Plantation companies to pay windfall tax?

  • Business
  • Saturday, 05 May 2007

A production worker placing stickers on cooking oil bottles at a refinery plant. Cooking oil is a controlled item.

PETALING JAYA: The palm oil industry is awaiting news that the Government may impose a windfall tax or a cooking oil price stabilisation tax on oil palm plantation companies in the near term. 

Speculation is rife that this is part of efforts to subsidise the escalating cost of producing palm oil-based cooking oil. 

The majority of manufacturers in Malaysia generally use palm oil as their main raw material to produce refined, bleached and deodorised palm olein or cooking oil. 

With prices of palm oil hitting record highs, these manufacturers find that the cost to produce cooking oil is higher. 

Industry observers and plantation analysts concur that the introduction of the tax is “unavoidable,” given the strong price of crude palm oil (CPO), currently trading above RM2,200 per tonne. 

Cooking oil, along with other essential commodities like sugar and flour, are controlled items in Malaysia. 

Industry consultant M.R. Chandran told StarBiz there were two likely “scenarios” – the imposition of the windfall tax or slapping plantation players with the two taxes simultaneously – similar to the situation in the late 90s. 

M.R Chandran

In 1997, the Government imposed a cooking oil price stabilisation tax on plantation players who were required to pay 50 sen for every RM10 increase in CPO price with the base level set at RM1,450 per tonne. 

A year later, planters were subject to a windfall tax of RM50 whenever the price of CPO traded above RM2,000 per tonne. 

Chandran, a former Malaysian Palm Oil Association chief executive, said: “With CPO currently trading at RM2,200 to RM2,300 per tonne, I believe the Government will just consider a windfall tax on palm oil plantation players,” he added. 

It was reported yesterday that Plantation Industries and Commodities Minister Datuk Peter Chin indicated that a proposal to subsidise cooking oil manufacturers would be submitted to the Government soon. 

CIMB Research in a brief commentary yesterday said: “Assuming the Government re-introduces the RM50 per tonne windfall tax, the earnings of local plantation companies under our coverage will be cut by 2% to 4%.”  

Plantation stocks on Bursa Malaysia were traded lower at noon due to speculation on the potential windfall tax but gradually recovered at the close yesterday.  

IOI Corp Bhd added 50 sen to RM26.25, Kuala Lumpur Kepong Bhd was 40 sen higher at RM13.90, while Golden Hope Plantations Bhd remained unchanged at RM8. 

On the Malaysian Derivatives Exchange yesterday, the benchmark CPO July contract closed RM11 lower at RM2,288 per tonne, June was down RM7 to RMRM2,332 while May fell RM4 to RM2,392 per tonne. 

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