Employment services were first prescribed as taxable services under Service Tax (Amendment) (No. 4) Regulations 1997 [P.U. (A) 413/1997] with effect from 1 January 1998. The description of the taxable employment services was “provision of all types of employment services".
The description of taxable employment services was subsequently amended by Service Tax (Amendment) (No. 2) Regulations 2002 [P.U. (A) 509/2002], with effect from 1 Jan 2003, as follows:
"Provision of all types of employment services excluding -
provision of employment services in the form of secondment or supplying employees to work for another person for a period of time; or
provision of employment services for employment outside Malaysia."
However, administratively, Royal Malaysian Customs (RMC) had decided that "secondment of employees with administrative fee/charge/mark-up imposed” is subject to service tax. This was disputed by businesses and a dialogue was held on 16 December 2011 among the RMC, CTIM and the representatives from the industry associations to discuss the matter. The dialogue urged the RMC to re-consider the above administrative decision.
Upon re-assessment of the disputed issue, the RMC has recently issued an official letter indicating that
secondment of employees or supplying/outsourcing employees for a specific period of time by an agreement is not subject to service tax underItem (i), Group G of the Second Schedule to the Service Tax Regulations 1975.
Relevant employment agencies may apply to their respective RMC Branches to cancel their service tax licences.
All service taxes levied and collected from the customers by the relevant employment agencies must be paid over to the RMC.
Members may view the RMC letter on the Institute's website.