Fuel prices set to rise

PETALING JAYA: The Government is likely to revert to slight increases in fuel prices over time now that it has been officially announced that the proposed two-tier fuel subsidy scheme based on vehicle engine capacity has been scrapped, analyst and economists say.

The proposed fuel subsidy scheme was originally set to be implemented on May 1.

Maybank Investment Bank analyst Mohd Khair Mirza said: “We may see an increase of about 10 sen in petrol prices post May 1.” He added that it was the only viable option for the moment unless the Government came out with a better fuel subsidy scheme.

Mohd Khair said the two-tier fuel subsidy scheme proposed in theory appeared good on paper but issues such as implementation and enforcement were questionable.

He said: “At least with the slight increase in fuel prices over time it is applied across the board and the Government is able to close the gap on the fuel subsidy which remains unsustainable.”

Mohd Khair said that based on US$80 per barrel of crude oil, the Government was currently subsidising fuel at the pump at around 40 sen per litre.

An economist from a rating agency said although the proposed two-tier fuel subsidy scheme has been scrapped, it should not deter the Government from continuing to look for other schemes that were more practical and viable.

He said a viable scheme should meet two objectives – ensure the hardcore poor are not badly affected and address the fuel subsidy.

A local economist from a broking house said the Government’s decision to scrap the proposed two-tier fuel subsidy scheme based on vehicle engine capacity came as no surprise.

“We figured it (scrapping of the scheme) would happen. There was a lot of talk that the subsidy scheme was not practical, despite a lot of effort by the Government to implement it,” he said.

The economist believed some individuals were waiting to exploit the scheme (if implemented) thinking they could benefit from the scheme.

“Thankfully the Government realised the proposed subsidy scheme was not foolproof and decided to scrap it,” he said.

Bank Negara ups interest rates

Overnight policy rate increased to 2.25%

PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.

The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.

The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.

“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.

It said going forward, domestic growth was expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies which had expanded strongly in the fourth quarter.

Malaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.

“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.

While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.

Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.

The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.

Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.

Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.

According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.

AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.

“It is needed for a gradual move towards the normalisation of rates,” he said.

At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.

We are in the dark over new petrol pricing, says association

IPOH: The proposed new fuel pricing mechanism may not take off on May 1 because most petrol dealers are still in the dark over details of the plan, said a source from the Perak Petrol Dealers Association.

“We are still unsure on the type of car owners who will qualify for the subsidy,” he said.

The source said that the latest information obtained by the association hinted that 2,000cc and above vehicles and company-owned cars would not be entitled to the subsidy.

Under the new system, each motorist was only eligible to one subsidy, he said.

“You can have a garage full of cars registered under your name but only one car will be entitled to it,” he said.

Association chairman Ng Bee Keong said members, whose stations were considered as “high volume”, had been advised to get ready for the change.

”We foresee that more workers would be needed once the system is implemented,” he said, explaining that the workers were needed to assist in the operating of the MyKad reader.

Deputy Domestic Trade, Co-operatives and Consumerism Minister Datuk Tan Lian Hoe, when met at the Perak Chinese Chambers of Commerce and Industry Chinese New Year open house on Monday, said her ministry was still gathering feedback on the matter from the people.

Hassles, congestion and extra costs to come with new fuel subsidy scheme

PETALING JAYA: The Petrol Dealers Asso-ciation of Malaysia has expressed concern that the new fuel subsidy system which uses MyKad for petrol purchase may create hassles for consumers.

The association is worried that the system could cause congestion apart from burdening petrol dealers with additional costs.

Association president Datuk Hashim Othman said a bank had been appointed to manage the operation of the new fuel subsidy scheme and consumers might have to register their car registration number through the bank or petrol stations using MyKad.

He anticipated that it would take a longer time to process transactions as biometrics would be used to verify the vehicle owner’s identity through thumbprint scanning and this could lead to possible congestion at the petrol stations.

“Experts in the field may say it is applicable but people on the ground are worried that the thumbprint scan, which is similar to the practice in the airport, may delay transactions and create congestion at petrol stations,” he told The Star yesterday.

A new petrol pricing mechanism is expected to start on May 1, which is aimed at ensuring that only targetted groups are allowed to buy subsidised fuel.

To implement this, the Government plans to introduce the practice of using MyKad to purchase petrol.

Hashim said the Government was still negotiating the quota of fuel subsidy that each car owner would be entitled to.

“The idea to give fuel subsidy to deserving people is good but we are worried that the system may be complicated and cannot address arising problems.”

He said a pilot project might be carried out in selected petrol stations in the Klang Valley and some outskirt areas at the end of next month or in April.

Hashim said petrol dealers would then have to install the system to be connected to the bank and increase their manpower and this could lead to extra costs for them.

He said petrol dealers might also have to bear additional costs when the Government floated the price of fuel.

GST-free 40

KUALA LUMPUR: Basic foodstuffs like rice and fresh vegetables and part of utilities such as water and electricity will be exempted from the proposed goods and services tax (GST).

They are part of some 40 basic goods and services that will be free from GST, Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said when opening a one-day national conference on the GST in Kuala Lumpur yesterday.

It is understood that sugar, poultry, eggs, public transport and health services, among others, will also be exempted from GST. The exemption on these items will help consumers, especially those in the lower-income group, in line with earlier statements by the government that the GST would not burden this particular group.

The government plans to introduce GST at four per cent next year.

It is a multi-stage and broadbased consumption tax on goods and services. It will replace the current sales tax and service tax.

The Goods and Services Tax Bill was tabled for first reading in Parliament last December. The second reading has been scheduled for next month.

More than 140 countries have implemented GST, also known as valued-added tax in some nations. Countries with populations with less purchasing power like
Venezuela, Kazakhstan, Brazil, South Africa, Thailand, Sri Lanka and Sudan, already have the tax regime in place.

Businesses are expected to save RM4 billion with the GST, while exporters stand to save up to RM1.4 billion.

“The possibility of revenue loss through the understatement of taxable value at an earlier stage in the production and distribution chain would be overcome with the implementation of GST,” Husni said.

“With higher tax compliance, the government can generate additional revenue which will go back to the rakyat through socioeconomic development.”

The government is keen to hear public views so that fine-tuning can be made to ensure successful implementation of the GST.

Fuel price by car size

The bigger your car, the more you will have to pay for petrol from May 1.

This is because the Government is going to change the way fuel is subsidised.

It is planning for a fuel pricing mechanism that will ensure only targeted groups, particularly those from the lower-income, will receive fuel subsidy.

Also, foreigners who drive into the country to fill up their tanks will not be eligible for subsidy and will have to pay more for fuel.

“The bigger the engine, the higher petrol will cost,” Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said yesterday.

The move was based on the assumption that those in the lower income group would normally drive a car with a lower engine capacity and thus be eligible for the subsidy, he said.

“For RON95 petrol, the subsidy is 30 sen per litre. The current price of RON95 petrol is RM1.80 compared with the actual price of RM2.10.

“Malaysians who are not eligible are those who drive a higher engine capacity car or non-Malaysians. They will have to pay RM2.10 or more for RON95,” he told a press conference after launching the new corporate identity of the F&N soft drinks division here yesterday.

Besides introducing the new structure, the ministry also plans to make the use of MyKad compulsory when buying petrol.

“There are some Thai nationals who drive into Malaysia to fill up their tank because petrol is such an expensive commodity in their country,” he said.

In Muar. Deputy Prime Minister Tan Sri Muhyiddin Yassin said the Government was in the final stages of drafting a policy on the fuel subsidy which will be a “win-win situation” for both the Government and the people.

He said that the new policy would identify people who were eligible for subsidy.

Umno Youth chief Khairy Jamaluddin had previously broached the subject about giving petrol subsidy to the right people. He said the subsidy must reach only the people who needed it most and giving subsidy across the board was a misallocation of funds.

On the subsidies for flour, sugar and gas, Ismail said they would be retained.

“Although the price for sugar has been increased by 20 sen, the Government is still providing subsidy for the commodity,” he said.

Ismail food outlet operators should not take advantage of the increase in sugar price to mark up the price of their products.

“Food outlet operators should not regard this as an opportunity to raise prices,” he said.