KUCHING: The oil palm has often been cited as the golden crop of Malaysia for its contribution to the economy, jobs creation and food for the people.
In Sarawak, the oil palm industry contributed over RM425 million in sales tax to the state in 2012 but current soft CPO prices are affecting the oil palm industry in the state and the industry does not foresee recovery of CPO prices in the next six months.
Of the 1.1 million hectares of oil palm planted in the state (MPOB statistics), well over 50 per cent are eight years or younger and this high percentage of young growing palms as well as rise of production cost and logistic issues faced in the state further affect the industry as a whole.
As such, the Sarawak Oil Palm Plantation Owners Association (SOPPOA) recently called for a review of the sales tax structure in view of the soft prices for CPO internationally and rising cost of production.
“Foremost, Sarawak is a late-comer in the industry and total planted area is only 21 per cent of total planted area in the country whereas in Peninsular Malaysia it is 50 per cent. Due to the late entry into the industry, many of the estates produce less as area of harvest is smaller and young palm trees produce less,” said SOPPOA spokesperson.
“For example, Sarawak average yield for January to June this year was only 6.6 tonnes per hectare whereas in Peninsular Malaysia the average yield was 8.2 tonnes per hectare with Sabah recording 9.8 tonnes per hectare. However, investments to develop these young palms are high, especially in terms of fertiliser cost.”
In terms of CPO production, Sarawak also falls behind those of Sabah and Peninsular Malaysia; average CPO yield in Sarawak from January to June this year was 1.35 tonnes per hectare as compared to 1.63 and 2.05 tonnes per hectare for peninsular Malaysia and Sabah respectively.
The spokesperson added that the Sarawak sales tax was implemented in 1998 and has remained since.
“Over the last 15 years, average CPO price has increased by 73 per cent. Average yield per hectare has remained more or less constant over the 15 years but cost of production has increased by 187 per cent over the same period, brought about mostly by inflation, fertilisers, wages and diesel costs.”
On average, direct cost of production in 1998 was RM2,170 per hectare compared to the current cost of RM6,220 per hectare. As the sales tax is imposed on sales revenue, it is counted as a cost of production. Using current prices and average yield in Sarawak 2012 of 16.5mt/ha, planters can at best break even when CPO prices reach RM2,400/mt.”
With the current price of CPO dipping below RM2,400/mt, many plantation companies here are paying taxes despite incurring losses and many are also paying sales tax out of borrowing from banks, thereby increasing their financial burden, cost of production and also lengthen the payback period.
“When the sales tax was first implemented 15 years ago, it was for the minimum threshold of RM1,001/mt of CPO prices which is quite unrealistic today in view of the current situation and so should be relooked at. As mentioned, on average, planters only expect to break even when CPO prices are at RM2,400/mt; anything less will incur losses.
“As such, planters are requesting for no sales tax when CPO price is below RM2,400/mt to offset losses incurred due to the current high cost of production. When CPO prices are between RM2,401 – RM 2,800 /mt sales tax of 2.5 per cent can be imposed whereas when prices of CPO exceeds RM2,800/mt, five per cent sales tax is payable as planters are expected to make profits at this price and could absorb the tax charges.”
The federal government even recognises that Sarawak has average low yield and young planted areas by imposing the threshold for Windfall Profit Tax at RM3,000/mt for the state.
In the projection of production increase over the few years, the proposed revision of sales tax for the state will have minimal impact on state revenue but instead would be compensated by the higher productivity.
Based on these input and computations, SOPPOA has requested the government to relook the sales tax structure for palm oil industry in the state which will continue to expand and generate revenue in the years to come as more areas are planted with many others coming to maturity.
In adopting these changes to the sales tax structure will also allow for many companies to bridge the difficult financial situation they are currently facing and results in a win-win situation for the state and nation.
Taken from The Borneo Post
