06.05.2021 (www.thestar.com.my) - PETALING JAYA: Planters are reiterating their calls for the government to seriously address the current high tax structure, labour shortage and loss of market access, which are affecting their competitiveness in the global market.

According to the Malaysian Palm Oil Association (MPOA) CEO Datuk Nageeb Wahab (pic), while the government has approved the return of 32,000 foreign workers to the estates in tranches, the progress has been slow.

The first tranche is about 3,000 workers, but the timeline to bring in the workers has yet to be determined due to the surge in Covid-19 cases, he said at an online session hosted by UOB Kay Hian Research (UOBKH) on Tuesday.

“Assuming the approval is granted in May, the workers will likely enter Malaysia by July.

“It usually takes around one and a half to two months to bring them into the country, which is in time for the peak season, ” said Nageeb.

Based on the MPOA’s conservative productivity estimate of 1.5 tonnes of fresh fruit bunches a day and 280 working days a year, crop loss amounts to 17.143 million tonnes a year, which is close to a 20% loss in yield.

“This in turn translates to a loss in production of 3.429 million tonnes of crude palm oil (CPO) and 857,000 tonnes of palm kernel (PK) a year, ” he said.

Assuming CPO and PK prices of RM3,000 and RM1,800 per tonne respectively, the opportunity loss amounts to an estimated RM11.83bil of revenue a year.

This would translate to an income tax revenue loss to the government of RM896mil a year, with the average corporate tax rate estimated at 20.5%.

Nageeb pointed out that the MPOA has appealed to the government to review the heavy tax and levy structure for the planters nationwide.

On the burden from high tax structure, he noted the Malaysian Estate Owners’ Association estimates, in 2020, oil palm growers in Malaysia paid RM5.3bil, or 30.7%, of their profits to the government in the form of MPOB cess, windfall profit levy (WPL), state sales tax (Sabah and Sarawak) and income tax. For bigger estates in Sabah, the total amount paid was as high as 46% of business profits.

The WPL is a tax on revenue, not profit. Recently, 12 plantation associations appealed to the government to review the present taxation on the planters, saying the taxes were unfair as the cost of production has been increasing over the years.

So far, the timeline to revise the taxes has yet to be determined.

On the loss of market access, Nageeb pointed out that it was becoming difficult for local palm oil to maintain its competitiveness, as agriculture is one of the most protected and heavily subsidised industries in the world.

At the same time, trade distorting measures in the form of agriculture production subsidies, export assistance programmes and import quotas continue to challenge the competitiveness of palm oil.

Meanwhile, UOBKH is maintaining a market weight on the plantation sector.

The research house said with the burden of high taxes and the levy structure for plantation companies, they are not able to fully leverage on the high CPO prices, which have gone beyond RM4,000 per tonne.

UOBKH has “buy” calls on Hap Seng Plantations Bhd, Sarawak Oil Palms Bhd and Kim Loong Resources Bhd on the back of higher dividend yields and undemanding valuations.

The research house is maintaining its CPO price assumptions of RM3,000 per tonne and RM2,600 per tonne for 2021and 2022, respectively. It added that the catalysts for the sector include lower-than-expected global vegetable oil supply due to the impact of the La Nina weather phenomenon and a stronger-than-expected commodity cycle.