IT IS very common for businesses to sign long-term contracts that will go beyond one year. At the time of signing these contracts, the parties to the contracts would not have anticipated the expansion of the Sales and Service Tax (SST) and therefore not built in the necessary clauses to apply the additional taxes.
When the announcements came out together with the guides on June 9, 2025, that was the first time taxpayers started understanding the impact of the expansion on their business. At that point, taxpayers were informed that they will be given some leeway via the “non-reviewable contracts” exemption for a period of 12 months to cushion them from the impact of the expanded SST on ongoing contracts.
Is stamping really necessary?
On June 29, 2025, a major surprise was thrown at taxpayers which curtailed many businesses from enjoying this temporary exemption for 12 months. The principal impediment which will prevent businesses from enjoying the 12-month non-reviewable contract exemption is a particular condition that states that only contracts that were stamped before June 9, 2025 will be able to enjoy the exemption. This exemption is only available for construction contracts, rental or leasing services contracts and financial services contracts.
The requirement to have documents stamped before June 9, 2024 is of a retrospective nature and one of the important principles of tax is “certainty”. Bringing in rules and legislation that are applied retrospectively is not good practice or law.
We believe the purpose of introducing June 9, 2025 as stamping date, although the announcement was made on June 29, 2025, was intended as anti-avoidance measure to prevent the abuse of this provision. The fear could have been on the basis that businesses would attempt to create new documents or modify existing ones to benefit from the exemption. Unfortunately, this can be an “overkill” because genuine transactions which have been entered into by the parties is effectively thrown out of the window.
Genuine transactions that are unlikely to be litigated in court need not be stamped and these transactions will be barred from enjoying the exemption.
The Stamp Act does not mandatorily require every written instrument to be stamped. It merely states that if you wish to have it stamped, you must send it for adjudication and seek an assessment. On this understanding, many taxpayers genuinely may not have stamped their agreements. Imposing the stamping requirement condition as a prerequisite to benefit from the exemption appears to be contradictory to the commercial relationship of the parties of the contract.
Other problems around non-reviewable contracts
It is very likely that we are going to face in the future the same problems we faced when we dealt with similar provision when the Goods and Services Tax was in force. The kind of problems that taxpayers are going to face is the meanings of the phrases “fixed contract values”, “reviewable or not reviewable” and “price revision clause or value adjustment mechanism”, etc.
What happens when existing contracts contain specific tax clauses that allows the parties to pass on any new taxes without changing the original contract price? Similarly, what happens to other clauses that allow certain reimbursable costs without affecting the original contract price for the services or goods provided? How will such changes be interpreted? Will it fall within the non-reviewable contract exemption, or would it be outside? There are many more challenges taxpayers will face when dealing with this exemption.
Way forward
To avoid any disputes with the Royal Malaysian Customs Department, we would urge taxpayers to immediately bring up all their uncertainties around this issue to the authorities and obtain a ruling.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
