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Got this in my inbox yesterday:-
Do you still want to contribute 8% in EPF? And end up paying more income tax at the end of the year?
Assume monthly basic salary is RM4,000.
If your monthly EPF contribution is 11% (RM440), taxable income = RM3,560, income tax payable = RM77.
If your monthly EPF contribution is 8% (RM320), taxable income = RM3,680, 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 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. Obviously this measure does not help the market at all. Do we still want this kind of government that doesn’t have the best interest of the people in mind?
Sounds logic? Well, the fact is it does not
Higher disposal income will obviously attracts more tax but here is the point that the email sorely misses – you have more money to spend on monthly basis. When there is fluidity of cash in the market, the economy moves. And using the same example, you have an extra RM120 but pay RM32 in tax which is not so bad – you still keep RM88 after tax.
But if you decided to save up the RM120 (i.e. not spending it at all), then it is bad because you end up paying RM32 in tax for nothing. This is something that some people have missed when the EPF announcement the cut in contribution
My take on this – reduction in EPF contribution is OK if you need the extra cash. Otherwise maintain the contribution at 11% and save up on tax at the same time. With the reduction of fuel price, it makes more sense to maintain the contribution at 11% unless you are running out of cash (which means it’s time for you to do a budget)