Govt urged to reconsider mandatory stamp duty on employment contracts

Tan
KOTA KINABALU (June 3): The Sabah Association of Professional Accountants (SAPA) expresses concern over the recent directive by the Inland Revenue Board (LHDN Malaysia) requiring all employment contracts to be stamped in accordance with the Stamp Act 1949.
'While we recognise the importance of legal compliance and revenue collection, SAPA calls on the government to urgently consider exemptions or threshold limits, especially for small and medium enterprises (SMEs),' said its president, Datuk Tan Kok Liang.
He said this policy places additional administrative and financial burdens on businesses — particularly in Sabah, where operating costs are already higher due to logistics, geographic challenges, and a more constrained labour market. 'The move to enforce stamp duty on all employment contracts, regardless of salary level or business size, risks creating unintended pressure on SMEs,' he said in a statement on Tuesday.
The key concerns are as follows:
Disproportionate impact on SMEs: Unlike large corporations, small businesses operate on tight margins. A blanket enforcement adds to compliance costs without proportional benefit.
Administrative Burden: The need to process, submit and pay for stamp duty on every employment contract creates extra red tape, especially for businesses with high staff turnover or seasonal employment. Impact on formalised contracts: Over-regulation in the hiring process may discourage small businesses from formalising contracts thus placing employees in rural and semi-urban Sabah into vulnerable position.
SAPA's recommendations:
Introduce a Threshold Limit: Exempt employment contracts for positions with monthly salaries below a reasonable threshold (e.g. RM4,000), in line with many other tax relief measures.
Provide Full or Partial Exemption for Micro and Small Enterprises: Particularly those with annual revenue below RM500,000 or fewer than 10 employees.
Phase Implementation with Outreach: This includes sufficient time to meet up with the new requirements and a new implementation date of 1 January 2026 and approach with education and support will ease compliance.
SAPA strongly urges the Ministry of Finance and the Inland Revenue Board to engage with industry stakeholders in Sabah and other less-developed states before blanket implementation.
Public policy must consider regional disparities, business realities, and the broader objective of stimulating employment and economic growth.
'We are confident that with constructive dialogue, a balanced policy solution can be achieved that protects both the interests of the government and the resilience of our local business community,' said Tan.
He added the Stamp Act must be modernised to reflect current practical realities rather than remaining rooted in outdated and regressive approaches. While its original intent and purpose — to provide legal certainty and protect the interests of contracting parties — remain important, these objectives must be interpreted in the proper context. The Act should not be used in a manner that causes undue inconvenience or serves merely as a revenue-generating tool.
In the case of employment contracts, for instance, such agreements have long been executed and honored by both employers and employees without issue. This consistent practice demonstrates mutual respect and understanding of contractual obligations, regardless of whether the documents were stamped. Insisting on strict adherence to outdated requirements, especially where there is no dispute between parties, undermines the spirit of the law and creates unnecessary administrative burdens, he pointed out.
'It is time for a balanced approach — one that preserves the protective function of the Stamp Act but updates its application to align with modern business practices and realities' he said. Previous Article UMS water supply sufficient, says Shahelmey

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