamp Act 1949 requiring employment contracts to be stamped, it has yet to be widely practised. According to the Stamp Act 1949, employment contracts fall under chargeable instruments listed in the First Schedule. For an employment contract, stamping involves a RM10 fee per copy and must be stamped within 30 days of signing. Failure to do so could result in a penalty of up to RM100 per document. KPMG Malaysia head of tax Soh Lian Seng said this purportedly increased enforcement represents a shift from past practice and may feel sudden to some taxpayers who have operated in good faith under previous norms and practice. Soh said many businesses were not aware that such contracts were considered dutiable instruments, especially given the absence of consistent enforcement or clear prior guidance. "While this could be seen as a necessary step toward ensuring compliance with existing law, it is important that enforcement is applied transparently and consistently. "The retrospective application of penalties may raise concerns about fairness and could undermine trust in the system," he told Business Times. Ultimately, Soh said enforcement and reform efforts must strike a balance between revenue objectives and maintaining Malaysia's appeal as a business-friendly environment. "Sudden or unclear enforcement actions risk creating administrative burdens especially for SMEs, and may erode confidence in the regulatory landscape. "Ultimately, maintaining ease of doing business should remain a central policy focus, as adding administrative requirements without a clear legal basis could create unnecessary challenges for SMEs and growing businesses," he said. Soh urged that stamping requirements be applied prospectively from Jan 1, 2026, giving companies time to align their HR and administrative practices with the law. Meanwhile, the Small and Medium Enterprises Association of Malaysia (Samenta) president Datuk William Ng said the issue goes beyond legal interpretation but it is about operational feasibility. Ng said the sudden shift from a passive regime to active enforcement, coupled with retrospective audits and penalties, is perceived as punitive rather than developmental. "We support the principle of legal compliance and the government's move toward a more self-assessment-based tax regime. "However, changes of this nature require proper transitional arrangements, targeted education and policy clarity to avoid undue burden and confusion, especially when it concerns operational matters like HR documentation. "Many SMEs now face the daunting task of reviewing and potentially stamping hundreds of existing employment contracts, which is neither practical nor proportionate," he said. In addition to the RM10 stamp duty per contract, Ng said the automatic late penalty of up to RM100 per instrument, even if disclosure is voluntary, compounds the financial pressure. Furthermore, he said the requirement to stamp offer letters or confirmation letters within 30 days is impractical. "Many companies issue letters months in advance, and new hires may withdraw or defer their joining, making the process inefficient and wasteful," he noted. At a time when the nation is trying to attract investments, digital nomads, and high-value talent, Ng said this enforcement sends the wrong signal. "It's not just a matter of cost – it's the uncertainty, the complexity and the sense that rules can be changed and imposed retroactively without due consultation. "We urge LHDN to implement a grace period, provide clear written amnesty guidelines for voluntary disclosures, and develop a microenterprise-friendly compliance mechanism," he said. Echoing the views, the Malay Chambers of Commerce (MCC) said such enforcement affected micro traders and small-scale industries as it outlines the rights and responsibilities of audit officers and duty payors, the types of duties and penalties. Its Malay Economy Action Council chairman Norsyahrin Hamidon said the measure was "rushed through, without any thorough comprehensive studies or taking into account workers' plight". Norsyahrin, nevertheless, said MCC agreed with LHDN's approach to educate and encourage compliance to ensure the Act is followed and reduce the burden on penalties or punishment. "However, we hope the education phase reaches the grassroots through the involvement of the chambers before it is enforced and is not just an announcement. "The issues involving cooling off period, waiver mechanism, penalties and punishments need to be clarified as it is confusing. "Among others, the waiver on stamp duty for workers with a monthly salary of RM300 and below is outdated and does not reflect the present salary structure and the labour market," he said. Norsyahrin said MCC was looking for an amicable solution and would like to discuss with relevant agencies, including LHDN and the Finance Ministry to share the concern of Bumiputra traders and to receive a detailed clarification. He said MCC is willing to work with the government and share its concerns with the National Chambers of Commerce and Industry Malaysia, with the view that more time should be given for more companies to be exposed. "At the same time, we urge the government to review the Stamp Duty on Contract Workers and postpone the implementation until the Stamp Duty Act 1949 is reviewed again, " he added. Business Times had reached out to LHDN for clarification on the policy shift, retrospective enforcement, and possible transitional relief measures, but no official response was received as of press time.
The Star
7 days ago
- Business
- The Star
Review Act before enforcing stamp duty for workers' contracts, says trade body
PETALING JAYA: The Malay Chambers of Commerce (MCC) urges the government to review the Stamp Act 1949 before implementing stamp duty on workers' contracts following the Stamp Duty Audit Framework introduced by the Inland Revenue Board (LHDN) on Jan 1. The trade group said the enforcement of the stamp duty affected micro traders, and small-scale industries as it outlines the rights and responsibilities of audit officers and duty payors, the types of duties and penalties. "The enforcement was rushed through, without any thorough comprehensive studies or taking into account workers' plight," its Malay Economy Action Council chairman Norsyahrin Hamidon said in a statement on Thursday (May 29). He said MCC agrees with LHDN's approach to educate and encourage compliance to ensure the Act is followed and reduce the burden on penalties or punishment "However, we hope the education phase reaches the grassroots through the involvement of the chambers before it is enforced and is not just an announcement. "The issues involving cooling off period, waiver mechanism, penalties and punishments need to be clarified as it is confusing. "Among others, the waiver on stamp duty for workers with a monthly salary of RM300 and below is outdated and does not reflect the present salary structure and the labour market," he said. Norsyahrin said MCC was looking for an amicable solution and would like to discuss with relevant agencies, including the LHDN and the Finance Ministry to share the concern of bumiputra traders and to receive a detailed clarification. "We are willing to work with the government. We also share our concerns with the National Chambers of Commerce and Industry Malaysia, with the view that more time should be given for more companies to be exposed. "At the same time, we urge the government to review the Stamp Duty on Contract Workers and postpone the implementation until the Stamp Duty Act 1949 is reviewed again, " added Norsyahrin.
The Star
19-05-2025
- Business
- The Star
Stamp duty on employment contracts burdens businesses, says association
IPOH: The enforcement of stamp duty requirements for all employment contracts is an unnecessary financial and administrative burden impacting businesses, says an employers' association. Malaysian Industrial, Commercial and Service Employers Association (MICSEA) president YK Lai said while they commend the Inland Revenue Board's (LHDN) efforts to strengthen compliance with the Stamp Duty Audit Framework effective from 1 January, the enforcement has caused issues for companies across all sectors. "The growing concerns among employers include financial strain on companies, increased compliance costs, and the added workload on administrative operations, including human resources procedures. "The increasing number of audits of stamp duties without any grace period or amnesty will likely impact companies with high turnover rates and small and medium enterprises (SMEs)," he said on Monday (May 19). "Without clear guidance, these companies risk facing unavoidable penalties. Companies now face the added responsibility of ensuring all employment contracts are stamped at a cost of RM10 per copy, with a penalty of RM100 for non-compliance to ensure admissibility as evidence in court," he added. Lai said employers must also bear the cost of stamping past employment agreements with existing employees that were previously unstamped, increasing administrative expenses while managing tight operational budgets. "This retrospective requirement offers little practical benefit, as many agreements are carried out without disputes or issues. Although employment contracts involving monthly wages below RM300 are exempt from this requirement, the exemption holds little practical relevance given that the current minimum wage in Malaysia is set at RM1,700," he said. Lai said MICSEA supports the Federation of Malaysian Manufacturers' proposed solutions and recommendations on implementing new enforcement methods. "The LHDN should grant a one-time amnesty on past unstamped documents. They also need to issue clear, sector-specific guidelines and introduce a six-to-12-month grace period," he said. "We urge the LHDN to cooperate with employers to ensure fair and balanced implementation," he added.
