KUALA LUMPUR (Oct 18): Malaysia plans to introduce a carbon tax on the iron, steel and energy industries by 2026 towards encouraging the use of low-carbon technology, said Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim in his Budget 2025 speech.
While no details of the mechanism are provided in the Budget speech, Anwar said on Friday proceeds from the tax will be utilised to finance green technology programmes and research.
Implemented in more than 36 countries to date, the carbon tax is a type of levy based on emissions of environmentally polluting gases from consumption of fossil fuels, such as coal, petroleum and natural gas.
The goal is to drive businesses and consumers to reduce emissions to avoid paying the tax.
Of Malaysia’s Asean counterparts, only Singapore and Indonesia have established carbon pricing policies, while Brunei, Vietnam and Thailand have announced plans to implement a carbon tax.
Malaysia’s plans to implement a carbon tax by 2026 coincides with the commencement of the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) definitive regime — a carbon tariff imposed on carbon-intensive products imported into the EU to equalise discrepancies in carbon prices globally.
Under the CBAM, the export of carbon-intensive products — including iron and steel — from Malaysia will be taxed by the EU, unless Malaysia collects the tax.
However, the country heavily subsidises RON95 petrol for car users, which is also a source of carbon emission.
In his Budget 2025 speech, Anwar indicated that Putrajaya will start implementing targeted subsidies for RON95 in mid-2025.
Currently, the price of RON95 stands at RM2.05 per litre, significantly lower than neighbouring countries, such as Thailand at RM5.85, Indonesia (RM3.38), and Singapore (RM9.02).
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