Effective from 1st January 2012, the EPF contribution from the employer to the employee for salaries below RM5,000 per month will be increased by 1%. This will bring the contribution rate by employers to 13% from 12%. The reason behind is that EPF is not enough for retirement for most people especially the low to middle income earners.
While employees are very happy with the new rules, many employers will be experiencing the extra financial burden. It leads to many concerns raised by them due to it’s unfair and irrational move during this economic condition.
How Does 1% Increase Affect You?
As everybody known, EPF manages its funds with one risk profile and that is extremely conservative. Taking out your money from the EPF to invest makes sense because you can choose a fund that suits your risk profile or investing style.
EPF Investment Scheme allows contributors to withdraw money in Account I for investment purpose. The minimum of savings that can be invested is RM1000 and the maximum amount cannot be more than 20% of the total savings in Account I. However, there’re basic savings rules that you need to follow. Withdrawals can only be done every 3 months which allow you to do dollar cost averaging.
Before that, our government allow employee to reduce their EPF contribution from 11% to 8%. However, start from this month, the EPF employee contribution rate will back to normal which is 11% while their employer’s contribution rate still remains at 12% of your monthly wages. Thus, you can now enjoy total of 23% EPF contribution of your monthly wages.
Our government can make such decision due to the recovery from bad economy which you can see from different sector such as banking, employment and production.
I will strongly agree with the move as you can have huge benefits from the big picture. The reduction of EPF contribution rate will increase the employee’s disposable income and this will increase their spending as well. In the other words, they are spending their future money instead. Subsequently, they will less money for retirement. Not only that, you will also need to pay more income tax as you have higher income.
Why Our Government Increase the Rate from 8% to 11%?
Many people still do not know clearly about the income tax for the assessment year 2009. Some of them was asking that why personal relief did not increased from RM8,000 to RM9,000 which is under Budget 2010.
Besides that, most of the people will confuse and asked why we do not have tax relief for the Internet broadband subscription, which was announced by our government in the beginning of the year under Budget 2010.
To make the clarification, I would like to re-emphasize that those relief supposed to be given for the year of assessment 2010. In the other words, LHDN Malaysia will have some changes on personal income tax for next year income tax filing. It concludes that our government is actually working towards recovery of our country economic by reducing the tax rates. This is also welcome message to Malaysian as we are facing a tough time following the economic downturn in year 2008.
Income Tax For the Year of Assessment 2010