MALAYSIA is one of the biggest producers and exporters of palm oil and palm oil products. The industry is also a significant contributor to Malaysia’s gross domestic product.
However, the industry faces a variety of challenges including labour shortage, accusation of not being sustainable and threatening the habitat of several endangered species by deforestation.
Adding to the woes of palm oil industry players are imposition of taxes, namely windfall tax and export tax.
Focus Malaysia in a March 2013 article titled “CPO tax flip-flop raises planters’ ire”, highlighted that while the reduction of the export tax to zero may be a blessing for the palm oil industry, the sector has frequently claimed to be heavily taxed by the government, even as high as 46% of their profits before tax.
One of the grouses of the industry players is that on top of the foreign worker levies, cesses and taxes on both state and federal levels remain a large chunk to be paid by the companies, and a bone of contention.
Analysts and industry insiders concur that the taxes on palm oil are affecting the growth of the industry. A source pointed out that the industry indeed has a credible case when petitioning for the abolition of the windfall tax.
The windfall tax was introduced by the government on July 1, 2008 to replace the Cooking Oil Price Stabilisation Scheme that was started by MPOB.
Since then, several groups including the Malaysian Palm Oil Association have called for the government to continue the exemption of export duty and to indefinitely suspend the windfall tax.
The Malaysian Estate Owners Association former president Boon Weng Siew reportedly said it would be more justified if the windfall tax is on actual profits of audited financial accounts, like corporate tax.
He said this was because not every planter makes tonnes of money as the profitability of oil palm plantations depends on the age and productivity of the trees. A newly-replanted estate would still be losing money even if palm oil prices surpass RM3,000 per tonne.
On Jan 16 this year, the Edge citing the Malaysia Palm Oil Board (MPOB), reported that effective Jan 1, 2020, a 3% windfall tax per tonne would be imposed on planters in Peninsular Malaysia if crude palm oil (CPO) prices surpassed RM2,500 a tonne while planters in Sabah and Sarawak would have to pay a 1.5% windfall tax if CPO prices exceed RM3,000 per tonne.
The report had also quoted former Primary Industries Minister Teresa Kok as saying a special committee to manage Malaysia’s CPO windfall tax trust account would be set up.
Kok said the proposed trust account was estimated to have RM200 mil collected from the CPO windfall tax and at least half of the amount would be reserved for the nation’s biodiesel stabilisation fund, she said.
One day later, Reuters reported that on top of the windfall tax, Malaysia has raised its export tax for CPO to 6% in February from 5% previously.
The raise comes after a tax-free exemption on CPO from May to December 2019 in a move to boost palm oil exports and expand into new markets.
Traders reportedly had said the tax hike could lower Malaysia’s CPO exports.
“It may further restrain Malaysia’s export of CPO, but would benefit local refiners for exports of refined products,” Reuters quoted director of the Farm Trade Sandeep Singh as saying.
The Star in December last year citing CIMB Investment Bank’s regional head of plantation research Ivy Ng said, companies like FGV Holdings, Hap Seng Plantations Holdings and Ta Ann Holdings, which are primarily upstream players, could see their margins impacted by the export tax on CPO.
While for integrated players like IOI Corp, Genting Plantations and Kuala Lumpur Kepong Bhd, she said the impact would be neutral.
“The resumption of export duty has historically been negative for upstream planters as local CPO prices may fall to reflect the higher export duty.
“However, if palm oil supplies are tight, producers could potentially pass on some or all the export duty to consumers through higher CPO price,” she added.
Recently, Prime Minister Tan Sri Muhyiddin Yassin announced 100% exemption on the export duties for CPO, crude palm kernel oil and processed palm kernel oil from July 1 to Dec 31, to help support the commodity industry as part of overall efforts to stimulate the economy in the wake of the Covid-19 pandemic.
The Edge on June 4, 2020, reported that the MPOB has lauded the government’s move, saying the announcement would definitely help to raise the value of Malaysian palm oil exports to other countries. – Sept 30, 2020
