Revised Service Tax Guide on Employment Services (CD/4/2026)

The Royal Malaysian Customs Department (RMCD) issued the revised Panduan Perkhidmatan Pekerjaan (Versi 4), dated June 9, 2026. The revised guide changes the service tax treatment of manpower outsourcing services. The guide is currently available in Bahasa Malaysia.

1.  Revised service tax treatment

Under RMCD’s revised guide, salaries and other employment costs recovered by a manpower agency are treated as part of the taxable value of the service, even where the amounts are charged to the customer at cost and without any mark-up.

As a result, manpower agencies are required to charge 8% service tax on the full amount billed to customers, including:

1. Salaries and wages paid to workers
2. Employer contributions to the Employees Provident Fund (EPF)
3. Employer contributions to the Social Security Organisation (SOCSO)
4. Medical, insurance and other costs relating to workers
5. Other expenses connected with providing the manpower service

Previously, separately itemised employment costs recovered without any mark-up could generally be excluded from the taxable value. Service tax was mainly imposed on the management or service fee charged by the manpower agency. Under the revised treatment, service tax is calculated on the total invoice value.

2.  Example of the cost impact

Where a manpower agency bills a company RM100,000 comprising:

• RM90,000 for salaries and other employment costs
• RM10,000 as the agency’s management fee

The 8% service tax would now apply to the full RM100,000, rather than only to the RM10,000 management fee. This would increase the service tax payable from RM800 to RM8,000.

3.  FMM’s engagement with MOF and RMCD

FMM raised these concerns during a meeting with the Ministry of Finance (MOF) and RMCD on July 21, 2026. FMM highlighted that:

• Salaries and statutory contributions are pass-through costs paid by the manpower agency and recovered from the customer
• The agency does not earn a mark-up on these costs
• The actual service provided by the agency is the recruitment, administration and management of workers
• Service tax should therefore apply to the management or service fee, rather than the full amount billed

MOF acknowledged the concerns raised and confirmed that the matter is under review. Pending the outcome of the review, companies are still required to proceed with the revised treatment.

4.  Way Forward

Members are advised to review the revised treatment where they:

• Use manpower outsourcing or labour supply services for production, warehousing, packing or other operational activities
• Use workers supplied by external service providers for merchandising, product promotion, sales support or other business activities
• Engage service providers to process payroll or pay salaries on their behalf
• Recover salary and employment costs between related companies

Affected companies should review their contracts, invoices, pricing arrangements and the resulting cost impact.

FMM is organising a roundtable discussion with affected companies, foreign business chambers and industry associations to update members on the engagement with MOF and RMCD, gather feedback and discuss the proposed way forward on Wednesday, August 5, 2026, from 11.30 am to 1.00 pm. Members using manpower outsourcing, labour supply or payroll processing services are encouraged to register and attend this roundtable discussion and can register your attendance using this link https://forms.gle/XGwDarcvrKhmXwRg9