PETALING JAYA: Planters are seeking a full review of the current palm oil windfall profit tax (WPT) and its export duty under Budget 2021.
The long-standing palm oil WPT has remained unchanged since its last revision in 2009, while the palm oil export duty was revised in January this year.
According to Malaysian Plantation Association (MPOA) chief executive officer Datuk Nageeb Wahab, (pic) the association has proposed to the government to consider for a new palm oil WPT threshold – to be raised to RM3,000 per tonne from the current RM2,500 per tonne – for planters in Peninsular Malaysia.
To date, a 3% WPT per tonne will be imposed on planters in the peninsula, while for planters in Sabah and Sarawak, a 1.5% WPT will be slapped if crude palm oil (CPO) prices exceed RM3,000 per tonne.
For the palm oil export duty, the new threshold level proposed by MPOA is RM2,750 per tonne from RM2,250 per tonne currently.
Nageeb told StarBiz that “amid the Covid-19 outbreak and acute labour shortage, it is unfair to impose on planters the WPT based on the current CPO prices.”
When the threshold level for WPT was revised at RM2,500 per tonne (for planters in Peninsular) and RM3,000 per tonne (for planters in Sabah and Sarawak) in 2009, the average cost of production among planters back then was only about RM1,000 to RM1,600 per tonne.
However, the current cost of production among the most efficient planters have escalated to RM1,600-RM2,500 per tonne, said Nageeb, adding that “for the less efficient planters, their cost structure will definitely be much higher”.
“It is not practical to impose a blanket WPT at the current threshold level because not all planters are making profits at current CPO prices, ” he added.
Therefore, it is timely for the government to review the proposed windfall tax formula, because it assumes that all planters make money when palm oil prices in the physical market surpasses RM2,500 per tonne.
Nageeb also noted that plantation companies have started paying for the WPT over the past three months. This is when CPO prices rallied hitting RM3,000 per tonne mark in line with the uptrend in soybean prices and lower stockpiles.
Industry observers estimated that the government collected about RM500mil in WPT from planters back in 2017.
As for the palm oil export duty, the government has exempted the levy to zero from July to December this year.
However, one industry player planters expects the export duty to be reimposed starting January next year.
This is as CPO prices are trending upwards, trading between RM2,900 and RM3,000 per tonne currently.
The current threshold for CPO export duty is that once CPO price hits RM2,250 to RM2,400 per tonne, a 3% tax will be imposed on planters and so forth.
Meanwhile, the Malaysian Palm Oil Board in its latest release said palm oil stock has increased slightly by 1.24% to 1.73 million tonnes in September from a month earlier.
For the month under review, production hit a three-month high, up 0.32% at 1.87 million tonnes while exports rose by 1.88% to 1.61 million tonnes respectively.
Kenanga Research analyst Adrian Kok, who attended a webinar organised by The Solvent Extractors Association Of India (SEA) & Globoil India last week, said his CPO price forecast for this year remained unchanged at RM2,500 per tonne.
“The general view at the seminar was less optimistic on CPO price with the uptrend limited in the next few months, ” he added.
LMC International chairman Dr James Fry (pic below) who was one of the speakers at the seminar pointed out that CPO price is at the peak of the price band (palm oil-crude oil) of US$425 per tonne.
Hence, without crude oil prices moving higher, it will limit the upside of the CPO price.
Another speaker Godrej International director Dorab Mistry believes that the vegetable oils market should trade sideways at best, or slightly lower until the US election result.
Kenanga Research concurred with the general bearish near-term view, given the loss of competitive edge against soybean due to the narrowing price discount between soybean oil-palm oil spread of US$16 per tonne versus the two-year average of US$100 per tonne and the uncertainties in the implementation of biodiesel mandates.
On the bright side, Mistry had said that “one should look for a La Nina-induced price rally from January 2021 onwards, with soyoil leading the way.”
Although Mistry made no price forecasts, he stated that the average price of vegetable oils in 2021 should be higher than 2020.