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MPOA, 14 other palm oil groups reiterate call for review of windfall profit levy

Tuesday, 7 November 2023

palm-kernel-edge KUALA LUMPUR (Nov 6): The Malaysian Palm Oil Association (MPOA) and 14 other associations affiliated with the palm oil supply chain are jointly appealing to the government for an immediate review and reconsideration of the windfall profit levy (WPL) on oil palm planters, following the industry’s present sectorial challenges and the pivotal need for long-term competitiveness and sustainability.

In a joint statement on Monday, the associations called for the government to consider a review of the tax — which is levied on palm oil prices above RM3,000 per metric tonne in Peninsular Malaysia and above RM3,500 per metric tonne in Sabah and Sarawak — and raise the windfall profit levy’s effective price threshold for palm oil.

In addition, they are also asking for a reversion of the windfall profit levy rate for Sabah and Sarawak planters.

“It’s worth noting that the WPL levied in Malaysia is exclusively levied on the oil palm industry in Malaysia. The term ‘windfall’ implies excessive profits. WPL on [the] oil palm sector does not only impact the competitive edge of the industry’s upstream sector but will also affect the entire supply chain, affecting stakeholders in the supply chain and will deteriorate in the future, with lack of reinvestments against ageing oil palm trees and southward trending productivity.

“Therefore, it stands to reason that the WPL threshold for triggering this levy should be reviewed to be set higher, especially considering today’s realities and to address the wrong notion that the planters have unceasingly been making windfall profits since its inception in 1999,” the statement read.

The associations argued that the current imposition of the windfall profit levy is prejudiced, as it assesses windfall profit based solely on commodity prices and revenue, rather than a more comprehensive assessment of return on investment or profitability.

Furthermore, they contended that the 19% gross profit margin given the current crude palm oil (CPO) price at RM3,700, is hardly excessive and is closer to average or normal returns.

As such, the associations called for a repeal of the windfall profit levy to enable the industry to utilise much-needed funds for reinvestments, to ensure its long-term competitiveness and sustainability.

But if the windfall profit levy is to be continued, the associations request for an equitable increase in the windfall profit levy’s price threshold, in line with the true sense of today’s production cost and correct profitability.

Besides that, the associations appealed that the windfall profit levy rates should immediately be reverted from 3.0% back to 1.5% for oil palm planters in Sabah and Sarawak, considering the additional state sales tax already imposed on them.

According to the Royal Malaysian Customs Department, the current levy is charged at a rate of 3% on both palm oil prices above RM3,000 per metric tonne in Peninsular Malaysia and above RM3,500 per metric tonne in Sabah and Sarawak.

The associations claimed that over the past five years, oil palm planters have been taxed a substantial RM5.2 billion which went to the government’s coffers, with last year alone yielded over RM3 billion through the windfall profit levy.

Besides MPOA, signatories of the statement included the Malaysian Estate Owners’ Association (MEOA), National Association of Smallholders (NASH), Sarawak Oil Palm Plantation Owners Association (SOPPOA), Sarawak Dayak Oil Palm Planters Association (DOPPA), East Malaysian Planters Association (EMPA), Sabah Oil Palm Millers Association (SOPM), Sabah Employers Consultative Association (SECA), Palm Oil Millers Association (POMA), Palm Oil Refiners Association of Malaysia (PORAM), Malaysian Oleochemical Manufacturers (MOMG), Malayan Edible Oil Manufacturers’ Association (MEOMA), Malaysian Biodiesel Association (MBA), Malayan Agricultural Producers Association (MAPA), and the Incorporated Society of Planters (ISP).

The windfall profit levy on the palm oil industry has been in place since 1999, with periodic revisions to the levy rate and price threshold value. Notably, in January 2022, the government raised the levy rate for Sabah and Sarawak from 1.5% to 3%, equalising the rate to that of Peninsular Malaysia.

The MPOA represents over 40% of the total planted oil palm area in Malaysia. Its members include major plantation companies such as Sime Darby Plantation Bhd, FGV Holdings Bhd, Kuala Lumpur Kepong Bhd, IOI Corp Bhd and Sarawak Oil Palms Bhd.

In October, the MPOA shared its wishlist for Budget 2024, including a review of the windfall profit levy, reinvestment allowance for intensifying oil palm replanting, pre-requisite for sufficient workers, mechanisation and levies, as well as support for sustainability initiatives.

Following that, Deputy Prime Minister and Plantation and Commodities Minister Datuk Seri Fadillah Yusof said his ministry submitted a proposal to the Ministry of Finance, for the windfall profit levy for Sabah and Sarawak to be at 1.5% under Budget 2024.

However, following the Budget 2024 announcement, MPOA expressed disappointment that its carefully outlined wishlist for Budget 2024 did not make it into the government’s budgetary priorities.

Instead, the government under Budget 2024 allocated RM100 million as replanting incentives, to avoid old-age oil palms from reaching 560,000 hectares by 2027, which will be offered as grants and loans to 7,000 private smallholders. Responding to this, the MPOA said that the incentive is anticipated to only address a miniscule fraction of the critical replanting needs of the nation.