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New mechanism puts inflationary pressure on rich and poor alike

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Translated by DOMINIC LOH
Sin Chew Daily

PETALING JAYA, June 2 (Sin Chew Daily) -- Once the government has put into implementation the "eligibility for subsidized fuel purchase" mechanism, those in the low and medium income bracket are not expected to be severely affected, but it is inevitable that the public will have to confront the inflation problem thanks to rising fuel cost.

The Petroleum Dealers Association of Malaysia (PDAM) hopes the new mechanism will make things convenient for vehicle owners while not excessively increasing the burden of petroleum dealers in the country.The association believes the prices of RON95 and diesel will inevitably be increased progressively.

According to the SMI Association of Malaysia once the government has specified that only those earning RM5,000 and below will be entitled to purchase subsidized fuel, small businesses will be affected.

Some believe the public will better accept the government's plan if the subsidies saved could be used to improve on existing transportation facilities and development.of new infrastructure.

Put the savings to good use

Local financial analyst Datuk Chua Tia Guan told Sin Chew Daily the government rationalizes fuel subsidies for the county's long term interests, but the question is whether the government could make good use of the money saved to really benefit the public.

He said it is still not clear now how the government is going to implement the new fuel subsidy mechanism, but he felt that the easiest way td do this is to increase the price of fuel and then provide specific amounts of assistance to the target groups.

"Businesses will be the first to take the brunt of any rise in fuel cost. This will be followed by inflation. Since the government is trying to help the lower and medium income groups to continuously enjoy subsidized fuel, it should also provide financial assistance to these people in order to reduce their burden owing to inflationary pressure."

He is of the opinion that the government should provide a clear roadmap on this matter so that businesses can make necessary adjustments to their operational modes and be prepared for the rising cost due to higher fuel prices.

"The 'eligibility for subsidized fuel purchase' is one of the steps the government will take in subsidy rationalization.From what I observe, the government intends to do is to adjust the fuel subsidies once a year.

"The Performance Management Delivery Unit (Pemandu) under the Prime Minister's Department did provide a subsidy rationalization roadmap two years ago, including cutting 10 sen from fuel subsidy every half a year. The plan was subsequently postponed due to the general elections, and this was re-initiated only after GE13. Last September, prices of RON95 and diesel were respectively increased to RM2.10 and RM2.00 per liter, and it appears to me that the government wants to make adjustments to fuel subsidies one a year."

He said it is inevitable that the government has to carry out with the subsidy rationalization program to consolidate the country's finances, or our financial deficits will keep rising and our credit ratings will drop,which will perk up loan cost and create more havoc to the national economy.

Fuel subsidy rationalization can also prevent abuse of the subsidies. For example, when the fuel prices are fluctuating with the international oil prices, smuggling activities will automatically stop and this will help reduce unnecessary wastage.

Need to close the price gap

PDAM president Datuk Hashim Othman.told Sin Chew Daily due to the wide disparity between the subsidized fuel prices and market prices of about 70 sen, fuel smuggling becomes rampant. To effectively resolve this issue, the most effective way is to close the gap between subsidized fuel prices and market prices.

"I don't think rising petrol prices is not so much an issue when compared to smuggling. However, I think Malaysians prefer to see the money saved from fuel subsidies will be used on relevant areas such as development of LRT and MRT so that people can look forward to cheaper transportation cost in the future."

To effectively battle the issue of fuel smuggling, Hasan said the government should consider issuing special fuel cards that will allow vehicle owners meeting certain criteria to continuously enjoy subsidized fuel while those not eligible will have to purchase at market prices.

He proposed that vehicle owners intending to purchase subsidized fuel should register with the authorities and declare their incomes. This is to ensure that only those meeting the criteria of low and medium income groups can enjoy the subsidies.

He is of the opinion that vehicles with capacities below 1.8 liters should continue to be eligible for subsidized fuel.

"Some of the 1.8L cars are second-hand, and therefore engine capacity should not be the only consideration. But if the vehicle is a luxurious sedan, then its owner must be someone making quite good money."

He said PDAM had proposed to the government for 20% vehicle insurance rebates based on engine capacity several years ago in order to benefit individuals in the lower and medium income groups. However, he said the proposal had yet to be accepted by the government.

Micro businesses taking the brunt

Secretary-general of the Domestic Trade, Cooperatives and Consumerism Ministry Datuk Seri Alias Ahmad said on Sunday the "eligibility' scheme will only be introduced between September and November this year. Only those meeting specific criteria will be allowed to purchase subsidized RON95 and diesel.

This new scheme is expected to save the government some RM9.8 billion each year.

Alias said the new scheme would be implemented in two stages, starting with the commercial vehicles in September, followed by private sedans in October or November. However, the exact dates of implementation will be decided later depending on technical preparedness.

SMI Association of Malaysia national president Teh Kee Sin said, "The incomes of micro business owners are unstable, sometime even below RM5,000. If they are excluded from the eligibility list, this will pose a a very severe challenge to the development of micro businesses.

98.5% of businesses in this country are SMEs, of which 70% are micro businesses. The incomes of micro business owners are not very high, and even if they can earn more than RM5,000 a month, part of it will have to be used on reinvestment.

He has reservations on the government's proposed measure to restrict the purchase of diesel at more than 200 liters a month, and said the new mechanism should be one that can effectively check smuggling activities while preventing the rich from purchasing cheap petrol and benefiting the country.

To achieve the goal of saving RM9.8 billion from fuel subsidies, Teh said the government should start by preventing foreign vehicles from purchasing subsidized petrol here. This happens not only on the Malaysia-Thai border, but also in southern Johor where Singapore registered cars openly refill with our subsidized petrol.

He blamed this problem on the irresponsible attitude of gas station workers, public indifference and inconspicuous signs warning foreign registered cars against refilling with subsidized fuel in Malaysia.



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