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Sunday, February 7, 2016
2016 EPF Contribution Rate: 8% or 11%?
Malaysia Prime Minister Dato Seri Najib Abdul Razak announced a re-calibrated budget to be in line with the low crude oil price on the 28th of January 2016. Among the most debated issue from the new budget is the EPF contribution rate, either to go for the 8% or maintaining 11% contribution for the next 22 months.
There is no right or wrong to go for either one as both options have own pros and cons. By opting for 8%, one will have additional 3% to help cushion the rising cost of living, or it can be used for loan repayment or investment; while maintaining 11% will have everything status quo and maintaining the retirement fund availability.
Some argue that by opting 8% will end up paying more tax, but how true this statement is? To me, it depends on how the 3% is use. While I agree that spending the additional 3% on goods will end up paying more tax in the form of GST, I don't totally agree that opting for 8% alone will end up paying more tax. Of course, some might end up paying more income tax because they have yet to fulfill the RM6,000.00 cap of relieve.
I've drawn out the chart, and from the chart I have only include the personal relieve of RM9,000 in the calculation besides the EPF contribution and life insurance relieve. It is obvious for people earning RM2,000 per month (RM24,000 annually) to RM6,000 per month (RM72,000 annually) will be impacted where as people earning more than are paying the exact same amount of tax.
So, after knowing about the difference of income tax payable by opting for eight percent versus eleven percent, which one will you opt for?