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Sabah, Sarawak palm oil players cry foul over doubling of windfall profit levy rate

Sunday, 31 October 2021

KUALA LUMPUR: Palm oil growers from Sabah and Sarawak are crying foul over what they deemed to be the unjust doubling up of the windfall profit levy rate from 1.5% to 3% to be imposed on those who operate in the two states, as proposed under Budget 2022.

In a statement, the planters said the 1.5% levy for East Malaysia was implemented by the former government because Sarawak and Sabah growers also have to contend with a state CPO sales tax of 5% and 7.5% respectively, after a threshold of RM1,500 per ton. No other states in Malaysia have this tax, they said.

“With the doubling of the levy from 1.5% to 3%, the sense of equity seems to have been removed from the East Malaysian States by the present government and (there is) a sense of using East Malaysian States to subsidise the opportunity losses by the West. It puts a new meaning to ‘Keluarga Malaysia’,” the planters said.

The statement was jointly issued by the Sarawak Oil Palm Plantation Owners Association, The East Malaysia Planters’ Association, Dayak Oil Palm Planters Association, Chinese Chamber of Commerce Tawau, Tawau Agriculture Association, The Malaysian Estate Owners’ Association, and the Chinese Chamber of Commerce Lahad Datu. Collectively, they are known as The East Malaysian Oil Palm Solidarity Group or EMOPSG.

While the government has also proposed to increase the threshold price for the windfall profit levy for Sabah and Sarawak to RM3,500 from RM3,000 — together with an increase to RM3,000 from RM2,500 for oil palm companies in Peninsular Malaysia — the Sabah and Sarawak planters said this is not enough.

The growers said production cost in East Malaysia is about 15% to 20% higher than in Peninsular Malaysia due to higher transportation, input materials, and labour.

“The last review of the windfall profit levy threshold was done in 2009, some 12 years ago. In these 12 years, wages and materials have risen 80% to even 100% for certain essential items such as fertilizer and chemicals along with labor. This in turn increases the production cost of the product. Palm oil is in a price taker and not a price maker business, it is a commodity.

“The levy is a “windfall” levy, this windfall levy has not been implemented to any other industries bar the oil palm industry. As its name dictates “windfall” or excessive profit, it only stands to reason that the threshold should be set at RM3,500 and for Sarawak and Sabah at RM4,000 per tonne,” they said.

As such, they are appealing to the government to push the threshold price for the windfall profit levy for the East Malaysia growers to RM4,000, and to keep the levy rate at 1.5%.

The association said if the minister from the present government heeds the plea of the industry to raise the windfall Levy threshold to RM4,000 and keep the levy at 1.5% for Sarawak and Sabah, this will help offset the corresponding increase in the cost of production and nurture the industry towards being more competitive and sustainable.

“It will also show that the current Federal government does understand the struggles by the planters in Sarawak and Sabah. In particular Sarawak, where many land planted with oil palm are marginal, gives lower fresh fruit bunches yield and lower oil extraction rate (oil per hectare). In addition, many plantation companies in Sarawak are still struggling with their loans because of new development done over the past 15 years,” it added.

Losses due to labour issue and unharvested ripe oil palm fruits

The group also highlighted that the industry has been grappling with the shortage of labour, as foreign workers could not be recruited due to the closure of international borders during the pandemic.

“As a result of the shortage, a high percentage of palm fruits were left unharvested and resulted in close to RM5 billion in financial losses to the industry and government revenue,” they said, adding Sarawak and Sabah planters are continuing to suffer from such losses.

“Even though 2022 would likely be another good year in terms of favourable crude palm oil price, shortages of workers will continue to burden the industry. In a worst-case scenario, East Malaysia companies would suffer further losses should the Federal government insist on raising the windfall profit levy on East Malaysia,” they This, they explained, is because windfall levy is still paid if one sells the produce, even if the planter made losses, as levy is calculated based on the price.

Appeals to Sabah and Sarawak state govts for help

The group is also requesting that state governments who have benefitted from the CPO sales taxes to also play a part in protecting the industry.

“We would like to appeal to the State Governments of Sarawak and Sabah to take proactive steps to safeguard the oil palm industry, including active and inclusive stakeholder engagements and consultation in all policy making processes, in line with ‘Keluarga Malaysia’,” they added.

Reproduced from The Edge Markets