Sneak Taxation

The tax men taketh and taketh.

Consultants and business would have probably realize by now a particularly sneaky extra cost in doing business in Malaysia courtesy of the Finance Act 2008.

The provision concern is Section 65 which says the following:

The First Schedule to the principal Act (being the Stamp Act 1949) is amended by substituting for item 22(1) the following item:

"Section 22. Covenant, Loan,Services, Equipment Lease Agreement or Instruments of any kind whatsoever.."

and its goes on to state Ad Valorem tax of 0.5% is imposed on these agreements and instruments.

In other words, if you intend to stamp a service agreement - basically a promise to do something for another party for a certain sum of money - you are slapped with this added cost.

It used to be a flat rate of RM10, but now it's RM5 for every RM1,000.

A RM1m service AGREEMENT will set the parties back by RM5,000 never mind that there is still nothing exchanged between the parties as yet.

I.e. A tax on promise.

In the construction sector where there are easily three, four layers of contractors, tradesmen and consultants, each and every one of the agreements will kena the Ad Valorem.

And these contracts are almost never measly RM1m agreements and the Stamp Act 1949 states the Ad Valorem is payable on the whole contract sum, even if the works are in phases.

Go to any Stamping Office and you are liable to see despatches being turned away without their documents being stamped as the stamping fee is no longer the RM10 that it was before.

Red faced consultants suddenly find themselves having to explain to their clients that they need to fork out some extra money in an environment already fraught with uncertainties.

The amendments supposedly takes effect from Jan 1.

I do not know whether it was case of bad drafting, or an intentional one, but coming at a time of Great Depression (gasp!!), the only party being stimulated here would be the Taxmen.

What is our representatives at the Parliament doing in missing such a blatant tax on business?

Whose interests are they looking out for?

Do note that businesses create employment for the Rakyat before you start yammering about social responsibilities bla bla.

Don't demean yourself that this was the right move to be made.