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CPO Windfall Profit Tax Could be Subject to Review

By Hanim Adnan (StarBiz, 12 Jan, 2011)

The palm oil windfall profit tax (WPT) which has been the major cause of contention among many plantation companies could be subjected for a review soon, a source close to the industry said.

Yesterday, StarBiz reported that four major national oil palm associations the Malaysian Palm Oil Association (MPOA), Malaysian Estate Owners' Association (MEOA), East Malaysia Planters' Association (EMPA) and Sarawak Oil Palm Plantation Owners' Association (SOPPOA) were planning to appeal collectively to Prime Minister Datuk Seri Najib Tun Razak to abolish the WPT based on crude palm oil (CPO) price.

The source said plantation companies especially those undertaking new planting and replanting that incurred losses in the initial six years of operations have expressed their discomfort over the WPT when “most of them have not even started paying for corporate tax or break even but were forced to pay for the WPT.”

Last year, plantation companies in Peninsular Malaysia started paying for the WPT in August when the average CPO price hit RM2,500 per tonne (the threshold price for planters in Peninsular to pay WPT), while planters in Sabah and Sarawak began paying in November when their CPO threshold price hit RM3,000 per tonne.

No WPT were paid by planters in 2009 but planters paid an estimated RM260mil in WPT from July to September 2008 when CPO prices skyrocketed to a record RM4,486 per tonne in May.

Currently, MPOA is in the midst of drafting the joint memorandum to represent the four associations to be submitted to Najib, who is also the Finance Minister within the next two months, the source told StarBiz yesterday.

The gist of the memorandum include seeking for a full abolishment of the WPT or for the Ministry of Finance (MOF) to consider for a more equitable taxation based on the actual profits of the plantation companies rather than benchmarking it on the current CPO price.

It is important to note that the WPT falls under the jurisdication of the MOF and not the Plantation Industries and Commodities Ministry.

To recap, the Windfall Profit Levy Act, 1998 was initially implemented to tax the windfall profit of plantation companies due to the foreign exchange factor.

When the value of the ringgit depreciate vis-a-vis the US dollar in 1998 (about RM2.50 to RM3.80 per US dollar), the source said the price of CPO traded in the greenback surged by about 52% in ringgit terms.

“Logically, this can be called windfall or extraordinary profit since it was not attributed by market fundamentals like supply and demand, but based on an unrelated external factor to the palm oil industry,” the source added.

However, the present WPT which was reviewed in 2008 was based on the CPO price which was directly attributed by fundamentals when the palm oil industry underwent structural changes due to the new demand for vegetable oils from the biofuel industry.

“The WPT should be based on the “profit” of the company at the end of the year, and not on the daily CPO price levels,” the source added.


He claim that while most sectors of the economy are paying just 26% corporate tax, the total tax paid by the plantation industry had exceeded 46%, which is an additional 20% more compared with the other sectors.

Meanwhile, MEOA president Boon Weng Siew also questioned on the palm oil sector being singled out to pay the WPT while petroleum, financial, gaming and independent power producers which were enjoying lucrative profits were spared from the burden of paying WPT.

He concurred that there should be an “equitable” spread of taxation to other comparable sectors enjoying lucrative profits.

 

Taxation of the Palm Oil Sector
 

 

 

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