Dato' Philip Chan provides a primer on Stamp Duty (Remission)(No. 4) Order 2010.

INTRODUCTION
 
The Finance Act 2009 introduced various amendments to the Stamp Act 1949 ("Act") including amendments to Item 22(1) of the First Schedule of the Act.
 
Item 22(1) had hitherto been the head of charge for stamp duty payable on an instrument which is the only or primary security for the payment of annuities or sums of money payable at stated periods.
 
The amendment expanded the categories of instruments which came within the purview of Item 22(1) to include "loan, services, equipment lease agreement or instrument of any kind".
 
In respect of an instrument which falls under this head of charge, stamp duty at a rate of 1% is imposed on an instrument which is the only or primary security for any annuity under sub-paragraph (a) of Item 22(1).
 
Where an instrument is the only or primary security for any sum or sums of money, not being interest for any principal sum secured by a duly stamped instrument, nor rent reserved by a lease or tack, sub-paragraph (b) of Item 22(1) ("Item 22(1)(b)") imposes stamp duty at the ad valorem rate of 0.5% of the total amount secured by that instrument.
 
The amendment to Item 22(1)(b) caused grave concerns within the services sector, including the construction industry, as the new rate of stamp duty could significantly increase the cost of doing business, especially with respect to service agreements that involve large sums of money.
 
STAMP DUTY (REMISSION) ORDER 2009
 
To address the concerns raised by the services sector, the Minister of Finance exercised his powers under Section 80(2) of the Act and issued the Stamp Duty (Remission) Order 2009 ("2009 Order").
 
The 2009 Order remits all duty chargeable under Item 22(1)(b) which exceeds RM50 in respect of any service agreement. The 2009 Order came into effect on 15 September 2009 and expired on 31 December 2010.
 
STAMP DUTY (REMISSION)(NO. 4) ORDER 2010
 
On 30 December 2010, the Minister of Finance further exercised his powers under Section 80(2) of the Act and issued the Stamp Duty (Remission)(No. 4) Order 2010 ("2010 Order"). The 2010 Order applies to service agreements entered into on or after 1 January 2011.
 
Paragraph 2(1) of the 2010 Order remits the amount of stamp duty chargeable under Item 22(1)(b) which is in excess of 0.1% of any sums of money relating to the service agreement described in Paragraph 2(2) of the 2010 Order, that is –
 
(a)     a service agreement entered into by a main service provider with a person other than a Ruler of a State or the Government of Malaysia or of any State or local authority awarding the undertaking (Paragraph 2(2)(a)); or
 
(b)     a service agreement entered into by a main service provider with a sub-provider of service where the person awarding the undertaking to the main service provider is a Ruler of a State or the Government of Malaysia or of any State or local authority (Paragraph 2(2)(b)).
 
The rationale for imposing the ad valorem rate of charge of 0.1% on a sub-service agreement under Paragraph 2(2)(b) of the 2010 Order is that a service agreement relating to an undertaking awarded by a Ruler of a State or the Government of Malaysia or of any State or local authority is exempted from stamp duty.
 
Paragraph 2(3) of the 2010 Order remits the amount of stamp duty chargeable under Item 22(1)(b) in excess of RM50 on any service agreement entered into between –
 
(a)     a main service provider and any sub-provider of service where the person awarding the undertaking to the main service provider is a person other than a Ruler of a State or the Government of Malaysia or of any State or local authority; or
 
(b)     a sub-provider of services and any further sub-provider of services where the person awarding the undertaking to the main service provider is a Ruler of a State or the Government of Malaysia or of any State or local authority.
 
To be eligible for stamp duty remission under Paragraph 2(3) of the 2010 Order, a sub-service agreement or sub-sub-service agreement must state –
 
(a)     the names of the parties and the date of execution of the agreement referred to in Paragraph 2(2)(a) or 2(2)(b), as applicable, of the 2010 Order;
 
(b)     the subject matter of the agreement; and
 
(c)     that the agreement under Paragraph 2(2)(a) or 2(2)(b), as applicable, has been duly stamped at the rate specified in Paragraph 2(1) of the 2010 Order.
 
EFFECTS OF THE 2010 ORDER
 
The 2010 Order increases the stamp duty payable from a maximum sum of RM50 under the 2009 Order to 0.1% of the amount payable under the relevant service agreement. However, the stamp duty payable on sub-service agreements remains unchanged.
 
Unlike the 2010 Order which had a fixed duration that expired on 31 December 2010, the 2010 Order will remain in force until it is revoked.
 
CONCLUSION
 
The 2010 Order offers further respite to the services sector from the full impact of the ad valorem rate of duty of 0.5% stipulated in Item 22(1)(b).
 
As a ministerial order can be revoked or further amended at any time through executive action, the spectre of the unabated rate of stamp duty under Item 22(1)(b) being imposed in future hangs over the services sector in Malaysia like the Sword of Damocles.