13/10/2022 (The Borneo Post), Kota Kinabalu - The Chief Executive of the Malaysian Palm Oil Association (MPOA), Joseph Tek Choon Yee proposed for the price threshold review of the State Sales Tax (SST) in Sabah and Sarawak in recognition of the present high-cost of production for palm oil.

He also called for the Federal government’s Windfall Profit Levy (WPL) imposed on the East Malaysian oil palm growers to be reverted from present 3% to 1.5% in view of the existing SST.

Tek delivered a special paper entitled “The East Malaysian Palm Oil Supply Chain Equation: Snippets of History, Curret Realities and Some Food for Thought” at the Bursa Malaysia’s inaugural East Malaysia Palm & Lauric Oils Price Outlook Conference & Exhibition (emPOC2022) held at the Magellan Sutera Harbour Resort here from October 12 to 13.

The SST on CPO took effect in 1999 at the rate of RM50 per metric tonne of CPO with revisions in 2002 at the rate of 5% per metric tonne of CPO and subsequently in 2005 at rate of 7.5% per metric tonne CPO.

Since 1999, sales tax was levied when CPO price is above the threshold of RM1,000 per metric tonne of CPO. In Sarawak, the state sales tax was imposed since 1998 when price threshold was at RM1,000 and RM1,500 per metric tonne at 2.5% and 5% respectively.

These price thresholds set in 1998/1999 for East Malaysia were in order then when the cost of production encircled RM750 per metric tonne of CPO prior to Year 2000. Cost of production has increased over the years amid the minimum wages, high input costs especially fertiliser and fuel and many other unabated cost increases.

“For the start in taxation review, the proposal is to revise to the price threshold which will not change the present collection of SST set against the current CPO price realised today – but it will put right the tax threshold in recognisance of the present cost structure”, said Tek.

On the Windfall Profit Levy (WPL), while the oil palm industry welcomed the RM500 pmt CPO raise in the price threshold effective 1 January 2022, oil palm growers in East Malaysia “cried foul” over what they deemed to be the unjust doubling up of the WPL rate from 1.5% to 3% on fresh fruit bunches under the government’s intended WPL “realignment”.

The earlier 1.5% WPL rate for East Malaysia was in place because the region’s growers also have to contend with SST of 5% and 7.5% on CPO respectively. The government needs to recognise the struggles of the growers in East Malaysia as their cost of production is higher than in Peninsular Malaysia.

For the start, Tek implored that the government should revert the rate of the WPL for the East Malaysian growers from 3.0% to its original 1.5%.

The inaugural conference in Kota Kinabalu was held acknowledging the growing CPO supply market in East Malaysia.

Tek revealed that in year 2021, East Malaysia has 3.129 million hectares planted with oil palm or 54.5% of the total oil palm planted area in Malaysia. East Malaysia region represents 0.06% of the total global agricultural area but produces around 10% global palm oil for exports to feed the world. This planted area can also be translated to over 390 million oil palm trees. If this is set against the region’s six million population, it works out to 65 carbon sequestrating trees per East Malaysian.

There are also 215 mills (47% of Malaysia) that produce 8.27 million tonnes of CPO (45% of Malaysia).

However, downstream activities in East Malaysia tracked behind Peninsular Malaysia. At present, there is 43% refining capacity from 17 refineries, with three biodiesel plants but no oleochemical plants as yet in East Malaysia.

The total taxes from the oil palm growers for the government’s coffer in 2021 was estimated to be over RM14 billion. This can be translated to build over 116 government 100-bedded hospitals in a year.

As of first half of Y2022, RM2.1 billion was collected as windfall profit levy from oil palm growers in Malaysia.

On the hot topic relating to sustainability, the palm oil industry will continue to be subjected to scrutiny amid amended and new regulatory framework, barriers and initiatives relating to ESG, climate change, decarbonisation, social aspects pertaining to US Customs and Border Protection (CBP) and ILO.

In the palm oil sector’s quest to provide sustainability assurance to stakeholders, Tek shared that the oil palm growers are grasping with the tipping phase of “certification fatigueness” – as set against the present and many voluntary and mandatory sustainability certifications, with more anticipated in the pipeline.

He cautioned of the ‘Cobra-Effect’ that attempts to ‘remove’ palm oil from the global food supply-demand equation will only lead to devastating consequences to the world and vulnerable communities.

On sustainability, Tek summed up, “The bigger palm oil agenda for Malaysia is to sustain its resilience and competitiveness, market accessibility amid addressing the overall sustainability of the sector. There must be greater appreciation of its inter-twined supply chain, multiplier effects and spin-off economies especially in poverty eradication, rural social-economies amid post-pandemic national recovery”.

In the conference’s kick-off presentation, Tek traced the agri-transformation history of oil palm supply chain in East Malaysia. The commercialisation of oil palm planting in Sabah started in 1959 and later in Sarawak in 1968.

Tek acknowledged the roles played by the pioneers including the various government agencies, private sectors and a host of individuals, including the example of the late Datuk Leslie Davidson for his role in bringing in the pollinating weevils in 1980s.

As Malaysia transits into the endemic phase from the Covid-19 pandemic of 2020-2022, it was pointed out that palm oil has significantly aided the global healthcare.

“Palm oil’s by-product, crude palm kernel oil (CPKO) was the inconspicuous ‘Cinderella’ product during Covid-19 pandemic. This is because CPO has always been the main focus of the industry while CPKO makes up only 10% of the market. However, it is used in the global healthcare to make soaps and detergents for the world amid the pandemic”, said Tek.

As food for thought, he also brought up on the potential impacts of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on the Malaysian palm oil sector which is expected to come into effect on 29 November 2022.

It was reported by the government’s appointed consultant, PWC that the palm oil sector (along with oil & gas sector) may gain less opportunities from access to the CPTPP markets – noting that China and India are non-CPTPP members; while the palm oil sector is expected to be most impacted by the labour chapter provision of CPTPP.

On another subject, Tek said that studies are ongoing pertaining to Nusantara, the new capital for Indonesia in Kalimantan which can potentially provide economic benefits to East Malaysia.

He also pointed out that an amendment was passed in Malaysia and enforced since 15 March 2022 making it an arrestable offence to “discriminate against or boycott” Malaysian palm oil. With the expansion of the scope of Act 730 (Trade Descriptions Act 2011), statements, expressions or indications against Malaysia’s major commodities, such as the expression “no palm oil” used in any advertisement including food labels, notices and catalogues will be prohibited.

CPO production year-on-year nine months, Jan-Sept in Malaysia is insignificantly higher by 34,000 mt or 0.25% ( ie. 13.340 million tonnes in 2022 vs 13.305 million tonnes in 2021). It is forecasted that Malaysian CPO production for 2022 will only be encircling 18.0 million tonnes.

This is set against the slow return of foreign workers missing the peak cropping season, the destructive impacts from the monsoon and its probable higher intensity hammering the plantations resulting in further crop losses in last quarter. Consequently, there will be no growth in CPO production for three consecutive years.

https://www.theborneopost.com/2022/10/13/mpoa-review-sst-windfall-profit-levy-on-palm-oil/