Another tax hike for palm oil industry

KOTA KINABALU: Oil palm growers in the country were taken by surprise by the move of the Malaysian government to increase yet again the tax burden on the palm oil sector, this time with an additional cess of RM2 per tonne of palm products – both crude palm oil (CPO) and crude palm kernel oil (CPKO).

In a joint statement yesterday, the stakeholders of the industry pointed out that the Malaysian palm oil sector has been saddled over the years by corporate tax, windfall profit levy, cesses and State sales tax imposed by the respective state governments of Sabah and Sarawak.

Some taxation is based on revenue rather than profits. The reality today is that the plantation sector as a whole is just recovering from the prolonged low CPO prices of previous years, and has earlier suffered in terms of prolonged low profitability or even losses over a period of time against unabated cost increases, they said.

CPO prices set against costs, including taxes will translate to realised margins, said the statement jointly issued by the Malaysian Palm Oil Association (MPOA), Malaysian Estate Owners' Association (MEOA), National Association of Smallholders (NASH), Palm Oil Millers Association (POMA), Sarawak Oil Palm Plantation Owners Association (SOPPOA), Palm Oil Refiners Association of Malaysia (PORAM), Malaysian Oleochemical Manufacturers (MOMG), Malayan Agricultural Producers Association (MAPA) and Incorporated Society of Planters (ISP).

“Rubbing salt into the wound, the plantation sector continues to incur crop losses on the trees and in the fields due to an increasingly acute shortage of workers. It is a lose-lose situation for the growers and the country as a whole, including loss of substantial revenue to the government's coffers, comprising income taxes, levies and cesses.

“The oil palm industry is a long-haul business and the growers are today just recouping their investments while needing to reinvest in order to remain competitive and sustainable,” they stressed.

According to the statement, over the duration to-date of the Covid-19 pandemic, the Malaysian oil palm growers and all the other stakeholders in the supply chain are appreciative and grateful to Federal and State governments, and Minister of Plantation Industries and Commodities (MPIC) Datuk Dr Mohd. Khairuddin Aman Razali and his ministry for allowing the plantation sector to operate throughout the Movement Control Order (MCO) by recognising it as an essential sector.

This, they said, meant a great deal to the oil palm industry, particularly to the hundreds of thousands of smallholders in Malaysia and the plantation industry has been able to remain steadfast in providing and sustaining employment opportunities, creating many multiplying and spinoff benefits, and generating significant foreign exchange while sustaining its substantial contribution to the national economy amid the pandemic.

All stakeholders, they pointed out, have always reiterated that there should be a balance between combating the Covid-19 infection on the one hand and economic sustainability on the other.

They lamented the Malaysian palm oil sector has been saddled over the years by corporate tax, windfall profit levy, cesses and State sales tax imposed by the respective state governments of Sabah and Sarawak.

Some taxation is based on revenue rather than profits, they said, adding,”the reality today is that the plantation sector as a whole is just recovering from the prolonged low CPO prices of previous years, and has earlier suffered in terms of prolonged low profitability or even losses over a period of time against unabated cost increases.

“CPO prices set against costs, including taxes will translate to realised margins. Rubbing salt into the wound, the plantation sector continues to incur crop losses on the trees and in the fields due to an increasingly acute shortage of workers.

“It is a lose-lose situation for the growers and the country as a whole, including loss of substantial revenue to the government's coffers, comprising income taxes, levies and cesses. The oil palm industry is a longhaul business and the growers are today just recouping their investments while needing to reinvest in order to remain competitive and sustainable,” they said.

Which is why they were taken by surprise by the move to increase yet again the tax burden on the palm oil sector, and referring to the Federal Government Gazette dated 15 February 2021, published by the Attorney General's Chambers and authorised by the Minister of Plantation Industries and Commodities (MPIC), it means that the government would be collecting RM16 in cess payments on each tonne of palm product (CPO and CPKO) produced, compared to the previous RM14 which came into effect January 2020.

They pointed out that according to the document, the Malaysian Palm Oil Board (Cess) Order 2019 was amended after consulting the Minister of Finance.

“Unfortunately, there were no consultative engagements nor any initiative by the government to pursue inclusive discussions with the growers who are the ultimate cess contributors on the additional cess. It was also reported in the media that both the Malaysian Palm Oil Board (MPOB) and MPIC could not provide detailed information on the intent and purpose of the cess collection,” they stressed.

The associations estimate that the amended cess order 2021 will add about RM44 million per year to the MPOB cess coffer and with the amendment, all the oil palm growers in Malaysia comprised of smallholders to public listed plantations companies, will end up collectively contributing an estimated total cess of about RM344 million per year to MPOB.

Notwithstanding the above, the associations note that there were earlier engagements at the end of 2020 concerning another additional cess which was proposed to be implemented on 1 January 2021.

It was widely understood at the time that the funds collected under that cess were intended to be used for mechanisation and automation in the palm oil industry under a proposed consortium as its platform, to be named the Mechanisation and Automation Research Consortium of Oil Palm (MARCOP), they said.

MARCOP, they explained, would function as a neutral body to manage collaborations that are to be intensified through strategic partnerships with the purpose of addressing oil palm mechanisation, especially in harvesting technology.

The stakeholders acknowledge that strategic partnerships in mechanisation should be the key R&D focus and top priority going forward in order to address the plantation sector's high labour dependency.

It was also encouraging to note that the Malaysian government had also approved in Budget 2021 a matching grant of RM30 million to this mechanisation initiative in line with the spirit to promote partnership between the government and private sector.

“However, following the various appeals from the industry, the above proposal was deferred to allow for further dialogue with oil palm growers. The growers welcome the inclusive discussion towards enhancing clarity of how the cess will be used for mechanisation.

“In light of the gazetted additional cess of RM2 to be collected as per MPOB Cess (Order) (Amendment) 2021, there must not be another additional and new cess for the purpose of MARCOP.

“Instead, the associations would be grateful if the Minister of Plantation Industries and Commodities could welcome the associations' appeal and approve our proposal for the an equivalent RM30 million from the gazetted MPOB (Cess) (Amendment) Order 2021 to be channelled as seed-funding to kick-start MARCOP – to be combined with the already approved RM30 million matching grant from the Malaysian government as announced in Budget 2021,” they said adding that the latter matching grant from government must not be derived from the same pool of MPOB cess funding.

The associations pointed out that the gesture proposed above will be in line with the Malaysian government's thrust and priority on Industry 4.0 and mechanisation-cumautomation which the Ministry of Plantation Industries and Commodities has also been promoting and advocating.

According to them, at the recently concluded virtual Global Agriculture Technology Summit 2021 held on 17 February 2021, the Minister of Plantation Industries and Commodities reiterated that the application of disruptive technologies would be the driver of innovations, and that more effort and resources had to be devoted to automate and mechanise the oil palm industry as a solution to address the labour supply issue.

Following on, the associations also appeal to the government to channel a slice from its consolidated pool of the windfall profit levy (WPL) collected from oil palm growers, for the purpose of sustaining MARCOP.