Tuesday, January 26, 2016

Pigovian Taxes: Are We Finally Ready For It?

This past week, I met up with a senior official at MOF, and he surprised me by supporting a resumption of duty on petrol (via GST). Relief had been granted for RON95 since GST was implemented, and before that, relief from sales tax had already been in force for years.

It turns out he (and I) are not alone:
Debate on petroleum tax
Amidst the falling price of crude, a question that is being debated by some within and outside the Government is whether there should be a tax on petrol.
The current automatic pricing mechanism (APM) for determining petrol prices comprises multiple components, including product costs, operation costs, vendor margins and a tax, among others.
Notably, the current managed float system is based on monthly reviews on the APM based on prevailing crude oil prices and the margins enjoyed by petrol dealers are closely monitored by the government.
Before the APM came into place, for each litre of petrol the tax portion was 58 sen.
However because of the high oil price, the government did not collect the tax and instead subsidised petrol to keep prices low.
Now the question being asked is whether the Government should reduce its relief on RON97 since petrol is a consumption item and involves draining the natural resources....
The discussion is starting to surface, though I would have been happier if this was pushed through in stronger economic times. Has the time finally come for doing the right thing?


  1. Open up the market, let the petrol station owners determine the price. Let the free market determine the price + gst.

    everybody wants something free, but nobody wants to do free labor for the good of the community, thus the collapse of the communist system. I hate it when Malaysians of all races felt entitled to subsidies as if it is their rights, as if oil magically got pumped out of the ground and engineers and workers worked for free to process the oil into petrol.

    free medicine, free education, free this... as them to collect rubbish for free they will cry like a baby, say this is a bangla's job then complain too many foreigners in this country.

    I say, open up the market.

    1. @James,

      I agree, though I suspect opening up price competition might actually have the effect of raising prices rather than competing profits away. One little known aspect of the APM is that it enforces fixed profit margins on the petrol supply chain.

    2. Though anecdotal, here in Oz, petrol prices move up quickly but are slow to come down, when world prices weaken

  2. I'm supportive of fuel tax for various reasons. The environment is one.

    But the timing isn't right. I wouldn't want our fiscal policy to be overly procyclical. Already the government is sticking with the deficit target and implementing fuel tax right would add the misery. I also don't think the effect of GST on consumption has passed yet.

    I'd be livid if they impose the tax in the upcoming budget revision.

    Better wait up for next year I think. Slowly does it.

    1. @Hafiz

      I don't think a petrol tax is necessarily pro-cyclical, though I agree that the best time would be when the economy is stronger. Doubt that would stop the complaints though.

  3. Pigovian taxes!! That takes the cake!! Wonder what has triggered such a flow of slime this sluice-gate of a blog for the last 4 months or so.

    Whats up, dude? Loose bolts in yer brainshaft or something more serious. Been hitting the wrong grass or something?? ;D.....am pretty sure you must have been laughing at yer own drivel...I did, so thanks

    Pigovian taxes when consumption is tanking...that would beat the Japanese who raised taxes during the cusp of a "recovery" in 2014, what more our very own 6% GST when 3% should have been more like it for starters.

    Anyway, hope your rockheaded suggestion doesnt give others ideas today....but I have this niggling suspicion it will be packaged as Pigovian but under another guise..something like this:


    and not for the environment or altruistic reasons of course but to protect corporates and the public exchequer...hahahaha

    You know what will happen dude? Watch them plebs start riding two stroke kapchais in a desperate bid to save already threadbare wallets...and watch the environment cough in unison....hahahahaha

    I suspect most economists know not what they yap about...after all its a pseudo-science devoted to imaginary musings with very little assaying of Reality! And then they get bitten real hard when reality takes a chunk off their arse. Wanna bet?

    Here is some chowder:


    and food for thought for policy wonks debating FTAs and what not. Dint I tell you all about NAFTA....ah well...I might as well go biking rather than wasting time here or elsewhere in cybersphere. Lots of trouble and drivel I invited on myself for nothing!

    Nice to see you are back Slug...hope things get better if you are reading this and @Hafiz Noor Shams - I do enjoy your takes in the Malay Mail.

    As for the rest,looks like Bernanke, Kuroda et al..screwed everything up. There will be no or at best tepid, economic growth...except for the elite (yep...a two speed economy has emerged on a global scale, thanks to QE and BOJ bond buying frenzy).

    So what happened to inflation,someone asked me the other day...well.. Bernanke has vamoosed it with a clever sleight of hand and some smokes and mirrors.

    Read all about Kuroda, Bernanke and the upcoming World War 3 in Eschatolitics,my new blog in the making. Posts will be garnished with facts and figures of course...but no comments allowed for written thoughts/views etc are better pondered about than commented upon. And yes, it will answer what happened to inflation and elaborate on the wage growth stagnation and its implications which I raised here back in September.

    Have a blessed year, folks and may Allah bless you all. You will needs lots of it for what's coming next will dwarf everything you have seen thus far....hahahaha

    Pigovian taxes ....ROFLMAO

    Warrior 231

    1. @Warrior

      Glad to see you back too, in all your acerbic glory.

      At the very least, you cannot accuse me of being inconsistent - I've been pushing for a petrol tax it seems like forever.