Govt wants subsidy to rakyat reduced but what about ‘Corporate Subsidy’?

Federal Government intended to reduce some of the annual subsidies of RM 74 billion to Malaysians annually, for fear if the subsidies continue on the increasing trend growth of 12% per annum would make the nation bankrupt by 2019. This was announced by Performance and Management Delivery Unit (PEMANDU) CEO Dato’ Seri Idris Jala last week.

The blunt statement obviously caused a lot of roar.

Never the less, the scare did catch a lot of attention. The concept of savings achieved from reduced or withdrawn subsidies is good and generally well received. 60% of the respondents recorded by PEMANDU so far gave thumbs up for the idea. In five years, the amount of subsidies saved would amount RM 1o3 billion. The reduction would reduce national debt to a more manageable level, where the Federal Government annual budget deficit would be reduced and gap narrowed. Lessons learnt from Greece very recently is sending shivers to many macro economists all over the world.

However, bold and courageous steps the Federal Government willing to take does not come without adverse opinion. Skeptics are concerned how it will affect majority of the rakyat, who are still very reliant on subsidy. Even subsidies on basic food such as rice, flour, sugar and cooking oil will affect most households.

Then again, many would want the subsidies to businesses be withdrawn. Some of them believed that businesses make money and thus should subsidise their services instead of the Government giving them subsidies for the rakyat. Top of the list are direct subsidies such as gas subsidy and contract purchase of power from IPPs. Other subsidies include deferred toll hike increase to tolled highway concessionaires. Other form of subsidies include tax allowances, incentives and breaks.

One of the tax allowance issued today is for AirAsia. Bernama.com has the story:

Published: 2010/06/02

AirAsia gets tax break extension

AIRASIA Bhd has been granted a further five year extension of an investment allowance, which entitles it to claim an income tax exemption of 60 per cent on qualifying capital expenditure.

This must be incurred between July 1 2010 and June 30 2014.

The amount can be set off against 70 per cent of statutory income for each year of assessment.

The approval is subject to the condition that the capex will exclude any aircraft not based in Malaysia; and should any aircraft be sold or leased within five years.

In such a case, there will be a clawback of the investment allowance used on the aircraft.

Read more: AirAsia gets tax break extension http://www.btimes.com.my/Current_News/BTIMES/articles/20100601235459/Article/#ixzz0pidlNU3R

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On Monday, AirAsia announced a Q1 profit of  quarter billion Ringgit. This subsidy should not be allowed since AirAsia is making a lot of money from its operations and the shareholders are enjoying the profits derived. Then again, air travel is not essential for the rakyat of Malaysia. The consumers should pay for the travel. More over, millions of tourists enjoy lower airfare with this tax allowance that has been extended to AirAsia.

What is the point of AirAsia being the most successful and profitable low cost carrier in Asia when they enjoy subsidies? They already have been known for deferring payments to Malaysia Airports for the use of facilities all over Malaysia despite pocketing the money meant for the charge collected from passengers paying ahead before using the services.

Subsidies to money making businesses such as AirAsia should stop, at the expense of the Malaysian rakyat and detriment to the His Majesty’s Treasury. Subsidy is meant to alleviate the charge or reduce burden of the rakyat, for social development purposes. This is what PEMANDU should really look into, before lifting the subsidies on rice, sugar, flour and even charges to outpatients at Government Hospitals, proposed to be increased from RM 1.00 to RM 3,00.