Last Updated :
16 March 2010 at 11:40 IST
Malaysia windfall tax hits palm oil gains
KUALA LUMPUR (Commodity Online) : Malaysian Palm Oil Association (MPOA) said a windfall tax on earnings from the commodity has capped gains as buyers see it as a signal to slow purchases.
Speaking on the sidelines of a function here, MPOA chief executive Mamat Salleh said 15 per cent windfall tax on a tonne of crude palm oil, introduced from last November was triggered on companies in the world’s No. 2 producer when prices rose above 2,500 ringgit.
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“The windfall tax may collect millions of ringgit in tax revenue, but it may lose us the opportunity to earn billions of ringgit in export earnings.” He said.
Mamat forecast a 30 per cent leap to 65 billion ringgit in palm oil export earnings for Malaysia in 2010 compared to last year as the demand and supply outlook should support prices between RM2,500-RM3,000.
Plantations in mainland Malaysia are subject to a 15 per cent tax when crude palm oil prices cross RM2,500. In top palm oil producing states Sabah and Sarawak on Borneo Island, planters face a 7.5 per cent tax when when prices go above RM3,000.
The palm oil industry has said the tax, when added together with other levies, makes the commodity the most taxed vegetable oil in the world.
The government however says palm oil companies should not complain as recent corporate earnings have netted strong profits that should be used in part to subsidise cooking oil prices.
“The funds from the windfall tax are being used to finance the cooking oil subsidy. The subsidy scheme is not effective in meeting its target and not efficient due to large leakages,” Mamat said.
The cooking oil subsidy reached RM1.3 billion last year from RM26 million in 2005. The subsidised cooking oil price stands at RM1,700 a tonne.
The current market prices are about RM2,700-2,800 a tonne.
MPOA groups more than 100 producers including giants like Sime Darby, IOI Corp and Kuala Lumpur Kepong.
Mamat also said a 2008 plan by Malaysia to subsidise the replanting of 200,000 hectares a year of older or diseased palm trees to support prices by culling among the 4.7 million hectares planted has lagged.
Historically since the 1960s, Malaysian palm planters have focused on expansion, Mamat said, over replanting because subsidies were too small to make a big impact.
In the most recent plan the government had allocated 200 million ringgit to fell diseased and old oil palms, equivalent to RM1,000 a hectare, which works out to a two decade timeframe to replant the planned area.
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