ALL taxpayers should be aware by now that the stamp duty regime is being migrated from the official assessment system to the self-assessment system starting Jan 1, 2026. This is a big change.
Until now, the general understanding of the public is written agreements which in stamp duty terms referred to as “instruments” are only required to be stamped where there is a possibility that the documents may be brought to court as evidence or the documents need to be compulsorily stamped as a precursor for any transfer required by other government authorities such as the Land Office, Companies Commission of Malaysia or exemptions under the Section 15 and 15A of the Stamp Act 1949.
There are many challenges that will be faced by the taxpayers in participating in the self-assessment system. Questions that will puzzle the taxpayers will be: whether to stamp a document or not; when to stamp it; how to classify the instruments which will have consequential effect on the rate of duty; how to use the stamps portal; who should send it for stamping – which party is responsible for stamping.
How to deal with the past?
Numerous announcements around stamp duty concerning employment contract may have given the wrong impression to taxpayers that the Inland Revenue Board (IRB) may be providing the same concession given to the employment to all the documents that should have been stamped in the past.
On employment contracts, the IRB has provided a concession stating that all such contracts executed before Dec 31, 2024, will be eligible for waiver from stamp duty and late payment penalty. For the year ending 2025, the IRB will waive the penalty, but the duty for the stamp duty will be payable. This is confined to employment contracts and there is no general announcement of any concessions for the other taxable instruments.
The question here is – can the IRB raise assessments and collect stamp duty on instruments that were executed prior to the introduction of the self-assessment system? The current direction of the IRB is that it has the right to collect the tax.
There are two categories of instruments.
One category is where the taxpayer has in the past sent it in for adjudication and stamped it at a rate which the IRB is subsequently of the view that it should be higher and this is premised on a unique provision, Section 50A. This was introduced with effect from 2009 where it allows the IRB to collect the understated tax due to its failure to assess the correct amount of tax.
The second category which will pose a problem to taxpayers is where the documents have not been stamped.
Is there a time limit for the IRB to exercise its right to collect the past taxes? This is unclear and debateable. However, with the introduction of the self-assessment system in 2026, it is now explicitly mentioned that there is a time limit of five years.
The five-year limit will be lifted if there is any fraud, wilful default or negligence. Although the five-year limit kicked in only on Jan 1, 2025, introducing such a provision signifies that for the past issues the IRB does not have unfettered right to raise an assessment on an open-ended basis without any limitation of time.
Generally, there is the doctrine of legitimate expectation that if the IRB has not challenged the taxpayers within a reasonable timeframe the past assessment done under the official system is final, otherwise all assessments that have been issued in the past are “in limbo land”.
The expectation of the public is that the IRB will interpret the law fairly and where there are uncertainties it will give the taxpayer the benefit of the doubt and apply the law on a forward basis rather than enforce it for the back years.
There are many more issues taxpayers should be taking stock of in relation to the past and dealing with the future.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
