Inefficient planters will suffer more from cess
KOTA KINABALU As taxes and cess in Malaysia are based on revenue and not net profit, inefficient plantation companies with high production costs would suffer more, analysts note, while palm oil companies in Malaysia with younger oil palm trees, which require high maintenance expenses, would also be more affected.
AmInvestment Bank Bhd (AmInvestment Bank) gathered that palm oil companies in Malaysia pay the Malaysian Palm Oil Board (MPOB) cess, crude palm oil (CPO) export tax (depending on the level of CPO prices), CPO windfall tax (depending on the level of CPO prices) and corporate taxes.
“Plantation companies in Sabah and Sarawak also have sales tax of 7.5 per cent and five per cent respectively,” the research firm said.
“The corporate tax rate in Malaysia is 24 per cent compared with Indonesia’s 22 per cent in 2021F and 20 per cent in 2022F.
“All of the above taxes are in addition to the yearly levy of RM640 per worker for foreign workers in Malaysia and RSPO compliance costs.
“An industry player said that its RSPO compliance costs are about RM8 to RM12 per tonne of CPO.”
AmInvestment Bank highlighted that with the exception of corporate tax, the MPOB cess and the taxes are based on the revenue of the companies and not net profit.
“This means that plantation companies would still have to pay the MPOB cess and various taxes even though they may be unprofitable.”
Based on historical numbers,
AmInvestment Bank estimated that the revenue of the palm oil companies in the research firm’s coverage would be five per cent to seven per cent higher without the cess and various taxes in Malaysia (excluding corporate taxes).
“As the taxes and cess in Malaysia are based on revenue and not net profit, inefficient plantation companies with high production costs would suffer more.
“Palm oil companies in Malaysia with younger oil palm trees, which require high maintenance expenses, would also be more affected.”
Looking ahead, AmInvestment Bank opined that there would always be proposals for more cess payments in Malaysia, based on past precedents.
“In January 2020, an additional cess of RM1 per tonne for tree planting was implemented. In December 2020, the MPOB proposed another cess of RM5 per tonne for research and development (R&D) into mechanisation and automation of palm processes.”
However, the research firm did not think that there would be more taxes or increases in the CPO export tax.
“This is because the palm oil industry is the only industry in Malaysia with windfall tax. Also, the export tax is only imposed on CPO and not exports of processed palm products.”
Overall, AmInvestment Bank noted that there is risk that the high taxes and cess coupled with rising operational challenges may discourage investments in the development of palm oil in Malaysia.
It further noted that operational challenges faced by palm oil companies in Malaysia include rising environmental, social and governance (ESG) costs, climbing labour costs, shortage of workers and growing anti-palm oil sentiment in the US and European Union.