Taxpayer Shortchanged by Its Own Interpretation of Stamp Duty Law
The Stamp Act 1949 prescribes the stamp duty payable on various kinds of instruments. It is the type or nature of the instruments, and not the transactions embodied, that determines the stamp duty payable. The First Schedule to the Stamp Act lays down the types of instruments chargeable with stamp duty and the amount payable. This article deals with the interpretation of item 22 in the First Schedule, which prescribes inter alia the types of instruments and the stamp duty payable, as follows:
“BOND, COVENANT, LOAN, SERVICES, EQUIPMENT LEASE AGREEMENT OR INSTRUMENT of any kind whatsoever:
(1)…
(a) for a definite and certain period so that the total amount to be ultimately payable can be ascertained — The same ad valorem duty as a charge or mortgage for such total amount.
(b) for the term of life or any other indefinite period—RM1 for every RM100 and also for any fractional part of RM100 of the annuity or sum periodically payable”
In the case of Pemungut Duti Setem (a.k.a. Stamp Duty Collector) (“Appellant” or “collector“) v. Ann Joo Integrated Steel Sdn Bhd (“Respondent” or “Taxpayer“) [2025] 1 AMR 461, the Respondent entered into a loan agreement (found by the Court of Appeal as “substantively a loan agreement”) with a bank for various credit facilities up to the limit of MYR105 million. For the purpose of the stamp duty payable on the loan agreement, the Respondent claimed that it should benefit from the Stamp Duty (Remission) (No.2) Order 2012 (“Remission Order“) for remission of the stamp duty payable under the item 22(1)(b). However, the stamp duty collector disagreed and assessed the duty payable under item 22(1)(a) instead. As such, the collector fixed the duty payable at MYR525,000.00. The Respondent, being dissatisfied with the stamp duty assessment, appealed to the High Court, which allowed the appeal and set aside the assessment. The collector appealed to the Court of Appeal.
The Court of Appeal, after analysing the nature of the loan agreement, came to the conclusion that, being a loan agreement of an open period (notwithstanding the provision in the agreement for a tenure of up to 180 days), it was not an agreement “for a definite and certain period”. Further, being a loan agreement and the Respondent being under an obligation repay the amount borrowed by paying various undetermined sums from time to time, there was no “total amount to be ultimately payable” that “can be ascertained” at the time of stamping. As such, the loan agreement was outside the ambit of item 22(1)(a). Hence, it was an instrument “for any other indefinite period” within item 22(1)(b).
However, the contention did not stop there because the Remission Order provides for remission of the stamp duty payable in the following words:
“2. The amount of stamp duty that is chargeable under subsubitem 22(1)(b) of the First Schedule of the [Stamp] Act upon a loan agreement or loan instrument without security for any sums or sums of money repayable on demand or in single bullet repayment under that subsubitem which is in excess of zero point one percent (0/1%) is remitted.”
The Court had to decide whether the Remission Order applied to the loan agreement. On the facts, the Court found that the loan agreement met all four conditions in the Remission Order, namely, that there was an amount of stamp duty chargeable under item 22(1)(b), the agreement was a loan agreement, there was no security for the loan, and there were sums repayable by the Respondent to the bank. Since the Remission Order applied to the loan agreement, the Court had to decide how much stamp duty was remissible or refundable, if any at all.
On the facts, the Respondent had paid MYR525,000.00 as stamp duty, and claimed that the proper stamp duty payable should be 0.1% or MYR105,000.00. The Respondent, therefore, sought a refund of MYR420,000.00. The amount of stamp duty payable, as contended by the collector, is disregarded for the simple reason that the collector applied item 22(1)(a) which was held by the Court to be legally wrong. However, the Court of Appeal disagreed with the computation of refund by the Respondent (as upheld by the High Court). Applying both item 22(1)(b) and the Remission Order together, the Court held that the words “the amount of stamp duty chargeable (i.e. payable)” in the Remission Order refer to the amount of stamp duty payable under item 22(1)(b), which is MYR1 for every MYR100 or a fraction thereof, or 1% simply. Since the maximum loan sum available under the loan agreement was MYR105,000,000.00, the stamp duty payable under item 22(1)(b) is MYR105,000.00, and the 0.1% stated in the Remission Order refers to 0.1% of MYR105,000.00, i.e. MYR1,050. On the facts, since the Respondent had paid stamp duty of MYR525,000.00, it should get refund of MYR523,950.00. However, due to its own interpretation that the applicable rate of stamp duty should be 0.1% or MYR105,000.00 and that it should get refund of MYR420,000.00 as held in its favour by the High Court, the Respondent did not lodge any cross-appeal. Because there was no cross-appeal lodged, the Court of Appeal was unable to disturb the part of the High Court order which ruled in favour of the Respondent by ordering a refund of MYR420,000.00.
In summary, the Respondent was shortchanged of MYR103,950.00 (MYR523,950 – MYR420,000).
If you have any issues regarding Tax or Customs, please do not hesitate to Contact ETCoLaw.
21 March 2025
Tax Incentive for Smart Logistics Complex (SLC)
The Malaysian government has announced tax incentive for Smart Logistics Complex (SLC) in the form of income tax exemption equivalent to investment tax allowance of 60% the qualifying capital expenditure incurred within a period of 5 years. The tax allowance can be offset against 70% of statutory income for each year of assessment. Unutilised allowances can be carried forward until fully absorbed.
An SLC is defined to mean a modern facility that utilises technology
to optimize and automate various warehouse operations. It integrates
advanced systems such as the Internet of Things (loT), artificial intelligence
(Al), Radio Frequency Identification (RFID) and automated material
handling equipment to enhance efficiency, reduce costs, and improve
overall supply chain performance.
The tax incentive applies to 2 business models: namely, SLC Model 1 which involves investment in smart warehouses and carrying out qualifying logistics services/activities, and SLC Model 2 which involves leasing of a smart warehouse with a minimum term of 10 years to carry out qualifying logistics services. The tax incentive applies both new and existing companies. However, only 1 company within a group of companies is eligible for the tax incentive.
The company seeking the tax incentive must be incorporated in Malaysia, and be resident in Malaysia.
The qualifying activities or services must come from any one of the following:
- Regional Distribution Centre
- Integrated Logistics Services
- Dangerous Goods Storage
- Cold Chain Facility
The built-up size of the smart warehouse must be at least 30,000 square metres. The company must incur fixed asset investment (excluding land) for the construction of the smart warehouse complex within the incentive period. In addition, the company must incur an additional amount of operating expenditure on local services for insurance, legal, banking, ICT and transportation.
The smart warehouse complex must be equipped with at least 3 enabling technological elements, including big data analytics, cybersecurity, AI, IoT and others. The complex must also adopt at least one of the green technologies, including: renewable energy, energy efficiency, rainwater harvesting system, or Green Building.
There are requirements in relation to manpower, such as:
- at least 80% of full-time Malaysian employees,
- at least 20% of the manpower must be at the managerial, technical and supervisory level with a minimum monthly salary of RM7,000.
The company must engage a local contractor as the main contractor for the construction of the warehouse complex, must use local seaports, airports or transportation services. The company must establish partnerships with at least 3 local logistics companies to carry out the integrated logistics services.
ETCoLaw advise clients on FDI, DDI and doing business in Malaysia. If your company is interested to invest in SLC in Malaysia, or in other forms of investment, please do not hesitate to CONTACT ETCoLaw.
11 February 2025
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Tax Implications under Budget 2023 Announcement
The text below gives a list of certain tax implications as announced in the Budget 2023 by the government.
Resident Individual Income Tax
Effective from YA2023
2% reduction for income bracket RM35,001 to RM100,000
Tax increment for the following income brackets:
- RM100,001 to RM250,000 (1%)
- RM250,001 to RM400,000 (0.5%)
- RM400,001 to RM600,000 (1%)
- RM600,001 to RM1 million (2%)
Individuals Holding C-suite Positions
Effective from YA2023
The special tax rate of 15% for individuals holding C-suite positions in certain manufacturing companies which relocate their operations to Malaysia is extended to YA2024.
MSMEs Income Tax
Effective from YA2023
Income tax rate is reduced from 17% to 15% in respect of the first RM150,000 of chargeable income.
For chargeable income between RM150,001 and RM600,000, the tax rate remains at 17%
Special Voluntary Disclosure Programme (SVDP)
Under the SVDP, a 100% waiver of penalty will be granted. The SVDP applies to both IRBM and RMC.
The SVDP is effective from 1 June 2023 to 31 May 2024.
Proposed New Capital Gains Tax
The government plans to study the introduction of a new capital gains tax at a low tax rate on the disposal of unquoted shares made by companies. Unquoted shares refer to shares that are not listed on Bursa.
The new CGT will be introduced for YA2024.
Luxury Goods Tax
The luxury goods tax will be reintroduced in 2023 to cover certain kinds of luxury tax of certain minimum values. Such tax could potentially apply to private business jets, luxury yacht, luxury watches, jewellery and so on. the categories of goods and tax rates are unknown yet. The effective date was not specified.
Tax Incentive for Relocation to Malaysia
A special tax rate of 0% for up to 15 years or 100% investment tax allowance for 5 years for qualifying companies in manufacturing and selected services sector. The incentive is effective until 2024.
Tax Exemption and Investment Tax Allowance for the Aerospace Industry
Qualifying companies may enjoy income tax exemption of 70% to 100% of statutory income for a period up to 10 years or investment tax allowance of up to 100% on qualifying capital expenditure (to be set off against 70% to 100% of statutory income) for 5 years.
The exemption applies to applications to MIDA from 1 January 2023 to 31 December 2025.
For more information about ETCoLaw’s Aviation & Space Law Practice, please click on Aviation & Space Law.
Electric Vehicles
Full import duty and excise duty exemption on imported CBU EV is extended to 31 December 2025.
Full excise duty and sales tax exemption on locally assembled CKD EV, as well as full import duty exemption on components of locally assembled EV, is extended to 31 December 2027.
Transfer of Property by way of Love and Affection – Stamp Duty
The full exemption of stamp duty on the instrument of transfer is expanded to cover transfer of property between parents and children, grandparents and grandchildren, of Malaysian citizenship, up to the first RM1 million. Any value in excess of RM1 million is subject to ad valorem duty rate but given 50% remission.
The new exemption applies to instruments executed on or after 1 April 2023.
For more information about ETCoLaw’s Tax & Customs Practice, please click on Corporate & Commercial Law Practice.
If you have any tax or customs issue, please do not hesitate to Contact ETCoLaw.
24 February 2023
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