STAMP duty is imposed on instruments – which include any written documents such as agreements, memorandums, contracts, deeds, wills, bonds and leases – that are chargeable under the Stamp Act 1949 (the Act).

The concept of stamp duty is entirely different from the other taxing legislations such as the Income Tax Act 1967 or the Real Property Gains Tax Act 1976, which are based on the taxing of income or capital gains.

In determining the amount of stamp duty payable, one must refer to the First Schedule of the Act, and the stamp duty payable is specifically stated, which can range from a fixed sum of RM10, to sums that will vary with the consideration involved, the face value of the instrument, the loan amount or the market value of the property.

Wherever real property is involved, market value will come into consideration in determining the stamp duty payable. The same problems arise when dealing with Real Property Gains Tax (RPGT) where the disposal price of properties in many instances will be based on the market value.

Why is market value a problem?

Frankly, market value should not be a problem when a transaction is undertaken between two independent third parties without any collusion. It is assumed in an open market situation, the price is determined on a “willing buyer and willing seller” basis.

It is amazing that when it comes to tax matter where market value must be used, the government valuation department often has a tendency to ignore the market value which has taken place between entirely independent third parties, and impose its own price based on its internal information and other comparable information available in the marketplace.

When there is a transaction between entirely unconnected third parties which are genuine, it is puzzling for taxpayers to understand why the government valuers ignore the information that is facing them and impose a much higher value. There is also a tendency by the government valuers to ignore independent professional valuers who also use accepted valuation methods.

Imposing a higher market value will only mean extra taxes to the Internal Revenue Board (IRB).

Reluctance to disclose why market values are ignored

Taxpayers are unable to find out from the government valuation department the basis on which it has arrived at higher valuations. The department takes instructions from IRB, and it will only communicate with IRB and not taxpayers.

It is fine if the government valuers do not want to talk to taxpayers since the taxpayers did not request for the valuation. However, IRB should ensure that taxpayers are given the right to see the basis of the valuation. Otherwise, imposition of the tax based on the valuation by the government valuers will be detrimental to taxpayers and the right of taxpayers to be given the opportunity to respond is ignored.

Market value in independent transactions should not be ignored

For all purposes of the Income Tax Act 1967 especially in the area of transfer pricing, it is clearly accepted by all tax authorities around the world that transactions between two unconnected independent third parties are regarded as arm’s length transactions and the pricing in those transactions is equivalent to market prices.

The same principles must apply when it comes to valuation of property for stamp duty or RPGT purposes. Why is the government valuation department ignoring this principle? And why is IRB accepting this unfair situation?

What should be done?

It is high time for the Ministry of Finance to deal with this matter and define market value, and the interference from the government valuation department on genuine third-party transactions should be stopped.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (