EPF 8% Means Paying More Income Tax

[infinityKL]

EPF 8% Means Paying More Income Tax ( For High Income Group )Assume monthly basic salary is RM4000. - If your monthly EPF contribution is 11% ( RM440 ), taxable income = RM3560, income tax payable = RM77. - If your monthly EPF contribution is 8% ( RM320 ), taxable income = RM3680, income tax payable = RM109. Conclusion : If you choose to contribute 8%, you will end up paying more income tax to the government, which will make the government richer. Finance Minister Najib said this measure is meant to boost up the slow-down market, but from this example wee see that the money does not go into the market. Instead the money goes direct into the government's pocket through the greater amount of income tax that we will have to pay. Obviously this measure does not help the market at all.PS: im sticking with the 11%... any comments??

 

[flash]

And it gets worse if you get bumped into the next tax bracket...

But just maybe, just maybe, that the powers that be had not thought or looked further into the tax issue... you knowlah, sometimes how "shallow" their thinking is.... but then again, they are very smart too hood-wink the rakyat.

EPF 8% Means Paying More Income Tax ( For High Income Group )

Assume monthly basic salary is RM4000.
- If your monthly EPF contribution is 11% ( RM440 ), taxable income = RM3560, income tax payable = RM77.
- If your monthly EPF contribution is 8% ( RM320 ), taxable income = RM3680, income tax payable = RM109.

Conclusion : If you choose to contribute 8%, you will end up paying more income tax to the government,
which will make the government richer. Finance Minister Najib said this measure is meant
to boost up the slow-down market, but from this example wee see that the money does not
go into the market. Instead the money goes direct into the government's pocket through
the greater amount of income tax that we will have to pay. Obviously this measure does not
help the market at all.

PS: im sticking with the 11%... any comments??

 

[loafer]

From what I understand, if you want to stay at 11% you'll need to fill out a form and hand it in to EPF right?

IMO our marvelous gov should have made the 8% AS an option instead of forcing everyone on to the 8% and then making the 11% an option.

Imagine the headache the HR department of a huge company with maybe 3000 people on the payroll wanting to revert back to 11%.

 

[infinityKL]

agree agree 100%... Boleh Land!!

 

[funfer_fahrer]

As long as they give me an option to stick with 11%, I am OK.

 

[jarance]

If I am not mistaken, there is a maximum amount that is tax deductable.

 

[Traveler]

There is a maximum amount of EPF contributions that is tax deductible.

IIRC, the maximum amount for EPF employee contributions + life insurance premiums is RM6,000. So if your combined EPF employee contribution + life insurance premiums are over RM6,000 with the 8% rate, then it makes no difference to your taxes (since you've already maxed out your deductions). Your taxes will be impacted only if the combined amount is less than RM6,000.

Thus I would say for the high income group, it makes no difference, but for the middle income group (combined EPF/life insurance is over RM6,000), then you will be paying more in taxes.

On a side note, tax issues aside, I prefer the 8% deduction over the 11% as I feel I can put the 3% difference to better use than EPF can. EPF's investments aren't very high yielding (mostly safe and low-yielding government bonds, followed by corporate bonds and finally equities), and I don't expect this year or next year's dividends to be spectacular given the current market situation. Even in recent years, it's been around the 4-5% range. Now if I have a higher returning investment or if I am paying down debt (housing mortage, etc.) with a interest rate higher than EPF's dividend rate, then I am better off taking that 3% and using it to pay down my debt instead of leaving it with EPF (+4% EPF dividend -6% housing loan = -2% negative carry).

In short, I'll take the 8%

 

[Traveler]

tried to fix disappearing words but failed...

 

[turbology]

In short, I'll take the 8%

Thank you.

 

[funfer_fahrer]

There is a maximum amount of EPF contributions that is tax deductible.


IIRC, the maximum amount for EPF employee contributions + life insurance premiums is RM6,000. So if your combined EPF employee contribution + life insurance premiums are >RM6,000 with the 8% rate, then it makes no difference to your taxes (since you've already maxed out your deductions). Your taxes will be impacted only if the combined amount

Thus I would say for the high income group, it makes no difference, but for the middle income group (combined EPF/life insurance

 

[Traveler]

--- deleted as problem fixed already ---

 

[Traveler]

Don't forget the compounding effect. The extra 3% in a big current fund (although with a small interest) is better than trying to start a fund. The new fund has to work really, really hard because time is another factor. My 2 cents.

That's true as well. Unless you already have something good to pump that 3% into, most people would be better off using it to pay down debt (housing loans are probably the most common) or to just leave it with EPF since otherwise the temptation to spend it would be too great!

 

[infinityKL]

Correct, "temptation to spend it" will be the weakpoint... points taken, tq

 

[funfer_fahrer]

That's true as well. Unless you already have something good to pump that 3% into, most people would be better off using it to pay down debt (housing loans are probably the most common) or to just leave it with EPF since otherwise the temptation to spend it would be too great!

* 3% goes to credit card payment (18% PA) makes sense. (time based)
* 3% goes to housing loan (7% PA) also makes sense. (time based)
* 3% goes to paying off car loan. Not a good idea since it is a flat rate interest rate. Not much savings though.
* 3% goes to Mutual Fund, I don't think it is a good idea especially when the current EPF accumulated amount is big. (Unless the fund gives at least 50% return PA on average)

 

[E46Fanatic]

EPF 8% Means Paying More Income Tax ( For High Income Group )

Assume monthly basic salary is RM4000.
- If your monthly EPF contribution is 11% ( RM440 ), taxable income = RM3560, income tax payable = RM77.
- If your monthly EPF contribution is 8% ( RM320 ), taxable income = RM3680, income tax payable = RM109.

Conclusion : If you choose to contribute 8%, you will end up paying more income tax to the government,
which will make the government richer. Finance Minister Najib said this measure is meant
to boost up the slow-down market, but from this example wee see that the money does not
go into the market. Instead the money goes direct into the government's pocket through
the greater amount of income tax that we will have to pay. Obviously this measure does not
help the market at all.

PS: im sticking with the 11%... any comments??

The conclusion is WRONG. Although your monthly tax deductions is calculated based on income after employee EPF deduction, the annual tax you have to pay is based on your annual salary. I.e. if you earn RM4k a month for the entire year, whether you take 8% or 11% EPF deduction, at the end of the year when you file your borang BE, the tax payable is identical. Which means, if you take 8% option, its likely you'll get $$$ back from LHDN as you would have overpaid your taxes for that year.
:wink:

Wanna see how well your EPF dollars are managed? I'm taking 8% option heh.

 

[flash]

Well, I guess it was a "popularity" decision to make the less knowledgeable rakyats happy. But we do know better... now our HR has more work to do, EPF has more work to do, more trees have to be chopped down to supply the paper required.... Bloody inconvenient.

From what I understand, if you want to stay at 11% you'll need to fill out a form and hand it in to EPF right?

IMO our marvelous gov should have made the 8% AS an option instead of forcing everyone on to the 8% and then making the 11% an option.

Imagine the headache the HR department of a huge company with maybe 3000 people on the payroll wanting to revert back to 11%.

 

[adliz]

EPF 8% Means Paying More Income Tax ( For High Income Group )

Assume monthly basic salary is RM4000.
- If your monthly EPF contribution is 11% ( RM440 ), taxable income = RM3560, income tax payable = RM77.
- If your monthly EPF contribution is 8% ( RM320 ), taxable income = RM3680, income tax payable = RM109.

no offense.. but is this the first time u paying tax? dun u get exemptions?

tho i have to agree that if 8% is optional, then need to fill up form, not the other way round.. however, i believe that MOST (ie more than 50%) salary earning people in Malaysia needs this 3%.. so, in this situation, HR/EPF would eventually be doing less paperwork than if 8% would need to fill form..

 

[infinityKL]

no offense.. but is this the first time u paying tax? dun u get exemptions?

tho i have to agree that if 8% is optional, then need to fill up form, not the other way round.. however, i believe that MOST (ie more than 50%) salary earning people in Malaysia needs this 3%.. so, in this situation, HR/EPF would eventually be doing less paperwork than if 8% would need to fill form..

yes, indeed ... i never declared before and im in the process of paying backdated due'sfor the last 11 years, so bit blur la... a 3rd party is actually helping do this... so all comments are much appreciated...

 

[adliz]

yes, indeed ... i never declared before and im in the process of paying backdated due'sfor the last 11 years, so bit blur la... a 3rd party is actually helping do this... so all comments are much appreciated...

i see.. assuming ur salary is 4k, i'm sure your tax advisor can easily get u away without paying any tax.. :top:

 

[adliz]

there was an article in the star recently.. based on the 'average' income, one would only make around 1++k by retirement age, and based on inflation calculated in, one would require 7++k to live for the next 20yrs..

so, if u have opportunity to venture into biz, try to.. :wink: