Employees with a taxable income of more than RM35,000 may find an issue with opting to have their Employees Provident Fund (EPF) contribution reduced to eight percent as they may see a drastic increase in their income tax.

Inland Revenue Board (IRB) assistant director (revenue collection) Chua Tian Siang said this when explaining on the tax impact to the employers in a seminar.

“Off course, when you reduce the EPF contribution from 11 to eight percent, your taxable income will increase and you have to pay more tax,” he said.

In certain cases for example, the increase can be from RM500 to RM900, he added.

Chua was commenting on how the EPF slash, which was announced by Prime Minister Najib Abdul Razak in his 2016 budget revision, may impact the tax payers.

In his revision, Najib announced the move as one of the 11 key measures to stimulate the economy and increase private consumption expenditure by RM8 billion a year.

“For those taxable income of less than RM35,000, we allow the employees to claim a rebate of RM400.

“But when the taxable income is more than RM35,000, then you are not entitled anymore,” said Chua.

However, he said the choice should be on a case-to-case basis, since there are people who may need extra money for daily expenditure.

“The issue here is how much reduction you can get and (you) should make sure that your taxable income is below RM35,000.

“For those with EPF deduction of over RM6,000, who opt to reduce from 11 to eight percent, you will have no issue - you have a take home pay and would not affect your tax (drastically),” he said.

Retain the 11 percent contribution

On this note, the Malaysian Employers Federation (MEF), which jointly organised the seminar entitled “A year into final tax-issues and challenges”, urged the workers to retain the 11 percent contribution.

MEF executive director Shamsuddin Bardan said over 70 percent of the workers contribute below RM6,000 annually to EPF.

“For those who contribute more than RM6,000 annually to EPF, they can take out the money to invest elsewhere.

“Based on the previous EPF reduction exercise (in 2009), we were informed that only 22 percent of employees opted to retain at 11 percent, while 78 percent chose eight percent,” Shamsuddin said.

He raised the concern that majority of the employees, who are short-sighted, may opt for the extra money without realising they may lose as much as RM20,000 of EPF savings, and compounded interest when they retire.

Meanwhile, MEF vice-president A Ramadass urged the government to review its revision of the minimum wages slated for July as the country is facing economic challenges.

“The higher rate, from RM900 to RM1,000 in Peninsular, from RM800 to RM920 in East Malaysia, would mainly benefit the foreign workers.

“As employers face the brunt in terms of higher costs of doing business, higher minimum wages would only result in the higher remittance by the foreign workers to their home countries,” he said.

It is estimated that the remittance would only add about RM5 billion per year to the existing official outflow about RM30 billion a year, Ramadass added.

Thus, he urged the government to postpone the new minimum wage revision.