The fuel subsidy is not the most efficient rationalisation to help those who are affected by the increase in the cost of living, said Khazanah Research Institute managing director, Datuk Charon Mokhzani.

“The fuel subsidy should be replaced with cash exchange in stages. The method of cash grant such as the Bantuan Rakyat 1Malaysia (BR1M) is beneficial and should be distributed to the target groups more accurately,” said Charon at the launch of 'Laporan Keadaan Isi Rumah' here, today.

The report focused on three main themes - household situation and income, workforce in Malaysia and a detailed data analysis of the trade and investment policies.

“The Khazanah Reseach Institute will also publish and table policy proposals on the matter for it to be evaluated by the government,” said Charon, adding that the proposal took six months to be prepared.

The report, which marks the institute's maiden publication zooms in on strategic plan recommendations on how the fuel subsidy system should be improved as the current method is feared could stunt economic growth in the country.

The subsidy price does not mirror the actual cost and this causes economic losses such as wastage which could not be claimed back.

“Subsidy expenditure should be allocated for sectors which are more productive in creating a boost in the country’s economic growth and towards development which target the needy,” said the report.

The current subsidy system is costly especially, if the price of energy continues to increase. Without an improvisation of subsidy, the physical cost will increase which means tighter budget for other fields will be affected.

Based on the current subsidy system, Charon also touched on the smuggling of petrol which involves 10 per cent of the country’s oil source valued at RM660 million.

Between the year 2007 and April 2014, the government has recorded a staggering 3,500 diesel smuggling cases. Each related smuggling and criminal cases causes more expenditure to the government for law enforcement purposes.