Thursday, January 29, 2009

Maintaining EPF 11% contribution is not a Must!

As you probably have already known starting from Jan 2009, EPF contribution by default will be 8% unless you fill-up the EPF Form 17A (i.e. election to contribute in excess of the statutory rate). A lot of speculation around saying that you will end up pay more tax to government but this is not entire true! This is my recent conversation with a friend who thinks I’m stupid…

X Friend: I have changed to maintain 11% on my EPF contribution. Have you changed it yet?

Me: Hmm… no. I don’t.

X Friend: Why are you so stupid? If you don’t change it, it means you pay more taxes to government. The government is really X#$%^X?@ (as usual how people like to complain the government).

Me: The maximum EPF amount that we can deduct from our income is RM 6000 together with the life insurance. My EPF and life insurance have already exceeded way more than RM 6000, so I won’t pay more taxes whether I contribute 11% or 8%. I believe yours most likely will also exceed RM 6000 since you also buy life insurance if I'm not mistaken.

X Friend: Are you sure or not? As what I have read, they don’t mention about this RM 6000 limitation. They even said the higher you earn, the more taxes you pay?

Me: Yes, they don’t. People don’t like to tell a complete story and most of the time we have to figure out by ourselves. Furthermore the main purpose of those stories is to shoot the government and not to educate us. It seems like quite successful from your respond. Hahah… :D In fact the higher you earn, it may not affect you.

We have to analyze by our own whether we should go for 11% or 8% not. EPF provides the options to us to make our own choice. In fact if you want to contribute more than 11% (I haven’t really verified this personally but I believe it is true), it is still okay. For example, if you want to maximize your EPF deduction to RM 6000 in order to pay minimum taxes, you can play around with the % contribution (This is one of the tax saving tips in my previous post too).

X Friend: Okay, I will go back and check whether I have already exceeded RM 6000.

Me: Also if you think EPF is a good investment, then let’s go for it to contribute 11% or more but you can’t say that you pay less taxes especially your EPF deduction + Life Insurance have exceeded RM 6000.
[Updated on 30 Jan 2009]
Only 22% of Malaysian have chosen to maintain their contribution rate at 11% as at Dec 31. Source: Berita Harian

In conclusion, don’t follow what majority think is correct and make sure you know exactly what you’re doing. Changing your contribution to 11% is NOT a MUST and make sure also you’re changing for the RIGHT PURPOSE. We shouldn’t ever invest or make decision based on the wrong purpose that will be a very dangerous things to do. So, should you change your contribution to 11%? Make your own decision!

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Anonymous said...

If your salary is 8k or more (or somewhere there), it'll not affect you at all. I forgot the details of the calculation already. I think it's in one of my blog posts. Hhaa. But for ppl wif low salary like does matter =_=

so i chose to retain 11% :P

ChampDog said...

Not really unless you don't buy life insurance because you can claim up to RM6K only for life insurance and EPF.

I'm surprised only 22% maintained at 11%. I thought majority will maintain at 11%. Perhaps some people lazy to just fill-up the form.

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