KUCHING: Malaysia’s fuel subsidy debate is putting public support for households and businesses under sharper scrutiny.
Research Fellow at the Centre for Islamic Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Dr Mohd Zaidi Md Zabri, said the issue highlights the different standards often applied to subsidies and corporate incentives.
“As global oil prices climb amid sustained tensions in West Asia, Malaysia’s fuel subsidy debate has returned with renewed urgency. “Under the BUDI95 programme, eligible Malaysians continue to purchase RON95 petrol at RM1.99 per litre.
“The unsubsidised market price currently stands at RM3.92 per litre, nearly double the subsidised rate,” he said.
Citing Economic Advisor at the Prime Minister’s Office, Nurhisham Hussein, he noted that it was recently estimated that fuel subsidies cost the government around RM1,700 every second, or up to RM147 million a day.
Mohd Zaidi said the figure showed the fiscal pressure behind the debate and explained why calls for rationalisation had become harder to ignore.
He said the discussion often focused on whether the government could continue to bear the fiscal burden and whether subsidies were reaching those who genuinely needed them.
However, he said the language used to describe government support also deserved attention.
“Support for lower-income households is usually described as a subsidy, welfare programme or cash aid.
“Such terms are often linked to concerns over dependency, leakages, inefficiency and fiscal burden.
“By contrast, support for corporations is commonly described as tax incentives, investment promotion, strategic grants, industrial policy and competitiveness packages.”
Mohd Zaidi said the difference shaped public perception.
He pointed out that a fuel subsidy for a fisherman was often framed as a cost to taxpayers, while a tax incentive for a multinational was framed as an investment in growth.
“One is treated as consumption and the other as development, although both involve public resources directed towards specific groups for specific policy objectives.”
He said governments provide support in various forms, but the key issue was why some forms of support were viewed as burdens while others were regarded as investments.
He added that part of the distinction was linked to the influence of supply-side economics and trickle-down thinking.
“The premise is that lower taxes, lower costs and fewer barriers would encourage businesses to invest, expand production and create jobs.
“Economic growth would then eventually benefit society as a whole.”
He said businesses had an important role in generating employment, innovation and economic activity, while governments had legitimate reasons to encourage investment and enterprise.
However, he said the assumption became problematic when support for firms was automatically treated as productive, while support for households had to continually justify its existence.
Mohd Zaidi said the debate was also about whose support was presumed to create value and whose support was presumed to create cost.
He said the effectiveness of support for capital should be assessed through evidence, not ideology.
“The record on corporate investment incentives is more mixed than public discussion often acknowledged.”
According to him, the International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations and World Bank issued a joint assessment in 2015 noting that they had shifted to a more cautious position on tax incentives.
The assessment, he noted, said the effectiveness of such incentives was variable and contextdependent.
“Companies did not invest because of tax incentives alone.”
He said infrastructure quality, workforce skills, regulatory certainty and market size often carried equal, if not greater, weight in investment decisions.
“In some cases, generous incentive packages had resulted in substantial foregone government revenue without producing commensurate gains in investment, employment or productivity.”
He said the issue was relevant to Malaysia’s development experience.
“Instruments such as Pioneer Status and Investment Tax Allowances, administered by the Malaysian Investment Development Authority, allow companies in promoted sectors to receive tax exemptions on up to 70 per cent of statutory income for a five-year period.”
Mohd Zaidi said these incentives had played a role in Malaysia’s industrialisation and economic transformation, and were not without justification.
However, he said their contribution should not place them beyond scrutiny.
“Public discussions rarely applied the same rigour to corporate incentives as they did to household subsidies.
“Furthermore, questions about targeting, effectiveness and fiscal sustainability were routinely raised when discussing fuel subsidies, but far less frequently when discussing corporate tax expenditures.”
He said the difference reflected an assumption that one form of support was productive while the other was suspect.
“This did not mean subsidy rationalisation was unnecessary.
“Blanket subsidies could be costly, poorly targeted and difficult to sustain, especially when higherincome households consumed more fuel in absolute terms.”
However, he said fiscal discipline should be applied consistently.
“If household subsidies must be targeted, audited and justified, corporate incentives should face the same discipline.
“If support for ordinary citizens must demonstrate measurable outcomes, support for businesses should be expected to do the same.”
Mohd Zaidi said both forms of support should be assessed based on who benefits, how much public revenue is involved, what measurable value is created and whether the benefits are proportionate to the costs.
He said public resources should be evaluated according to the outcomes they produced, not according to the social status of their recipients.
“A petrol subsidy for a delivery rider and a tax incentive for a multinational corporation may serve different purposes, but both are policy choices involving public money.
“Both require scrutiny and evidence-based evaluation.”
He said Malaysia needed an honest conversation not only about subsidies, but also about incentives, exemptions and tax expenditures.
“One side of the ledger was often examined closely and treated with suspicion, while the other was accepted almost instinctively as sound economic policy.
“The issue is not whether the state should support households or businesses, as modern economies require both.
“Instead, the issue is whether both forms of support were evaluated with equal intellectual honesty.”
