The EPF says contributors can maintain their current contribution by completing the ‘Notis Pilihan Mencarum Melebihi Kadar Berkanun’ available from Feb 2, 2016 onwards. – Bernama photo
KUCHING: A financial consultant dispelled the notion that opting to contribute eight percent towards your Employee Provident Fund (EPF) instead of 11 percent will end up paying more income tax to the government.
This comes as a text has been made viral via WhatsApp and Facebook, causing confusion among readers.
The message reads, “Assume monthly basic salary is RM4,000, if your monthly EPF contribution is 11 per cent, taxable income will be RM3,560 and income tax payable will amount to RM77.
“However, if your monthly EPF contribution is eight per cent), taxable income will be RM3,680 and income tax payable is RM109.”
This indicates that contributors pay a difference of RM32 more tax should they opt for the eight percent EPF option.
The message further states that “this measure is meant to boost up the slow-down market, but from this example we 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,” it further claimed.
However, a financial consultant, when contacted by thesundaypost yesterday, clarified that certain technicalities have been left out of this equation.
“You need to read this together with the new special tax relief of RM2,000 for those earning RM8,000 per month or less,” the source told thesundaypost, declining to be named.
According to the consultant’s estimations, we take into account a gross salary of RM4,000 per month (which is RM48,000 per annum); personal relief of RM9,000; maximum EPF of RM6,000; a tax rebate of RM400 (if chargeable incomee is less than RM35,000 per annum) and special tax relief of RM2,000.
Assuming the contributor keeps his or her EPF contributions at 11 per cent, his or her tax payable is calculated at RM168.50 per month.
If the contributor opts for eight per cent contributions, tax payable per month amounts to RM180.50.
“Technically, you are paying RM12 more per month to have extra RM120 in your pocket instead of in your retirement fund,” the source further clarified.
“The RM2,000 special tax relief has somewhat compensated for the additional tax which would have otherwise apply to those earning RM4,000 per month if he or she opt for the eight per cent employee’s contribution.”
Contributors to the EPF can opt to maintain the current subscription of 11 per cent by completing a notification form to indicate their request.
The EPF in a statement on Friday said they could maintain the current contribution by completing the ‘Notis Pilihan Mencarum Melebihi Kadar Berkanun’.
Contributors can download the Notis KWSP 17A Khas2016 from EPF’s website at www.kwsp.gov.my from Feb 2, 2016 onwards.
The statement was issued in response to Prime Minister Datuk Seri Najib Tun Razak’s announcement about the reduction in the employees’ contribution from 11 per cent to eight per cent for those below 60 when he presented the recalibrated 2016 Budget earlier this week.