Thursday, November 20, 2008

When fuel subsidies cease, Malaysians pay petrol tax

KUALA LUMPUR — Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad revealed today the government has stopped subsidising petrol since Nov 1 and has been effectively collecting taxes instead on petrol consumption. [The Malaysian Insider, 18/11/08]

Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad (image) revealed to reporters in Parliament that the government had actually ceased all fuel subsidies since November 1 onwards. The price of RON97 petrol had fallen to RM2 per litre while RON92 and diesel were reduced to RM1.90 per litre. The world price of crude oil had dipped under US$65; making it possible for the government to slash fuel prices. As of November 18, the current world crude oil price hovers at US$55 per barrel. In May, the price was at a whopping US$120 per barrel.

It was understood that oil companies make a profit of RM0.19 and fuel station operators rake in RM0.12 for every litre of fuel purchased here in this country. If the laws of mathematics still apply, it can be inferred that the cost price of RON97 petrol is actually RM1.61. But why are Malaysians are paying RM2 instead? The Domestic Trade and Consumer Affairs Minister said margins in the pump prices and the cost was being returned to the government effectively as a form of tax.

So, is the so-called petrol tax justified?

The announcement that fuel subsidies have ceased since November 1 puzzled many, as the government said it would maintain a RM0.30 fuel-subsidy to keep pump prices below its market value. In June 2008, the government decided to trim its expenditure by reducing fuel subsidies that had kept petrol and diesel prices well below RM2 for years. As a result, the prices of RON97 petrol and diesel rocketed to RM2.70 and RM2.58 literally overnight.

On the other hand, Finance Minister and Deputy Prime Minister Datuk Seri Najib Razak claimed that a projected RM7 billion in savings in fuel subsidies would be utilized to stimulate the ailing economy while presenting the 2009 Budget. The same sentiments were shared by the Domestic Trade and Consumer Affairs Minister.

"...With RM21 billion budgeted for fuel subsidies in 2009 and subsidies for 2007, savings from fuel subsidies would be far more than RM7 billion. If crude oil stays under US$60 per barrel, I am expecting at least RM10 billion in savings," Shahrir said. [The Malaysian Insider, 18/11/08]
If the government had wittingly reduced fuel subsidies in June to save some cash, it appears that the government intends to profit from its petrol taxes when the fuel subsidies are nowremoved. Even so, the government still stands to make profit if RON97 petrol prices are back at RM1.92 - the pump price prior to the reduction of subsidies in June.

Subsidies or no subsidies, it does not seem to be any of any difference as Malaysians are still asked to pay more than what is written on the price tag.