Windfall tax poser on glove stocks

WINDFALL taxes have often been considered at a time when a particular industry was making super normal profits. It was mooted for independent power producers that were reaping huge profits at the expense of the national utility company Tenaga Nasional Bhd in 2008.

It was then floated and implemented for the plantation sector in the same year, during the Global Financial Crisis, as a means of balancing subsidy payments through taxing plantation companies that were reaping a bounty from high palm oil prices.

The windfall tax of IPPS were introduced for those companies making a high return on equity and for plantation companies, when the price of crude palm oil (CPO) crosses the RM2,500 threshold.

The windfall tax of 3% on plantation companies in Peninsular Malaysia is still in effect today and it is 1.5% on such companies in Sabah and Sarawak. The threshold for companies to start paying the levy is if the price of crude palm oil (CPO) exceeds RM2,500 in Peninsular Malaysia and RM3,000 in Sabah and Sarawak.

It is not a tax planters welcome but they have accepted paying a levy when prices are good.

Right now, as profits and performance of many companies in Malaysia suffer from the economic shock from Covid-19, the rubber glove companies are the ones that are enjoying bumper financial results.

The expectation is that prices are strong and continue to rise, giving shareholders of those companies a huge return in a very short period of time.

It is about being in the right place at the right time and it is still the same product as before that is only enjoying great price increases and demand. The glove companies, especially the large ones, are projected to make such a huge jump in profit that market analysts have been in a rush to upgrade their target prices to unseen historic levels.

Like the real property gains tax, where a huge profit from the sale of property is taxed on a percentage of profit, maybe it is time for the government to look at how it can tax the super profits glove makers are making to help with the funding needs of certain of its welfare programmes during these trying times.