The newly proposed subsidy rationalisation of RON95 petrol will cut the pump price by six sen from RM2.05 to RM1.99 from Sept 30. Anyone with a MyKad will be able to buy up to 300 litres at the subsidised price and the full market price after that.

Doing the calculations, if a petrol buyer saves six sen per litre on 300 litres they save RM18 per month. For 16 million car owners this compensation for higher pump prices costs the government RM3.45 billion per year if it is all used.

The question then is where will the previously announced RM8 billion estimated savings from RON95 subsidy rationalisation come from?

It looks like it will come from purchases over 300 litres per month, which will mostly be rich people but also will capture many middle-income people, especially those who need to drive to work.

It will also come in part from foreigners who will not be eligible for any subsidies so will pay full market prices. Unfortunately, foreigners who work in Malaysia and contributing to the economy as well as paying taxes will be hit hard by higher prices.

This is discriminatory and sends bad signals in the market. The distinction should be between residents and non-residents when it comes to eligibility, nationality is irrelevant in economic terms and foreigners who live and work here should be eligible for the discount.

Finally, the reset process itself can help reduce wastage, leakages and corruption often associated with the old system.

The impact is that some savings will be made and some of the negative impact of higher pump-prices is compensated for everyone, not just the poor but including the rich, by the six sen reduction.

If the overall target of RM8 billion is achieved it provides fiscal space to reallocate this spending to other priorities. So the policy is not backtracking on the overall aims.

High-income people will still get a discount on the first 300 litres and this should reduce the backlash but many low-income people will not benefit from the full use of 300 litres.

For example, low-income consumers who put RM5 of petrol per day into their motorbike will spend RM150 per month and get 75 litres. This means they get only RM4.50 of extra subsidy compared to RM18 of extra subsidy for the rich.

There is also an obvious risk from the use of MyKad to get the discount. People will steal MyKads, they will use MyKads of family members who do not buy petrol or they can still sell the subsidised petrol. If you buy only 75 litres per month for your motorbike, you have 225 litres of subsidised petrol per month to sell to your rich neighbour.

We might see forecourt assistants offering their cards for money or Mat Rampit teenagers loitering around petrol stations offering discounts to wealthy drivers. The rich will get their drivers to pay for the petrol with their MyKads.

Criminal groups will clone MyKads or set up syndicates to access discounted petrol. Since there will be data collected on which MyKad users are buying petrol and which are not, the MyKad details of the unused amounts will be a useful resource to criminal gangs.

This could run into millions of people, including those with one car but four MyKads per household, every auntie and uncle with no car at all and almost 70,000 people with electric vehicles who do not buy petrol. That group itself has RM530 million of unused subsidised petrol.

So while the subsidy reform is a great step forward the MyKad mechanism opens up opportunities for wastage, leakages and corruption which may be difficult to monitor.

The views expressed are those of the writer and do not necessarily reflect those of FMT.