Cash aid or two-tier pricing for RON95 subsidy?
According to report by a local news portal FMT on 21 March 2025, several economists have voiced their support for the two-tier pricing mechanism for the RON95 petrol subsidy, saying it trumps providing the people with cash assistance.
Universiti Teknologi Mara’s Prof Dr Tan Peck Leong (picture, top) said the system ensures that only eligible individuals have access to subsidised fuel while minimising financial leakage to higher-income groups, making it an effective way to implement the RON95 fuel subsidies.
“A well-structured two-tiered pricing model, supported by MyKad or e-wallet verification, can help to streamline subsidy distribution while minimising operational disruptions,” he told the news portal.
He said using MyKad and e-wallets is more efficient and secure because it reduces administrative costs, minimises fraud, facilitates real-time verification at the pump, and prevents misuse of cash subsidies for purchases other than fuel.
“With MyKad or an e-wallet system, individuals receive their subsidies at the point of purchase, ensuring that only those who are eligible benefit.
“This also enables the government to introduce a subsidy cap, ensuring better control of expenditure while providing support to those who need it most,” he added.
For the government, Tan said, the main challenge is to ensure that it has accurate and up-to-date household income data to effectively determine eligibility for the fuel subsidy.
On 6 November last year, economy minister Datuk Seri Rafizi Ramli (picture, above) told the Dewan Rakyat that the government would implement a two-tier pricing system for the targeted RON95 subsidy.
He was quoted by The Edge as saying that the mechanism poses a lower risk of inflationary impact compared with the cash transfer method, which is currently used by the government to subsidise diesel.
On 12 November last year, the media quoted Rafizi as saying that the two-tier pricing system would introduce two prices at petrol stations — one that is subsidised and the other that is not — using several methods currently under consideration, including identification cards and e-wallets.
Economist Prof Dr Geoffrey Williams said tiered pricing is by far the best of approach for implementing the targeted RON95 subsidies, adding that “other methods are flawed”.
He said tiered pricing would allow subsidised purchases for small volumes and non-subsidised purchases for large volumes. This approach works well for electricity subsidies and can be equally effective and efficient for petrol.
However, he disagreed with the decision to use MyKad or other forms of identification for verification, pointing out that it could lead to fraud.
“The MyKad and e-wallets can be cloned, sold or traded to get the subsidies. The simpler method is to charge subsidised prices in low volumes and remove the subsidy in stages for higher volumes sold at point of sale,” he said.
Williams added that vouchers will lead to a black market in voucher trading and charging by vehicle type and size would not stop the wealthy from buying cheaper RON95 petrol while driving affordable cars.
Tiered system better for managing inflation
Williams said a tiered pricing system may be better for handling inflation, especially if it is staggered over multiple levels or introduced slowly over time.
“This is because it does not introduce the price change across the board and can be spread out,” he added.
Tan said the key to preventing inflationary pressure is to ensure that subsidy disbursement is immediate or occurs within a month and is well-communicated to businesses and consumers to prevent unnecessary price increases.
Prof Ulung Datuk Dr Rajah Rasiah (picture, above) highlighted the importance of ensuring that market and subsidised prices are displayed across various channels, including electronic billboards, and advertised on TV and radio networks to ensure full participation by the people.
The Universiti Malaya economics professor stressed that the government must step up efforts to reach the masses on implementation of the targeted fuel subsidies, including for diesel, to end leakage through free riding and smuggling.
“This point has to be brought to the masses rather than expecting them to follow through from their own initiatives to seek information,” he said.
The appearance and act on the above video are for illustration purpose only.
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