Estate owners appeal to defer cess hike
The Malaysian Estate Owners’ Association (MEOA) is appealing for the implementation of the Malaysian Palm Oil Board (MPOB) Cess Order 2020, which is scheduled to take effect from 1 January 2021, to be postponed to a later date.
KOTA KINABALU: The Malaysian Estate Owners' Association (MEOA) is appealing for the implementation of the Malaysian Palm Oil Board (MPOB) Cess Order 2020, which is scheduled to take effect from 1 January 2021, to be postponed to a later date.
The new MPOB Cess Order 2020 stipulates the payment of an additional RM5 cess per tonne of crude palm oil (CPO) and crude palm kernel oil (CPKO) produced, over and above the current total cesses of RM14 per tonne of CPO produced.
MEOA opines that the proposal to levy this additional cess should be open for further dialogue with the oil palm growers.
In a statement on Sunday, MEOA said the postponement it proposes would enable the relevant stakeholders, especially the affected cess contributors of the oil palm plantation fraternity, to be given the additional opportunity to participate in inclusive engagement with the Ministry of Plantation Industries and Commodities (MPIC) and its agency, the Malaysian Palm Oil Board (MPOB), on their intent and proposals for using the funds collected under this additional cess.
It is widely understood from previous engagements with MPOB and from MPOB's circulars for public comments, that the funds are intended to be used for mechanisation and automation (M&A) in the industry, the statement said.
“Looking at Ringgit quantums, every RM1 per tonne cess levied on CPO and CPKO, will amount to about RM22 million cess collection per year. It is estimated that an additional RM110 million will be collected when the Cess Order 2020 takes effect over the one-off span of one year.
“This is based on an estimated Malaysian annual production of 20 million tonnes of CPO and concurrently two million tonnes of CPKO at RM5 cess per tonne, giving a total of RM110 million. In earlier stakeholder engagements, there were proposals that the Malaysian government would accord a matching grant to the mechanisation initiative at the ratio of 1:1.
“This was to be in line with the spirit to promote partnership between the government and private sector. However, in the recent Budget 2021 announcement, the government revealed that only RM30 million of matching grants has been budgeted to encourage ‘investments' in M&A. Thus, the matching ratio would work out to be 0.27: 1,” MEOA said.
In an announcement on the proposed MPOB Cess Order 2020 on its website recently, MPOB notified that the RM5 per tonne cess would be levied for the purpose of intensifying the pursuit of research and development on M&A for the oil palm industry. In its licensing and enforcement division website (led.mpob.gov.my), MPOB said it is now welcoming public feedback on the draft of the Malaysian Palm Oil Board (Cess) Order 2020 from 20 November until 30 November 2020.
MEOA has always maintained its continued support for effective and targeted M&A initiatives for the oil palm industry aimed at reducing its high labour dependency.
Notwithstanding this, there is the dire need to provide clarity and build consensus among the cess contributors on how the funds from MPOB Cess Order 2020 will be used.
There are many important matters to be ironed out among stakeholders which include: the terms of reference for a dedicated committee to manage this fund; its detailed governance structure for better accountability; the role of MPOB; M&A project identification and prioritisation; mechanisms to allocate funds to selected projects; any patent/rights and commercialisation related matters arisen from using the fund.
“If need be, a review and restructuring of cess and tax is necessary, exploring options of re-channeling some funds from the present windfall profit levy to be used as expenditure on M&A, consideration to revise the proposed amount of cess for M&A along with a delayed start-off or phasing of its implementation,” MEOA stressed.
At present, the Malaysian oil palm growers comprising 680,000 smallholders, small and midsized planters to big plantation companies, are already subjected to earlier MPOB Cess Orders that now total RM14 cess per metric tonne of palm products produced. The total cess collection is more than RM300 million per annum, much of this amount being channeled for oil palm R&D purposes, including for M&A.
According to MEOA, it is important for the stakeholders to have a macro-perspective on the taxation already imposed on oil palm growers and the challenging realities they are facing.
It must be appreciated that although CPO prices have recently surged to above RM3,000 per tonne, many growers are just starting to recoup their losses and investments over the last few years of poor prices, while many growers also need the extra generated profits now to reinvest in replanting their aging trees.
MEOA pointed out that the age profile of Malaysian oil palm trees reveals that there is a high percentage of trees more than 20 years old, that are too tall for the harvesting of bunches.
“The Windfall Profit Levy has also kicked in against the established CPO price thresholds (above RM2,500-00 per tonne CPO for Peninsular Malaysia, and above RM3,000-00 for Sabah and Sarawak). In addition, come 31 December 2020, the CPO export duty structure may be reactivated - if the prevailing duty-exemption is removed.
“Against its present duty structure and set against the current CPO price band of RM3,301RM3,450, the re-imposition of export duty at 7.5 per cent will garner a considerable sum of about RM250 per tonne of CPO. The Sabah and Sarawak planters also continue to absorb extra cost to account for their respective state sales tax of 7.5 per cent and 5 per cent respectively.
“It should be pointed out that no oil palm planters will be rejoicing endlessly with today's palm oil prices, given the cumulative effect of relentless cost increases over the years. Today's derived margin set against many unabated production costs is certainly not windfall profits,” MEOA said.
MEOA, the statement said, acknowledges that M&A should be R&D's key focus and top priority going forward, to address the high labour dependency in the plantation sector.
“However, the governing agencies must advocate and exercise inclusivity and provide better clarity on how the cess fund will be used for the purposes of M&A. Until and unless MPIC and its agency MPOB can provide assurance and accountability to the contributing growers on how the fund will be used and accounted for, it may lead to sending a wrong signal or to the incorrect perception that the contributors are subjected continually to more and more taxation, without any say over how their contributions are spent, and without assurance that their contributions are spent on R&D actually useful to the industry's requirements and needs.
"In short, a lack of engagement will reinforce the impression amongst growers that hurting ‘the goose that lays the golden egg' is of little importance to the authority stakeholders."
Amid the Covid-19 pandemic, the oil palm industry is of greater importance in keeping the socioeconomic wheel in the country turning, especially in rural economies, along with its multiplying and spin-off effects across its supply chain.
The oil palm industry is a longhaul business and the growers need to recoup and reinvest for the industry to be competitive and sustainable, it said.
The East Malaysia Planter's Association (EMPA) also strongly objects to the proposal by MPOB to increase the cess in order to offset the reduction in their 2021 budget allocation from the Federal Government.
Its chairman, Anthony John Wong, said the palm oil industry in Sabah had been severely affected by the more than 24 months of continuous depressed commodity prices, shortage of plantation labour and the 10 months of Covid19 pandemic.
He added that the road to recovery will be long and full of uncertainties and just when the industry can see a glare of hope in the recent upward trend in commodity prices, an additional RM5 per metric ton in MPOB cess has already been proposed.
"This will be such a punch in the gut for the palm oil industry in Sabah, especially when there is no guarantee as to how long the current favourable commodity price can be sustained.
"Ultimately, the additional cess will be passed on to the producers of Fresh Fruit Bunches (FFB) which includes thousands of smallholders," he said in astatement yesterday.
According to Anthony, the palm oil industry in Malaysia is perhaps the most regulated and heavily taxed.
"Besides the corporate and income taxes, production cess, foreign workers levy and others, oil palm companies in Sabah are also required to pay a 7.5 percent State Sales Tax as well as to absorb the ‘East Malaysia Discount' of RM25 per metric ton of CPO.
"The terrain, soil type, rainfall and insufficient reliable infrastructure network make Sabah's production cost comparatively higher than that of Peninsular Malaysia.
"Sabah accounts for not less than 30 percent of the palm oil produced in Malaysia but received proportionately less in inputs from MPOB, especially in farm mechanization and Ganoderma control."
He added that EMPA had been actively engaging with MPOB in these areas in the past and it will continue to enhance this partnership for the betterment and sustainability of the palm oil industry in Sabah.
He also hoped that MPOB will be sensitive to the challenges of the stakeholders in Sabah and reconsider the proposal to implement the additional MPOB cess.