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View Full Version : Reduce EPF to 8%, But Pay More Tax



LaDiDa
27-11-2008, 03:02 PM
What some of you may already know.
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.

That means you start paying 41% more tax than you would normally. Multiply that over one year and tally up how much you've lost.

Conclusion : If you choose to contribute 8%, you will end up paying more income tax. That will make the government richer, you poorer. You would be losing more money actually, but you thought the gov. was helping you. It's actually your EPF funds going straight to the government. So think again before choose it. Don't brush it aside. Be aware that it is default come Jan 09. You have to fill up a form to opt not to have it if you don't want it.

Instead of taking our EPF money, they should reduce our tax burden, if they sincerely wanted to help us.

AllUrban
27-11-2008, 03:40 PM
What some of you may already know.
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.

That means you start paying 41% more tax than you would normally. Multiply that over one year and tally up how much you've lost.

Conclusion : If you choose to contribute 8%, you will end up paying more income tax. That will make the government richer, you poorer. You would be losing more money actually, but you thought the gov. was helping you. It's actually your EPF funds going straight to the government. So think again before choose it. Don't brush it aside. Be aware that it is default come Jan 09. You have to fill up a form to opt not to have it if you don't want it.

Instead of taking our EPF money, they should reduce our tax burden, if they sincerely wanted to help us.good note about the epf. but it isnt so simple. A person who reduces their contribution from 11% to 8% could donate all that money to charity or zakat for example, and their taxable income would not increase. In fact, some people believe that it would be better to pay less in taxes (to the federal government) and more in zakat (to the state) and charity (supporting our local community).

m personally isnt sure about whether he will keep the money in EPF or take it and invest it elsewhere..since he might be able to do a better job investing in in places that would benefit society.

instead of reducing our tax burden, how about reducing the burden of privatization and fees and "market driven" planning and development.

Cheers, m

LaDiDa
27-11-2008, 04:15 PM
What was the original objective of this new ruling? If I'm not mistaken, it's to increase the worker's disposable income during this economic downturn, and perhaps spur spending and hence economic growth. How does that occur if that money is channelled into Zakat?
In fact, it would erode into our savings, and that is long term damage.

anny
27-11-2008, 04:34 PM
If I'm not mistaken, the income tax will be lower 1% for certain range of income group.

Anyway, our software company has advised that LHDN is introducing changes to the monthly PCB method of calculation effective next year. Announcement will be made in Dec 08.

let's just wait and see the changes first and then make the calculation whether 8% or 11% is better.

Fabe18
27-11-2008, 04:48 PM
Don't think this formula is applicable thru out all the brackets.

The formula is based on the PCB monthly tax deduction. To get a better picture, you should actually use last year's Borang B or BE to see the difference, based on the figure you have submitted (take the 3% out from KWSP into your taxable income) ... Then you'll see whether you get taxed more or no difference... Assuming you submitted last year's tax...

Haven't done that yet.. Maybe will do soon.

sharonlan
27-11-2008, 05:23 PM
i think this only apply to medium and lower income group, as there is a cap on total deduction on epf&life insurance up to a maxiumum of RM6,000 per year...so, this is really unfair to lower income group, ending up paying more taxes....

Sentinel
27-11-2008, 07:35 PM
The formula is not so simple. The effect of a reduction in EPF contribution on the taxable income is dependent firstly on level of income. For those in the higher bracket, there is a cap to EPF / Insurance deductions so it doesn't make a difference to their income taxes whether they deduct 8% or 11% of their income for EPF.

Maybe for the lower income bracket, even then the impact on tax payable is not so direct, there are deductions along the way that will make the impact less than what you showed.

mlkok
27-11-2008, 11:12 PM
Without going thru the numbers, it's very obvious that the aim of our government in doing so is:
1. Pass the buck to tax payers to help stimulate the economy, ie. spend more (who cares you won't have enough money later)
2. Make money while they make suckers out of you, ie. the higher income tax payable.

Don't you just love our government. This little excercise will probably make them millions. :D

Sentinel
27-11-2008, 11:16 PM
Without going thru the numbers, it's very obvious that the aim of our government in doing so is:
1. Pass the buck to tax payers to help stimulate the economy, ie. spend more (who cares you won't have enough money later)
2. Make money while they make suckers out of you, ie. the higher income tax payable.

Don't you just love our government. This little excercise will probably make them millions. :D

I fully agree with your observation. Just like the garmen refuse to adjust the price of RON97 fuel to the rightful price of RM1.62 but instead hinting at another 15 sen to RM1.85...

jand
27-11-2008, 11:34 PM
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.


My perception all this while was that PCB deduction is always against your gross monthly salary and not deduction after less EPF & SOCSO.
If so, lowering employee EPF contribution should not increase your PCB deduction. It may however impact you when filing income tax returns, your EPF+Life insurance (if previously < annual max) relief would be less.

If your EPF+Life insurance already exceeds the max by a large margin, there should be no change in income tax payable (less PCB).

Best to confirm this matter.

The decision to stick to 11% or temporary reduction to 8% should be made on the basis of
i) EPF savings
ii) current cashflow and/or projected cashflow needed

AllUrban
28-11-2008, 10:40 AM
What was the original objective of this new ruling? If I'm not mistaken, it's to increase the worker's disposable income during this economic downturn, and perhaps spur spending and hence economic growth. How does that occur if that money is channelled into Zakat?
In fact, it would erode into our savings, and that is long term damage.because there are more things in life than consuming and spending for our own personal sake.

Paying zakat or tax or charity is the financial part of our contributions to society...and some people would rather have their contributions going to the state and local community and local businesses than to the federal government.

Cheers, m

Sentinel
28-11-2008, 01:12 PM
because there are more things in life than consuming and spending for our own personal sake.

Paying zakat or tax or charity is the financial part of our contributions to society...and some people would rather have their contributions going to the state and local community and local businesses than to the federal government.

Cheers, m

Hey Moaz, something just struck my little grey matter, can non-Muslims elect to pay zakat instead of income tax? Never knew if this is possible...

pepsi
28-11-2008, 01:48 PM
When I read this in the paper today, I am very confused and concern......
Why would the civil servants be encouraged to switch from EPF to the pension scheme suddenly ? :(


The Star today:-

PUTRAJAYA: Some 40,000 civil servants, who had opted for the Employees Provident Fund, can now revert to the pension scheme....
http://thestar.com.my/news/story.asp?file=/2008/11/28/nation/2666345&sec=nation

Mammoth
28-11-2008, 02:21 PM
When I read this in the paper today, I am very confused and concern......
Why would the civil servants be encouraged to switch from EPF to the pension scheme suddenly ? :(
What are you concerning about, mind to share?

pepsi
28-11-2008, 02:37 PM
What are you concerning about, mind to share?
It gives me the impression that EPF is not as good as a pension scheme in days to come ?
Why would this 40,000 civil servants, initially opted to contribute via EPF, suddenly consider reverting back to the pension scheme ?
Maybe I am being paranoid ? :)

AllUrban
28-11-2008, 04:34 PM
Hey Moaz, something just struck my little grey matter, can non-Muslims elect to pay zakat instead of income tax? Never knew if this is possible... I actually dont know. If they could, the state governments would have access to a lot of revenue as people divert more of their income to the state government.

As far as I know, the zakat board is quite independent of the civil service and the state government - no chance for the government to touch the money.

If non-muslims could pay zakat...it would be happening in Kelantan right now...anyone from Kelantan know?

Cheers, m

Sentinel
28-11-2008, 05:11 PM
I actually dont know. If they could, the state governments would have access to a lot of revenue as people divert more of their income to the state government.

As far as I know, the zakat board is quite independent of the civil service and the state government - no chance for the government to touch the money.

If non-muslims could pay zakat...it would be happening in Kelantan right now...anyone from Kelantan know?

Cheers, m

Then again, zakat collections are for welfare only, right? Cannot be used to pay for Penang Bridge II, right? Ha Ha! Just thinking aloud if Penangites should all elect to pay zakat instead of income tax to build the second bridge since the federal govt still dragging its feet....

USJ27Resident
28-11-2008, 09:41 PM
In fact, some people believe that it would be better to pay less in taxes (to the federal government) and more in zakat (to the state) and charity (supporting our local community).

Hey Moaz, something just struck my little grey matter, can non-Muslims elect to pay zakat instead of income tax? Never knew if this is possible...
Have asked the same question @ IRB Shah Alam... and this was their reply:
Zakat is ONLY for muslims... which can be used to offset their taxable income.

Non muslims donating to charity or charitable causes would require a tax exemption receipt.. PERIOD. No TAX EXEMPTION receipt, no deductions... :rolleyes:

AllUrban
01-12-2008, 07:09 PM
Have asked the same question @ IRB Shah Alam... and this was their reply:
Zakat is ONLY for muslims... which can be used to offset their taxable income.

Non muslims donating to charity or charitable causes would require a tax exemption receipt.. PERIOD. No TAX EXEMPTION receipt, no deductions... :rolleyes:Ah well...I did hear that the government might raise the amount allowed for charitable donations

Cheers, m

Firefly
02-12-2008, 09:29 AM
Gov reduced the access to the KWSP site :mad:..cannot download that form!!! Anyone who have downloaded please post it online for us to download. :mad:

layman
02-12-2008, 10:11 AM
2 direct methods to stimulate domestic consumption adopted by our north eastern asian neighbours
1 in japan and taiwan tax rebates for next year and
2 in japan all citizens will get 450 ringgit from the government to spend,taiwan will give away 430 ringgit to residents in the island january2009
3 china or the PRC government will provide subsidies of 13% for all electrical goods purchased from the 1st december 2008

now that our oil subsidies has been abolished,can we have some form of subsidy for next year?

cskok8
02-12-2008, 10:31 AM
Ah well...I did hear that the government might raise the amount allowed for charitable donations
Cheers, m

Zakat payments can be used to offset the amount of tax payable.

Donations can only be deducted from the taxable amount.

There is a BIG difference.

AllUrban
02-12-2008, 11:10 AM
Zakat payments can be used to offset the amount of tax payable.

Donations can only be deducted from the taxable amount.

There is a BIG difference.Yes...it was one of the proposals at the Budget Planning meeting I attended back in April, to change that policy and allow charity donations to offset tax payable.

I dont know whether it would be accepted for the 2008 tax year...It was not in the 2009 budget but IRB has a habit of springing things on us at the last minute.

myself, Im going to increase, not decrease my EPF contributions.

Cheers, m

LaDiDa
02-12-2008, 03:54 PM
Whoever needs the form, here it is.

AllUrban
02-12-2008, 05:10 PM
Whoever needs the form, here it is.there are 2 forms...one to increase contribution beyond 11% and one to maintain the contribution at 11%

I thought the "maintain" form was called "Khas"

Cheers, m

Ditto
02-12-2008, 05:41 PM
who is that genius who thinks the reduction of 3% in the contribution can really boost the country's economics huh? & this genius went on wasting the time & resources in asking the majority of the contributors to fill that form to maintain the 11%, instead of asking the minority who wanted to contribute the 8% to fill the forms. Looks like we are in some good hands in guiding us through the financial hardship

totoro
02-12-2008, 06:46 PM
i think it was a good move... personally i estimate that less than 5% of the EPF contributors will submit this form to maintain at 11%, so the government saves tons on paperwork and costs...

imho, more than 50% of the population will be indifferent to it anyway, so the govt helped decide...

birdy
02-12-2008, 09:41 PM
there are 2 forms...one to increase contribution beyond 11% and one to maintain the contribution at 11%

I thought the "maintain" form was called "Khas"

Cheers, m
Yes. You are correct. I have personally confirmed with KWSP officer. The correct form should contain the word KHAS. For those did not manage to get the form, here they are.......

trex92
05-12-2008, 03:40 AM
My perception all this while was that PCB deduction is always against your gross monthly salary and not deduction after less EPF & SOCSO.
If so, lowering employee EPF contribution should not increase your PCB deduction. It may however impact you when filing income tax returns, your EPF+Life insurance (if previously < annual max) relief would be less.


the monthly PCB deduction is based on monthly salary including allowances less EPF (up to max of RM500 since IRB assumes zero life insurance ie yearly EPF allowed RM6000 divided by 12 mths).

The reduction of EPF from 11% to 8% would result in increase in PCB deductions if the tax payer's EPF does not reach max RM500 per month. Ppl of the higher income group ie RM6250 basic salary would enjoy more net salary without any change in PCB.

Firefly
06-12-2008, 01:28 PM
Thanks birdy.

ahfatt78
07-12-2008, 01:23 PM
Ppl of the higher income group ie RM6250 basic salary would enjoy more net salary without any change in PCB.

Is that mean ppl of basic salary higher than RM6250 need not worry about paying more income tax even if their EPF contribution remained as 8%? Sorry I still not quite understand how it works. :confused:

birdy
07-12-2008, 05:40 PM
Is that mean ppl of basic salary higher than RM6250 need not worry about paying more income tax even if their EPF contribution remained as 8%? Sorry I still not quite understand how it works. :confused:
Maybe this comparison chart will clear your confusion. :)

totoro
08-12-2008, 11:26 PM
since life insurance is usually a packaged deal with EPF, usually a significant portion of the tax relief for RM6k is already used up for life insurance payments.

so imho, the whole big hoo-hah shouldn't be made more than what it is...

cpleong
10-12-2008, 03:44 PM
Pardon my poor Malay :
On the KWSP 17A form, within Section A, there are two boxes and we have to choose one.

Tick one box only :
Box A : Pendaftaran Caruman Melebihi Kadar Berkanun
Box B : Pindaan Caruman Melebihi Kadar Berkanun

Can anyone help to inform, which box should I tick if I want to maintain my contribution at 11%?

Thanks.

chewie
10-12-2008, 03:59 PM
u should download the form KWSP 17A-Khas

trex92
12-12-2008, 11:39 AM
Is that mean ppl of basic salary higher than RM6250 need not worry about paying more income tax even if their EPF contribution remained as 8%? Sorry I still not quite understand how it works. :confused:

For personal income tax, an individual is allowed deduction for EPF and Life insurance max of RM6,000 per year. This translates into RM500 per month (RM6,000 divided by 12 months). IRB assumes that full RM500 is for EPF in calculating PCB (ie they assume everyone don't have life insurance). The method PCB is calculated is based on monthly income (basic plus allowances) less EPF (up to max of RM500) to derive ur PCB income.

Based on this max RM500 and 8% EPF, your basic would be RM6,250. (500 divided by 8%). So if you are in the income group of RM6,250 and above, your EPF is already hitting the max RM500 EPF hence your monthly EPF no longer affects your PCB calculation. People in the above RM6,250 monthly basic group would not have any increases in PCB due to 11% reduce to 8% EPF but they would get more net salary since EPF deduction reduced. Hope this explains.

totoro
12-12-2008, 12:13 PM
note that PCB deduction is just an amount put aside for your income tax payments... if PCB is too high, you do get refunds...

the monthly salary calculations for EPF of RM6,250 doesn't impact your income tax in any way except the RM6k tax relief for combined EPF+insurance, and then only if you do not have any life insurance at all.

ahfatt78
13-12-2008, 05:42 PM
Thanks for the clarification! I will opt to remain 11% deduction.

tupai
13-12-2008, 06:58 PM
Thanks for the clarification! I will opt to remain 11% deduction.

in fact u should opt for incremental % to your 11%...get some +% from your boss too. Seriously.


Yang Bagi 30% latotupai

Sentinel
13-12-2008, 09:26 PM
in fact u should opt for incremental % to your 11%...get some +% from your boss too. Seriously.


Yang Bagi 30% latotupai

There are many companies whereby the company contributes 15% as "employer contribution" to the EPF. This is actually another perk. I know the Fraser & Neave Group (F&N) for one does this as I was attached to one of their subsidiaries before i.e. F&N Coca-Cola Sdn Bhd.

The other company that I worked for i.e. Nestle has both EPF (standard contribution) and there is a "pension scheme" as well. That is why people who work in Nestle seldom leave the company. You get paid 1/3 of your last-drawn salary on reaching 55. So, if you are getting RM15,000 per month as your last-drawn, you should get RM5,000 per month till you reach 70. If you kick the bucket before 70, your surviving better half gets to enjoy the pension. But Nestle stopped the pension scheme for staff joining after 1992, dunno why.... and replaced it with a gratuity payment scheme.

AllUrban
17-12-2008, 06:00 PM
in fact u should opt for incremental % to your 11%...get some +% from your boss too. Seriously.


Yang Bagi 30% latotupaihahahh good thought lato. But HR told me that there was a maximum.

one of the last things m did before leaving for holiday was to increase the EPF contribution to 15% (+ 12% from the employer = 27%) and he is now making arrangements to diversify what little extra money he has.

I really agonized over keeping the money vs. taking the extra and investing it...but I think I found a wiser solution - increasing my epf contribution and investing into diverse markets.

when the recession is over I ought to have more money and more importantly, more knowledge & experience which is worth even more than money.

Cheers, m

jand
17-12-2008, 09:35 PM
the monthly PCB deduction is based on monthly salary including allowances less EPF (up to max of RM500 since IRB assumes zero life insurance ie yearly EPF allowed RM6000 divided by 12 mths).

The reduction of EPF from 11% to 8% would result in increase in PCB deductions if the tax payer's EPF does not reach max RM500 per month. Ppl of the higher income group ie RM6250 basic salary would enjoy more net salary without any change in PCB.

trex92, thanks for the info. very useful and cleared up my incorrect assumption.

tupai
20-12-2008, 08:35 PM
hahahh good thought lato. But HR told me that there was a maximum.

Cheers, m
any company/employer can contribute up to 19% if they want lah...hr only follow what the stingy boss said lah...unless, yr service is NOT worth the extra % lah :p


Yang Bagi maximum% latotupai

AllUrban
22-12-2008, 11:58 AM
any company/employer can contribute up to 19% if they want lah...hr only follow what the stingy boss said lah...unless, yr service is NOT worth the extra % lah :p


Yang Bagi maximum% latotupaiwell, no comments about my company...but m knows that, when he leaves, the loss will be felt all around. Pain for most, relief for some.

Cheers, m