How Will The New Petrol Subsidy Affect You?

by Jacie Tan

Personal Finance News

How Will The New Petrol Subsidy Affect You?

The long-awaited petrol subsidy has finally been announced by the Minister of Domestic Trade and Consumer Affairs, Saifuddin Nasution Ismail. Effective 1 January 2020, the scheme will entitle eligible car owners to a subsidy of RM30 per month and motorcycle owners to a subsidy of RM12 per month.

The new petrol subsidy is a targeted scheme, and thus will only be available to those in the lower-income B40 group who are recipients of Bantuan Sara Hidup (BSH). Here’s a run-through of how this new petrol subsidy works, and how this new scheme will also affect those who are not eligible for it.

Who is eligible for the new petrol subsidy?

The petrol subsidy is targeted at recipients of the BSH cost of living aid, but you also have to fulfil several additional requirements. For starters, only residents of Peninsular Malaysia who own a private vehicle are eligible. Those who have more than two cars and two motorcycles under their name will not qualify for the subsidy. Furthermore, the vehicle(s) must match the following criteria:

  • Cars with an engine capacity of 1,600cc and below
  • Cars with an engine capacity over 1,600cc but 10 years and older
  • Motorcycles with an engine capacity of 150cc and below
  • Motorcycles with an engine capacity over 150cc but 7 years and older

(Source: Ministry of Domestic Trade and Consumer Affairs)

Although B40 individuals with more than one car or motorcycle to their name are still considered eligible, they will only receive a maximum of RM30 or RM12 per month (whichever is higher) and not be entitled to any additional amounts for their multiple vehicles.

According to the Ministry of Domestic Trade and Consumer Affairs, the criteria for the subsidy is based only on data from the Road Transport Ministry and BSH. It will not draw on any data from Tenaga Nasional Berhad (TNB). This quashes the earlier statement made by the Deputy Minister of Domestic Trade and Consumer Affairs Chong Chieng Jen, who mentioned that electricity bills would be used as a factor for determining eligibility.

You can check your eligibility for the petrol subsidy scheme on the Ministry of Domestic Trade and Consumer Affairs website from 15 October 2019.

How does the petrol subsidy work?

The petrol subsidy will be automatically credited into the eligible recipient’s bank account every four months. As the programme kicks off on 1 January 2020, the first subsidy payment will be for the months January to April, amounting to RM120 for car owners and RM48 for motorcyclists.

If you’re curious as to how the government has determined the subsidy cap at RM30 and RM12 per month respectively, here’s the rationale behind it. The government will provide the petrol subsidy at a rate of 30 sen per litre, which is within the current range of subsidy offered to the public thanks to the price cap. However, each recipient under the new scheme is limited to a monthly quota for the subsidy, which is 100 litres for cars and 40 litres for motorcycles – hence the cap of RM30 and RM12 per month. According to the ministry’s website, this allowance is allocated based on studies regarding the average distance journeyed by Malaysians for the purposes of work and necessities – 1,500km per month or 50km per day.

Interestingly, the FAQ on the ministry’s website also addresses what will happen to the petrol subsidy if the price of RON95 dips to below RM2.08/litre. According to FAQ, the subsidy will not be given if the RON95 price is below RM2.08 per litre. It states that the objective of the subsidy is to provide assistance when the petrol price is high, so the subsidy should not be given when the petrol price is reasonable. However, given that the subsidy is distributed three times a year in four-month allowances, it would be interesting to see how the government plans to enforce this rule.

RON95 petrol price to be floated weekly

What about those who are not eligible for the petrol subsidy? If you’re thinking that the subsidy will not concern you just because you are not a recipient, you are unfortunately under a misconception. Once the subsidy is rolled out next year, the government will remove the current cap on RON95 fuel which has been keeping its price at RM2.08 per litre. The price of RON95 petrol will be determined in reference to global oil prices instead.

The direct effect of this will be that the petrol price of RON95 is likely to go up, given that the government will no longer be subsidising fuel for all RON95 users. Minister Saifuddin Nasution Ismail has stated that the lifting of the price cap will be done in "gradual" stages, but it is uncertain how exactly this will be carried out come 2020. This also means that the price of RON95 will be subject to a weekly price float in order to reflect the current market prices, similar to the RON97 fuel currently.

What about East Malaysia?

The government has made the decision to offer the petrol subsidy to Peninsular Malaysia residents only. BSH recipients in Sabah, Sarawak, and Labuan will not be entitled for the petrol subsidy scheme. Instead, the government will continue capping the RON95 fuel price at RM2.08 per litre for all residents in East Malaysia.

According to the ministry, the government has taken into account the needs of East Malaysians who mostly use large-capacity engines or diesel-fueled vehicles. Presumably, this would render a majority of East Malaysians ineligible under the requirements of the petrol subsidy scheme.

Bracing for impact in 2020

Overall, the biggest impact of the new subsidy scheme will be the government’s corresponding move of removing the price cap on RON95 fuel. As pointed out by Saifuddin, this fulfils the government’s election pledge to provide fuel subsidies only for the needy. However, it is likely that the consumers will take some time to adjust when the bulk fuel subsidy is removed and the price of RON95 is floated.

"Assuming the global oil price stays high next year, that will impact the country’s inflation because petrol consumption carries about 8% in calculating the consumer price index," said Socio-Economic Research Centre (SERC) executive director Lee Heng Guie. "RON95 is the most widely used petrol and when its price is floated, the petrol price will go up and this will impact the inflation rate."

Therefore, come 2020, consumers may do well to prepare themselves for the chain effects that may arise as a result of the changes in petrol price. At the very least, all petrol users (in West Malaysia) will have to get used to checking the petrol prices every Friday once more. And if you haven’t already gotten yourself a reliable petrol cashback credit card, now is probably as good a time as any to apply for one.

(Source: Ministry of Domestic Trade and Consumer Affairs)