PETALING JAYA: The requirement for all employment contracts to be stamped by the Inland Revenue Board (LHDN) could impose significant financial and administrative burden, especially on small and medium enterprises (SMEs), say industry players.
They said companies with high staff turnover would also be affected.
Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said there has been an intensified audit since the Stamp Duty Audit Framework was introduced on Jan 1 this year.
Even though there is a legal provision under the Stamp Act 1949 requiring employment contracts to be stamped, it has yet to be widely practised.
He said as such, with the launch of the Stamp Duty Audit Framework, there has been a noticeable increase in audit and enforcement activities across all sectors.
“The requirement under the Act applies to all categories of employment contracts, including full-time, part-time, fixed term and internship agreements.
“Therefore, this affects businesses across all industries,” he said in a statement to The Star.
Stamping refers to the payment of stamp duty to LHDN to formally validate specific legal documents.
According to the Stamp Act 1949, employment contracts fall under chargeable instruments listed in the First Schedule.
However, agreements involving monthly wages below RM300 are exempt though this threshold is far below Malaysia’s current minimum wage of RM1,700.
For an employment contract, stamping involves a RM10 fee per copy and must be stamped within 30 days of signing. Failure to do so could result in a penalty of up to RM100 per document.
According to LHDN, the framework seeks to ensure the audit is carried out in a fair, transparent and impartial manner, by outlining the rights and responsibilities of audit officers and duty payers.
Soh said the impact of this move is more severe on companies with high employee turnover or seasonal hiring needs, as they face mounting compliance costs.
“For SMEs already managing tight margins, this can be especially difficult,” he said, adding that larger companies hiring seasonal employees and with a higher turnover rate would also suffer substantial cumulative impact.
Soh said FMM has appealed to LHDN for a one-time amnesty on past instruments and the issuance of clear guidelines to help businesses transition to compliance without facing undue penalties.
Malaysia HR Forum chief executive officer Arulkumar Singaraveloo also supported the call for an amnesty period.
He said there should be a wider awareness campaign on the stamping requirement for employment contracts.
Arulkumar also said companies with a large workforce or high employee turnover may face considerable challenges due to the volume of employment contracts that would need to be stamped.
He added that it increases the administrative workload.
Arulkumar urged LHDN to review its approach, suggesting that the stamping requirement be made voluntary or applied on a needs basis.
“For instance, stamped contracts are not a prerequisite in Industrial Court proceedings or most employment-related disputes. If required, companies could still have the contracts stamped prior to submission to the relevant authorities.”
