Diesel Subsidy Cuts Hit Small Businesses: Rising Costs Threaten Survival

The Malaysian government recently announced that it would gradually abolish diesel subsidies, which is expected to push up transportation and operating costs, causing widespread concern among small businesses about rising operating pressure. As the policy enters the implementation stage, its impact on grass-roots economic entities is gradually emerging.

"In the past, the cost of one-time goods could be controlled, but now that the oil price has risen, even the number of purchases will be reduced." Muhammad Faiz, the grocery store owner, said.

Industry insiders pointed out that once the price of fuel rises, the relevant costs will be quickly transmitted to all business links, further squeezing small merchants with limited profit margins.

"At present, transportation costs have accounted for a large proportion. If oil prices continue to rise, we may only respond by raising prices or shortening business hours." Ahmad Razif, a snack stall owner at the night market of the Greenfield community in Selangor, said. He added, "When the passenger flow has not fully recovered, any additional costs may have a direct impact on the business."

The government said that the gradual abolition of diesel subsidies is one of the important measures to promote the optimization of financial structure, aiming to reduce the public financial burden and improve the efficiency of resource allocation. According to the analysis, such policies will help improve the financial situation in the long run, but their short-term impact is often concentrated in small and medium-sized business entities and low-income groups.

Photo caption:A small truck driver is refueling at a gas station. 

                                                       (Photo source: straitstims)

https://assets.nst.com.my/images/articles/A3C1E74139D345E12D63982BBADAEAC9_low.jpg 

Imran Nurginias Ibrahim, chief economist of BIMB Securities Sdn Bhd, said that a more targeted subsidy mechanism will help reduce the waste of financial resources and improve the efficiency of resource allocation. However, its macroeconomic and distribution effects still largely depend on the specific implementation.

"From the macro level, targeted subsidies are generally conducive to improving financial efficiency without significantly suppressing overall demand." He said in an interview with The Sun.

Therefore, after the cancellation of diesel subsidies, the logistics and distribution industry is also facing rising cost pressure. With the cancellation of diesel subsidies, some industries have begun to feel the pressure of rising costs.

According to relevant reports, the Peninsula Malaysia Tourist Bus Industry Association pointed out that the price of diesel has risen from RM2.15 to RM3.35 per liter after the cancellation of the subsidy. The operating costs of some tour bus companies have increased significantly, and some operators have even been forced to increase their fares by up to 35%.

Tai Pok Kim, Secretary-General of the Peninsula Malaysia Tourist Bus Association, said in a report by South China Morning Post, "Even if the bus is not running, the air conditioner in the car still needs to operate continuously to maintain the passenger experience, which further increases fuel expenditure. If a bus company owns 10 buses, the daily loss may be as high as RM2,000.”

Research related to the World Bank points out that small and medium-sized enterprises are more vulnerable to cost shocks. Due to the lack of scale advantages and capital buffers, their business stability is more easily affected, and some enterprises may be forced to downsize or even withdraw from the market.

Against this background, some merchants have begun to evaluate and adjust prices or optimize the operation mode, including reducing business hours and controlling the frequency of purchases. However, under the tightening of the overall consumption environment, there is also a risk of price increase. Some operators are worried that once commodity prices are adjusted, it may lead to customer loss, thus forming new business pressure.

This trend highlights the direct transmission effect of policy adjustment on the grass-roots economy. With the gradual emergence of cost pressure, small merchants face a more difficult balance between absorbing costs and maintaining competitiveness.

Against this background, many small businesses have called on relevant departments to provide transitional support measures, including cost subsidies, tax exemptions or clearer policy guidelines, to help them better cope with the short-term impact of policy adjustment.