MCA proposes reforms to stamp duty on employment contracts

Summary

• MCA suggests several improvements to the employment contract stamp duty.

• They include increasing the exemption threshold and introducing a gradual adjustment mechanism.

• Party veep Lawrence Low also urges the government to enhance the e-Stamping system and integrate it with Socso and EPF platforms to streamline human resources processes.

MCA suggested several improvements to the employment contract stamp duty to modernise policies to reflect current economic realities.

Party vice-president Lawrence Low proposed that the existing exemption threshold be increased from RM300 per month to RM3,000, in line with the personal income tax exemption level, as a short-term measure.

In a statement on Facebook, he said this would relieve low-income contracts from stamp duty and penalties.

Another suggestion was to introduce a gradual adjustment mechanism from next year onwards.

Low said this would involve increasing the exemption threshold by 10 to 15 percent every year, taking into account factors such as salary trends, the minimum wage, and overall market conditions.

“The current regulations are based on the Stamp Act 1949, a law introduced in a very different economic and labour context.

“Over the decades, both our economy and employment practices have changed significantly. Small and medium enterprises (SMEs) today operate in a far more dynamic and diverse environment.

“Continuing to apply outdated provisions does not serve the needs of modern businesses,” he said.

Review called

On Monday (June 2), the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) called for a review of the mandatory stamping requirement for employment contracts, proposing that the exemption threshold be updated from the current RM300 monthly wage to RM10,000.

In Malaysia, employment contracts are subject to a RM10 stamp duty per agreement, as mandated under the Stamp Act 1949.

The Act states that all employment contracts must be stamped within 30 days of signing, otherwise the Inland Revenue Board (IRB) may take action.

The government has extended the grace period for late payment penalties until Dec 31, 2025.

Temporary relief

In his statement, Low warned that the extension only provides temporary relief.

He also called for the improvement of the electronic stamping process.

“Enhancing the usability of the e-Stamping platform and integrating it with the Social Security Organisation (Socso) and Employees Provident Fund (EPF) systems would enable human resources departments to handle stamping, EPF registration, and Socso declarations on a single platform.

“This would greatly reduce repetitive tasks and administrative overhead,” he added.

Besides that, he said the government should consider exempting businesses with fewer than five employees from stamp duty requirements or offer them a simplified compliance option.

“For example, stamp duty could be calculated as a percentage of the contract value, such as 0.1 percent, rather than applying a flat RM10 per contract.

“This would help avoid disproportionately high costs for small contracts,” he said.

He emphasised that tax policy must not impose unnecessary administrative burdens but instead support business growth and innovation.

He further stressed the importance of ongoing dialogue with the business community while keeping in mind long-term reform measures.

The IRB introduced the Stamp Duty Audit Framework, effective from Jan 1, 2025, which aims to support ahead of the transition to a self-assessment system.

The framework provides guidelines to improve voluntary compliance.

It can be accessed on IRB’s website.

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