Article On Windfall Tax Imposed On Palm Oil In Malaysia (15 December 2009)

A very useful article I have read from Biznews section, New Straits Times, Saturday, December 12, 2009 on windfall tax imposed on palm oil in Malaysia:-



by Ooi Tee Ching

Members of the Malaysian Estate Owners Association (MEOA), who are losing money, said they will not pay any windfall taxes until legality of Windfall Profit Levy Act 1998 on palm oil is justified.

Established in 1931, MEOA represents small-and medium-sized estates of more than 40ha.

“We’re seeking advice on the legality of this windfall profit levy. The formulation of the windfall profit levy assumes all planters make money when palm oil prices in the physical market surpass RM2,500 per tone,” said MEOA president Boon Weng Siew. He said not every planter makes tones of money as the profitability of oil palm plantations depends on the age and productivity of the trees.

“A newly-replanted estate would still be losing money even if palm oil prices surpass RM3,000 per tonne,” Boon told Business Times in an interview.

“Why should planters, whose estates are losing money, pay windfall tax?” Boon asked.

He said the windfall tax formula is flawed and unfair to new plantations or those undertaking replanting activities.

“On one hand, the Malaysian Palm Oil Board incentivise oil palm planters to carry out replanting and at the same time Customs Department slap us with windfall tax when palm oil prices surpass RM2,500 per tonne. Mixed signals from different agencies within the government are causing investors to lose confidence in the palm oil industry,” he said.

“It would have been more justified if the windfall tax is on actual profits of audited financial accounts, like corporate tax,” he added.

Oil palm planters in the peninsular are expected to start paying windfall tax soon as the average crude palm oil price is nearing RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak only need to pay windfall tax if the price cross RM3,000 per tonne.

So far, palm oil for the third month delivery, in the physical market, has averaged at RM2,503 per tonne.

MEOA said its members consider the Act a double taxation on planters and a deterrent to local and foreign investments in the stock market, Boon said.

Palm oil is already the world’s most heavily-taxed vegetable oil, with oil palm planters having to pay 26 per cent corporate tax, cess amounting to RM13 per tonne of crude palm oil, 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak respectively. Also, there are varying import duties in consuming countries. Currently, it is estimated that for every RM100 a tonne increase in the price of palm oil, Malaysia’s export revenue is boosted by RM1.8 billion, based on annual production of 18 million tonnes.

This is translates into additional corporate tax of RM315 million, based on 70 per cent of taxable production after excluding 30 per cent of non-taxable production from smallholders and newly developed areas.”