Are you serious?

Absolutely. Before I explain further, what if the 21% returns is not inclusive of the actual performance of your PRS fund and is more and less guaranteed by the Malaysian government?

How is it possible?

The answer lies in our personal tax reliefs. It is one of the key features of having PRS. According to the Inland Revenue Board of Malaysia (IRB or LHDN), our government has granted individual taxpayers a personal tax relief of up to RM 3,000 for contributing into PRS. It is valid until the year of assessment 2021. You may refer to Section 20 at the official website of IRB Malaysia.

IRB Malaysia – Tax Relief for Resident Individual

Here’s the maths.

Let us assume, you made RM 100,000 in chargeable income for 2017. You are not a contributor of PRS. Thus, your income tax payable works out to be:

 No. Income Tax on Income Tax Payable 1 The 1st RM 100,000 RM 11,900 2 The Next RM 150,000 @ 24% nil Total Income Tax Payable RM 11,900

Note:

If you are not familiar with the current income tax rates for individual tax filings, please click the link below:

IRB Malaysia – Income Tax Rates

Instead, you have decided to contribute RM 3,000 into PRS. This enables you to claim the full RM 3,000 granted for personal tax reliefs. As such, your chargeable income for 2017 will be reduced to RM 97,000 and thus, your income tax payable works out to be:

 No. Income Tax on Income Tax Payable 1 The 1st RM 70,000 RM 5,600 2 The Remaining RM 27,000 @ 21% RM 5,670 Total Income Tax Payable RM 11,270

Therefore, you will enjoy a personal tax savings of RM 630 (RM 11,900 – RM 11,270) by contributing RM 3,000 into PRS. This equates to 21% in returns which should be factored in when calculating the potential net returns to be gained from PRS.

Returns (before actual PRS performance)

= (Tax Savings / Total PRS Contribution) x 100%

= (RM 630 / RM 3,000) x 100%

= 21%

Ultimately, your tax bracket will determine the amount of tax savings from contributing into your PRS.

In this article, I’ll just covered what is possible for individual taxpayers. There is much more to explore if you are a business owner. With PRS, you can:

– Structure Better Employment Packages to Attract & Retain Talents

– Save Taxes while Rewarding Your Employees

– Save Taxes while Planning for Your Own Retirement Funds