EPF contributions by employees reduced by 3% in 2016 budget adjustment

Putrajaya, PM Najib's Office
Putrajaya, PM Najib’s Office

Earlier this afternoon, PM Najib Razak announced a recalibration to the 2016 national budget, including a 3% reduction in the Employee’s Provident Fund (EPF) employee contributions, following a sharp drop in crude oil prices.

When the 2016 budget was originally announced last October, prices were at RM203 per barrel, but they have now dropped to RM127. The slower economic growth in the US and China were also cited as reasons for these adjustments. There were a total of 11 recalibrations announced. You can read a full text of the PM’s special address on the revised budget at the treasury website.

The most notable amendment is the reduction of EPF employee contributions by 3%. This means that all employees on EPF will now only have 8% of their monthly salary deposited into their EPF accounts compared to the previous 11%. PM Najib also said that employer contributions will remain the same.

This change affects all private sector employees and non-Malaysian employees who have opted for the contribution as the Employee’s Provident Fund is a social security institution that was established  for private sector employees, as a sort of pension scheme.

This reduction, in perspective, will mean that EPF members will face a significant reduction in their savings which could be a blow to many private sector employees who plan on making housing or education withdrawals from their EPF accounts in the future. However, the PM announced that private sector spending is expected to increase by as much as RM8 billion with following this reduction.

Another significant amendment is the implementation of a tax relief of up to RM2,000 for those with monthly incomes of RM8,000 or below. PM Najib said that about 2 million taxpayers will benefit from this tax relief which is poised to encourage economic growth by increasing the spending power of consumers.

Other recalibrations that were announced are listed below, as reported by The Star:

  • The government to liberalise APs for agricultural products including meat and coffee beans.
  • An increase in enforcement against unethical traders by the Domestic Trade, Cooperatives, and Consumerism Ministry.
  • 30% of the human resource development fund will be utilised for skills training, for both employed and unemployed people.
  • Every hardcore poor family will be given a 20kg of rice each month under the MyBeras program, which will run until December of this year.
  • The foreign workers management system will be updated by the government, with levies clustered into two categories, not including foreign domestic workers.
  • The government will be more careful with spending on supplies and services.
  • A ‘people first’ focus on the development budget to have a higher multiplier effect and reduce imports
  • Increased allocation of start-ups and SMEs benefits by RM6 billion from development financial institutions and government venture capital funds.
  • Government-linked companies are encouraged to reduce the income gap between workers and senior management via introduction of incentives.



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