Sarawak plantation owners want govt to review palm oil windfall profit levy

Monday, 16 October 2023

KUCHING (Oct 4): It is imperative for the government to review the current policy of imposing the windfall profit levy on palm oil, said the Sarawak Oil Palm Plantation Owners Association (Soppoa).

Chairman Eric Kiu Kwong Seng said if the levy is not abolished completely, the government should at least reduce the rate and increase the threshold.

Prior to 2022, the windfall profit levy rate imposed on palm oil produced in Peninsular Malaysia was 3 per cent when the crude palm oil (CPO) price hit RM2,500 per tonne, while the rate for Sarawak and Sabah was 1.5 per cent when the price of CPO hit RM3,000 per tonne.

Kiu said the reason Sarawak and Sabah were given a lower rate was because these two states are obligated to a state sales tax of 5 per cent and 7.5 per cent respectively when the CPO is RM1,500 per tonne and above.

Effective January 2022, the windfall profit levy rate for Sarawak and Sabah increased to 3 per cent to match Peninsular Malaysia, he said.

In a press statement today to highlight Soppoa’s wish list for the national Budget 2024, he said the higher rate of windfall profit levy in Sarawak and Sabah has further increased the cost of production in these two states, which are already burdened with higher input costs and logistics costs compared to Peninsular Malaysia.

He cited historical data, which showed that the cost of producing one tonne of CPO in Sarawak in 2014 was RM2,000 and how this increased dramatically to RM3,100 in 2022.

This indicates that with the expected CPO price harbouring at the range of RM3,600 to RM4,000, the producers do not experience ‘extraordinary’ profit that falls within the definition of having a windfall for palm oil, he said.

Notwithstanding that many plantation companies are obligated to loan repayment for their businesses, he said.

“Therefore, it is imperative for the government to review the current policy of imposing windfall profit levy on palm oil – if not to abolish completely at least to reduce the rate and increase the threshold,” he appealed.

Kiu pointed out that the palm oil industry pays the most taxes at close to 45 per cent compared to other sectors.

Other than corporate tax, the palm oil industry also contributes cess, levy, and duty, that are to be deducted directly based on the palm oil price, he stressed.

In past years, Soppoa and oil palm stakeholders have requested numerous times for the government to review and restructure the tax, cess, and duty imposed on palm oil to remain competitive, he said.

“With the highly anticipated announcement of the coming budget for 2024, Soppoa has compiled the following wish list for the government to consider,” he said.

Regarding machinery import duty, Kiu said oil palm plantations are labour intensive and the number of workers required against the size of the estate is one person to 8 ha.

To reduce dependency on manual labour and increase productivity, he said plantation companies have employed mechanisation at their best.

Although the present semi-automation for the harvesting of palm fruit remains a challenge, many sections or activities have employed mechanisation, especially to evacuate fresh fruit bunches from roadside platforms all the way to processing mills.

“Unfortunately, the implementation of machinery and equipment has never been cheap in Malaysia as most of the farm machinery and equipment are imported and are subject to various import duty, excise duty, and sales tax,” he said.

Depending on the type of machinery and equipment, the compounding tax ranges from 5 per cent to 20 per cent, while some specialised vehicles are not categorised under agricultural uses and may reach 60 per cent, he pointed out.

To encourage a higher rate of mechanisation in oil palm plantations, a special tax break offer by the government is encouraged, he said.

Regarding replanting allowances, Kiu said: “In general, oil palm trees are ready to be felled and replanted when they are over 25 years old as at this age the yield will start to decline, plus height of the oil palm trees are too tall for effective harvesting.”

To maintain sustainable production, plantation companies would usually earmark 4 per cent to 5 per cent of the area to be replanted annually when time is due, he added.

A Malaysian Palm Oil Board (MPOB) survey shows that while the replanting rate achieved in 2022 was only 1.7 per cent of the total oil palm planted areas, another 664,000 ha are due for replanting this year.

This will translate into older palm trees and lower yields in years to come if the replanting is not carried out in an orderly manner, said Kiu.

“In this respect, it is imperative for the government to come up with a plan and formula to expedite the replanting programme to improve production, which in turn gives higher revenue to the nation.

“One approach to entice replanting is through Replanting Allowance such as giving a tax rebate,” he added.