KUALA LUMPUR (Oct 11): Gradually raising petrol prices to align with market rates and utilising the resulting increased petroleum revenue to assist lower-income groups would be a more beneficial approach for the government, instead of implementing its planned targeted subsidy system, advises Pankajkumar Bipinchandra, who is managing director of Datametrics Research and Information Centre.
“To me, why bother going to a different system (of targeted subsidies for petrol) altogether; it’s not proven; it takes a lot of effort; there will be leakages. You probably have to spend a bit more in terms of administration,” Pankajkumar said at the “MARC360: Pre-Budget 2024 Views Series 2: Malaysia’s Long Story of Fiscal Consolidation” webinar on Wednesday.
“There will always be people trying to find ways to either abuse or beat the system; I think the best is to go back to the (petrol price) level that we see in other countries.
“All this mechanism to implement a targeted subsidy is not the answer; to me, the answer is the gradual increase in petrol prices, and by reducing the subsidy element coming from petrol subsidy, the government can use that to provide direct cash transfers to the bottom 50% (earners) of society,” he added.
Pankajkumar stressed that Malaysia has the ninth lowest petrol price in the world at RM2.05 per litre for RON95, versus the average petrol price across Asean of over RM5 per litre.
“Why is Malaysia so special; why is Malaysia not able to remove the subsidy or even tax them? If you look at a lot of countries, fuel is sold with a tax — a sales, value-added or petroleum tax element.
“So to me, the right way to address this is to come out with a strategy to raise prices, not back to market price, but to derive tax revenue out of it,” he said.
Specifically, Pankajkumar suggested that the government raise petrol prices by 20 sen per litre on a quarterly basis for a period of two years, and thereafter impose a RM1 tax on each litre sold.
“If you were to tax at RM1 per litre, petrol in Malaysia would be around RM4.50 per litre, and the government would generate RM25 billion in revenue, not to mention it saves RM45 billion in terms of subsidies.
“That’s your answer in terms of tackling your budget deficit. Imagine the amount of savings that you can make by putting petrol price back to what it should be (closer in line with market price),” he said.
The savings or petrol sales tax collection revenue can then be used to provide cash assistance directly to the lower income group, up to even the bottom 60% of earners in Malaysia, according to the economist.
“Prime Minister Datuk Seri Anwar Ibrahim mentioned that Malaysia is expected to spend RM81 billion for subsidies this year; last year’s figure was RM62 billion — of which RM45 billion was related to fuel subsidy,” he noted.
He also mentioned that the more the government provides subsidies to the rakyat (people), the less likely the rakyat are willing to be subject to taxes.
Meanwhile, MARC chief economist Ray Choy underlined that Malaysia’s subsidies bill constituted 23% of the federal government’s operating expenditure in 2022, versus an average of 10% over the previous five years, and 3.8% compared to the gross domestic product (GDP) in 2022, versus a historical five-year average of 1.6%.