That's because up to RM6,000 of EPF contributions and life insurance premiums are tax-deductible. Here is the calculation:
- You earn RM54,000 per year. 11% EPF = RM5,940, which is tax-deductible. There is also RM8,000 of personal relief. So your net taxable income is RM40,060. The tax on that will be RM2,183 (tax rate is RM1,525 on the first RM35k and 13% on the next RM15k).
- The EPF contribution is reduced to 8% = RM4,320. That is equal to RM1,620 extra in your pocket every year. Very nice? Did you realise that's not all yours? That extra is now taxable income! So your net taxable income is RM41,680 and you will be paying RM2,393 of federal income tax.
- The BN federal government will be taking an RM210 (RM2,393 vs RM2,183) of taxes from you ie 13% of that extra which you thought was all yours.
Is that why the BN government made the 8% option automatic? Perhaps you'd better head over to EPF and insist you want to keep paying 11%.