No change seen in CPO windfall tax


Nageeb when contacted by StarBiz said MPOA is proposing for a higher threshold price at RM3,500 per tonne for the CPO WPT from the current RM2,500 per tonne imposed on planters.

PETALING JAYA: A revision in the threshold price for the crude palm oil (CPO) windfall profit tax (WPT) structure is highly unlikely, given the government’s plan to further increase its tax revenue amid the Covid-19 pandemic environment, say industry observers.

Since its last revision in 2009, attempts by planters to seek for a reassessment in the CPO WPT have failed so far. According to Kenanga Research, local plantation companies are now hopeful to a certain degree that the government would reassess the current tax structure with a potentially higher threshold price for WPT.

This is based on the research house’s engagement session with Malaysia Palm Oil Association (MPOA) chief executive officer Datuk Nageeb Wahab recently.

At present, once the CPO price reaches the threshold of RM2,500 per tonne or above, Peninsula-based oil palm plantation companies would be imposed a 15% WPT. For Sabah and Sarawak oil palm planters, a 7.5% WPT would be imposed should the CPO price hit the RM3,000-per-tonne level or above.

 Kenanga Research said the planters to be the most affected were <a href='/business/marketwatch/stocks/?qcounter=FGV' target='_blank'>FGV Holdings Bhd</a><a href='http://charts.thestar.com.my/?s=FGV' target='_blank'><img class='go-chart' src='https://cdn.thestar.com.my/Themes/img/chart.png' /></a>, Hap Seng Plantations Holdings Bhd, <a href='/business/marketwatch/stocks/?qcounter=TAANN' target='_blank'>Ta Ann Holdings Bhd</a><a href='http://charts.thestar.com.my/?s=TAANN' target='_blank'><img class='go-chart' src='https://cdn.thestar.com.my/Themes/img/chart.png' /></a> and <a href='/business/marketwatch/stocks/?qcounter=UMCCA' target='_blank'>United Malacca Bhd</a><a href='http://charts.thestar.com.my/?s=UMCCA' target='_blank'><img class='go-chart' src='https://cdn.thestar.com.my/Themes/img/chart.png' /></a>, which coincided with their higher production concentration in Malaysia.Kenanga Research said the planters to be the most affected were FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd and United Malacca Bhd, which coincided with their higher production concentration in Malaysia.

Nageeb when contacted by StarBiz said MPOA is proposing for a higher threshold price at RM3,500 per tonne for the CPO WPT from the current RM2,500 per tonne imposed on planters.

Given the tight supply situation and worker shortage amid the lockdowns due to the Covid-19 outbreak, he added that the average CPO price had soared to RM4,100 per tonne in the first eight months of the year compared with the average price of RM2,685 per tonne in 2020.

Kenanga Research in its latest report said, “Our base case assumes there will be no changes to the windfall tax structure and threshold.”

In its scenario analysis, every 1% increase in the windfall tax in 2021 at an estimated CPO price of RM3,700 and RM3,200 per tonne for 2022 will impact the earnings of planters under its coverage by about 1.3% to 13.1% for financial year 2021 (FY21) to FY22, and around 0.3% to 6.1% for FY22-FY23, respectively.

Notably, Kenanga Research said the planters to be the most affected were FGV Holdings Bhd, Hap Seng Plantations Holdings Bhd, Ta Ann Holdings Bhd and United Malacca Bhd, which coincided with their higher production concentration in Malaysia.

The research house is maintaining a “neutral” call on the plantation sector with an unchanged CPO price forecast of RM3,700 per tonne for FY21 and RM3,200 per tonne for FY22, respectively.

It stated that headwinds such as CPO price volatility and environmental, social and governance (ESG) concerns would continue to weigh on the sector.

“However, the valuations of planters under our coverage have already priced in the bulk of the negative factors.

“Integrated players such as Kuala Lumpur Kepong Bhd with a defensive overall margin against the CPO price variability, and Genting Plantations Bhd with an upstream laggard and reopening/recovery angle continue to appeal to us,” it said.

During Kenanga Research’s engagement session attended by 20 participants from the investment community, Nageeb highlighted planters’ overall concerns on the labour shortage, CPO outlook, taxation and ESG.

He pointed out that the labour shortage in the estates nationwide had worsened to 75,000 harvesters from 40,000 harvesters with a 20% loss of yield in the pre-MCO period.

Kenanga Research had estimated an average shortage of 2,000 additional workers with each passing month.

“Efforts to recruit locals are ongoing, but the attrition rate is high, with 60% leaving within a year.

“Our CPO production estimate of 18 million tonnes in 2021, down by 7% year-on-year, is also in line with MPOA’s view,” it added.

Nageeb said that MPOA was hopeful for the government to allow the intake of 32,000 foreign workers to ease the labour shortage.

The easing of the labour shortage situation will also translate into higher tax revenue for the government, by virtue of higher production.

On the CPO price outlook, Nageeb said MPOA expects the price of CPO to remain elevated for the rest of the year and “could potentially spill over into early 2022, given the tight edible oil supply situation.”

He reassured participants at the engagement session that “while sustainable certifications such as the Roundtable on Sustainable Palm Oil and Malaysian Sustainable Palm Oil are not failproof, they do give palm oil buyers some degree of confidence.”

MPOA has also requested government-to-government engagement to resolve the current United States Customs and Border Protection’s (US CBP) Withhold Release Order issues on several local plantation companies.

Kenanga Research also understood that the Mechanisation and Automation Research Consortium of Oil Palm (Marcop) had been allocated with an RM60mil fund to explore oil palm mechanisation. “However, the efforts will take time, spanning over the next five years,” it added.

UOB Kay Hian Research in its report yesterday highlighted the worker shortage situation in the plantation sector.

It opined that the worker shortage may get worse before the anticipated arrival of some 32,000 workers.

“Our channel checks showed that plantation companies were losing more workers, especially those fully vaccinated who have higher intentions to leave Malaysia to their home countries.

“Thus, we may see more workers leaving over the next two to threes months and even being offered additional incentives to extend their employment contracts,” it added.

Based on the industry survey conducted on five plantation companies, UOB Kay Hian Research said 18,037 employees had left versus 10,218 recruited in 2020.

Furthermore, the recruitment process may not be easy with the US CBP issues against several local plantation companies.

“This has made the recruitment process in the plantation industry even tougher with stringent recruitment procedures and requirements,” said the research house.

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