More calls to stop windfall levy

CAP ON POTENTIAL GAINS: Oil palm planters face double taxation when CPO prices climb above RM2,500 per tonne

KUALA LUMPUR: AS crude palm oil (CPO) prices firm up, oil palm planters renew their appeals to the government to abolish the windfall tax.

Yesterday, the third-month benchmark palm oil futures on Bursa Malaysia Derivatives Market closed at RM2,554 per tonne.

"In the last seven weeks, CPO prices have climbed past RM2,500 per tonne. Although this sounds like good news, it's actually very painful for oil palm planters. 

"We face double taxation; one is the CPO tax and the other is the windfall levy," said Malaysian Palm Oil Association (MPOA) chief executive Datuk Dr Makhdzir Mardan.

He said oil palm planters in Peninsular Malaysia pay the windfall levy when palm oil prices go beyond RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, pay this levy if the price crosses RM3,000 per tonne.

"Since the government restructured the CPO tax this year, it should have also done away with the windfall profit levy," Makhdzir told Business Times here recently.

"Planters are having a tough time with less profits following labour shortage and the implementation of the minimum wage policy. Low CPO prices throughout 10 months of the year have shaved off profits of plantation companies by as much as 30 per cent and this has affected return on investments to shareholders." 

The windfall levy indirectly caps potential gains in palm oil prices. Makhdzir explained that when palm oil is slapped with the levy, it gives the perception that the food item is overpriced and triggers a psychological reaction among buyers in China, India, the United States and Europe to slow down their orders.

"The government may collect millions of ringgit in windfall levy but unfortunately, this move also denies the opportunity in garnering billions of ringgit in export earnings for the country." 

Oil palm planting is a capital-intensive activity. Every year, planters have to chop down old and unproductive trees and replace them with higher yielding seedlings. Planters, particularly smallholders, need to re-invest their profits to raise productivity at their fields. "How are they going to carry this out effectively when they have to pay more taxes in the form of windfall levy?" Makhdzir asked.

Two months ago, the Malaysian Estate Owners Association (MEOA) reiterated its long-drawn appeal to the government to abolish the windfall tax as it deters re-investments.

MEOA president Boon Weng Siew had reportedly said when CPO trades above RM2,250 a tonne, planters pay a 4.5 per cent export duty and when the price rises above RM2,500, planters have to pay a 5.5 per cent export duty as well as windfall tax. 

"This double taxation is punitive to oil palm planters in Peninsular Malaysia."

According to the Malaysian Palm Oil Board, Malaysia produced 17.55 million tonnes of CPO in the first 11 months of this year.

In the last three weeks, floods in the east coast of Peninsular Malaysia disrupted the harvesting of oil palm fruits and the transport of palm oil to refineries and seaports. In view of the supply disruption, market punters are betting that CPO prices will continue to trade above RM2,500 a tonne in the weeks ahead.

Commenting on the impact of the flood on the country's CPO output for the year, Makhdzir said: "Now that the floods have somewhat subsided, I think the overall impact is not too severe. We should still be able to squeeze out 19 million tonnes of CPO for the full year."