KUALA LUMPUR: Players in the downstream fuel sector have proposed a multi-tiered fuel subsidy system for Putrajaya to consider.
The system, they said, would not only allow the government to give more to the people, but also enable it to earn billions more.
The proposed multi-level system to manage fuel subsidy involves four tiers, including one that will solve the issue of foreign vehicles taking advantage of the country’s generally cheaper fuel and smuggling the resource out.
It is understood that such a proposal had been heard by the Domestic Trade and Consumer Affairs Ministry in June.
The mechanism in the distribution of subsidised RON95 to deserving Malaysians is said to involve a multi-tiered price-setting system that will allow owners of cars and motorcycles entitled to the subsidy to track the balance of their entitlement weekly.
How much can the government make from such a mechanism? This, they said, would involve the incorporation of tax elements in RON95.
“This is part of the proposal, where in Tier 4 of the system, the government can decide the pricing of RON95 for foreign-registered vehicles,” one of the players said.
“Under the proposed fuel taxation system for foreign vehicles, the extra income is derived from setting the price at RM4.20 per litre (combination of the fuel’s cost price plus tax).
“Through this system, the government can generate billions in income, which can be used to fund subsidies for the targeted groups.”
Government statistics say that 1.2 billion litres of subsidised RON95 is sold at the pump every month.
It is learnt that some 12 billion litres is sold to Malaysians who use low to moderate amounts, between 28 litres and 200 litres a week.
It is understood that the balance of about two billion litres is reaching non-target groups, such as foreigners.
If the government adopts this pricing structure for foreign vehicles, it can potentially make billions in net profit annually.
“Currently, Singapore and Thailand charge at their pumps about S$2.30 (RM7) and 29.85 baht (RM3.87) respectively for their RON95 and Gasohol85... It is common knowledge why the fuel is popular among foreign cars, including for smuggling.”
Apart from eliminating smuggling of subsidised fuel and other leakages, the system could also help the government ensure that the 30 sen subsidy per litre reached the targeted groups as under the proposal, a consumption-monitoring system would be linked with the government agency managing the subsidy, they said.
It is understood that the system would not ratchet up cost for the government with private parties lining up to manage the system.
They said the first of the four tiers would manage solely the largest group of the subsidy recipients, mainly those with a single car with engine capacity of under 1,500cc.
The proposal is for Tier 1 to have the price of the fuel locked at RM2 per litre for the first 28 litres per week (for travels about 600km).
Tier 2, they said, involved a slightly higher locked price of RM2.20 per litre for the next 40 litres per week. Tier 3 covers the non-target groups where the fuel is sold at the floated price, but at a volume of 200 litres.
Anything more than 200 litres will come under Tier 4. The purchasers will pay the same price as owners of foreign vehicles. This could be as much as RM4.20 per litre.
“This is because it is unlikely for car owners to use 200 litres of petrol in one week,” one of them said.
During the presentation of the 2019 Budget on Friday, Finance Minister Lim Guan Eng said deserving car and motorcycle owners will enjoy RON95 petrol subsidies of 30 sen per litre.
The subsidy covers 100 litres for cars under 1,500cc while owners of under 125cc motorcycles would get 40 litres.
A total of RM2 billion, he said, would be set aside for the subsidy programme, which is expected to benefit some four million car owners and 2.6 million motorcycle owners. The subsidy programme is expected to start in the second quarter of next year.