KUALA LUMPUR, Oct 29 — As Malaysia prepares for the rationalisation of RON95 petrol subsidies in 2025, several key proposals have emerged, shaping the ongoing debate on how best to implement the changes.

Building on the diesel subsidy reform, which saved billions, the government is considering similar measures for RON95, with a focus on fairness and minimising the impact on the middle and lower-income groups.

Proposals for RON95 subsidy rationalisation

Treasury secretary-general Datuk Johan Mahmood Merican confirmed that the government considers a tiered subsidy system, similar to the approach used for electricity pricing.

He emphasised that 85 per cent of Malaysians would continue to benefit from subsidies, with only the top 15 per cent paying market prices.

This system could include options like fleet cards, IC-based verification, or e-wallets to manage eligibility.

Johan highlighted that implementing a tiered system would mirror the diesel subsidy rationalisation, which helped curb misuse.

He acknowledged the complexity of the system but stressed that the government is actively exploring ways to ensure it operates smoothly and equitably.

This proposal, strongly supported by Economy Minister Rafizi Ramli, is expected to save RM8 billion annually by reducing fuel subsidy costs for wealthier households.

Syed Saddiq Abdul Rahman raised concerns, however, about the middle-income group, cautioning that the T15 threshold may be set too low, unfairly affecting families earning RM7,000 to RM12,000 monthly.

He believes these families should not be excluded from subsidies and that the current threshold for defining the T15 might be too low.

Under the tiered system, the wealthiest 15 per cent of Malaysians would pay floating market prices for RON95 petrol, with prices fluctuating based on global oil markets.

This would provide the government with additional fiscal relief, which would be redirected towards essential public services, including healthcare, education and public transport under Budget 2025.

Former Umno information chief Shahril Sufian Hamdan proposed an alternative approach involving cash rebates instead of subsidised prices at the pump.

Speaking on his podcast "Keluar Sekejap,” he said this would eliminate potential misuse and leakage, allowing the government to offer targeted cash transfers based on monthly fuel consumption.

This proposal also includes an initial one-off cash transfer when the system is first implemented, followed by periodic top-ups.

In the same podcast, former Umno Youth chief Khairy Jamaluddin raised concerns about the psychological effect of paying full market prices at the pump, even if consumers receive cash rebates later.

He argued that consumers might prefer paying subsidised prices at the point of purchase, warning that delayed financial relief could affect public perception of the policy.

Bagan MP and former finance minister Lim Guan Eng called for the government to set the T15 category at RM15,000 per month or more, reflecting rising living costs and inflation.

He warned that the current income threshold would unfairly burden middle-income households, who lack the disposable income of Malaysia’s wealthiest citizens.

Responding to criticism of Prime Minister Datuk Seri Anwar Ibrahim’s announcement of this and other subsidy withdrawals affecting this "T15” group in a video on Instagram, Rafizi conceded that there is no formal definition for the category at the moment.

However, he said there were already proposals on how to define the group, only that they have not been finalised at the Cabinet level.

Rafizi said terms like "T15” — just like B40, M40, or T20 — were arbitrarily-chosen statistical points that fundamentally describe the income levels of households in relation to all others in Malaysia.

He said the government’s definition of this "T15” would be multi-factorial, involving their levels of disposable income and cost of living, among others.

Diesel subsidies as a benchmark

On June 1, 2024, the government restructured diesel subsidies by removing blanket subsidies and introducing targeted support for essential industries and specific income groups.

This reform was designed to ensure that subsidies reach groups who genuinely need them, rather than businesses and affluent individuals who disproportionately benefit from the current system.

This caused diesel prices to soar from RM2.15 to RM3.35 per litre.

By implementing this targeted subsidy approach, the government expects to save RM4 billion per year, which could then be redirected to other pressing needs.

Part of the rationalisation involves addressing leakages, where subsidised diesel is misused for non-eligible purposes, contributing to revenue losses.