IN the second half of 2025, the government plans to rationalise RON95 petrol subsidies by moving to a targeted two-tier pricing system.
Malaysian citizens will have to swipe their MyKad (national identification card) at the pump to verify their eligibility for subsidised RON95 fuel, while those who are not eligible will pay the higher market price.
This plan aims to save the costs for spending on brackets that don’t require much help. As Prime Minister Datuk Seri Anwar Ibrahim emphasised, only the wealthiest 10–15% of Malaysians (the T20 income group) are expected to pay market rates under the new system, with “85% of the rakyat” enjoying subsidised petrol.
Yet, many Malaysians recall that fuel price hikes, even targeted ones, are politically explosive. Especially during these uncertain global economic conditions with huge trade tensions and tariff wars, a delay is helpful as currently it is the wrong time to roll back subsidies. Consumer groups also worry about knock-off effects on food and transport costs.
The government argues that nearly 40% of subsidised petrol is being misused by non-citizens, commercial vehicles and smugglers, and that this reform should be implemented immediately.
By eliminating this misuse, Malaysia could save up to RM8 bil a year, therefore money could instead go toward schools, hospitals or vital infrastructure.
The government has been test-running MyKad-based aid distribution in other domains. Under the Sumbangan Asas Rahmah (SARA) scheme, some 700,000 low-income Malaysians have been using MyKad to buy essential goods at over 3,500 shops, and this is now being expanded to 5.4 million recipients nationwide.
If millions can use MyKad for groceries, why not for petrol?
Targeting benefits and fiscal gains
If implemented well, MyKad-based targeted subsidy is crucial for fairness and efficiency. As for now, the wealthy urban SUV owners enjoy the same cheap RON95 as those who are struggling, which makes this broad subsidy both inequitable and wasteful.
According to Datuk Seri Tengku Zafrul Tengku Abdul Aziz in 2022, for every RM1 of fuel subsidy, 53 sen is benefited to the T20 (top 20% income group) while only 15 sen reached the B40 (bottom 40%.
Therefore, a MyKad system can help redirect the benefits to those who really need it (e.g., to lower and middle-income Malaysians).
Secondly, fuel subsidies comprise a large proportion of the national budget which worsen the deficit and force trade-offs in other fiscal spending.
Finance Minister II Datuk Seri Amir Hamzah Azizan expected that rationalising RON95 subsidies could save between RM7.2 bil and RM7.5 bil per year. Consequently, the money can reduce the deficit or be reinvested into infrastructure, public transport or social programmes.
Moreover, by leveraging the national ID database (and the government’s new central database hub, PADU), subsidy distribution can be tied into a broader social welfare system for a more holistic social safety net.
Pitfalls: Data, privacy and inclusion
Linking fuel purchases to personal IDs means a vast amount of sensitive information will be collected. With that in mind, some might worry that it could pose data security risks like identity theft or misuse of information.
It is also pointed out by one of the policy papers by the Penang Institute that “security deficiencies in the public sector” and the potential misuse of personal data or political gain.
If the government were to implement this, they must ensure robust cybersecurity safeguards with end-to-end encryption of MyKad transactions and compliance with personal data protection laws. Moreover, no system should collect more data than necessary.
Another pitfall lies in the accuracy and administration of the eligibility data. How will the system decide who deserves subsidised fuel? If it’s based on income or some “high-income earner” list, there is a possible risk that inaccurate information on MyKad in databases could wrongly exclude people.
Thus, the government must establish a clear, accessible mechanism for citizens to check and appeal their subsidy status (as many are already calling for). Transparency is crucial to prevent eligible Malaysians from being unfairly cut off due to bureaucratic error.
Ultimately, the government has to actively open to public feedback, being transparent about the plan’s rollout and having the humility to refine the approach as needed.
If the government can deliver a system that is secure, fair and user-friendly, it will not only achieve its immediate budget goals, but more importantly win public confidence in the power of innovative policy solutions. – May 20, 2025
Yap Wen Min is a policy analyst at HEYA Inc., a non-profit think tank and people’s academy.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: iStock
