Thursday, November 20, 2008

8% EPF option really means...

I never and didn't thought of it until my colleague sent this info regarding EPF contribution to be automatically reduce from 11% to 8%. The government will enforced it two years from January 2009. Those who choose to maintain the higher 11% are required to fill up form. And I definitely chose 11%. Why spend the future money for present mere little 'extra' spending power.

Lets try to imagine, assume monthly basic salary is RM4,000.00

Scenario A
If your opt for the extra 3% (RM120) to be deposited in your wallet, in a year only a peanut RM1,440. Tell me what can you do with it. Wait till you see what happen in Scenario B.

Scenario B
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.

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 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.

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