KUCHING: Oil palm plantation owners are appealing to the state government to review the state sales tax because it is burning a hole in their pockets due to the rising cost of production and soft crude palm oil (CPO) prices internationally.
They hope to be exempted from sales tax when the CPO prices are below RM2,400 metric tonne (MT), to pay 2.5% of the sales tax when CPO prices are between RM2,401 MT to RM2,800 MT and the full 5% sales tax when prices exceed RM2,800 MT.
The Sarawak Oil Palm Plantation Owners Association (Soppoa) said there should be no sales tax when the CPO price was below RM2,400 MT because at present, plantation owners continued to pay the sales tax even when they were making a loss.
“When the sales tax was first implemented 15 years ago, it was for the minimum threshold of RM1,001 MT of CPO prices, which is quite unrealistic today in view of the current situation and so should be relooked at,” said a spokesman of the association in a press statement yesterday.
The Federal Government, he added, even recognised Sarawak’s average low yield and young planted areas by imposing the threshold for windfall profit tax at RM 3,000 MT for the state.
“In the projection of production increase over the few years, the proposed revision of sales tax for the state will have minimal impact on state revenue but instead would be compensated by the higher productivity.
“Based on these input and computations, Soppoa has requested the government to relook the sales tax structure for palm oil industry in the state, which will continue to expand and generate revenue in the years to come as more areas are planted with many others coming to maturity.
“Adopting these changes to the sales tax structure will also allow for many companies to bridge the difficult financial situation they are facing and result in a win-win situation for the state and nation.”
Sarawak’s oil palm industry contributed over RM425mil in sales tax to the state in 2012 but current soft CPO prices are affecting the industry in the state and the industry does not foresee recovery of CPO prices in the next six months.
Of the 1.1 million hectares of oil palm planted in the state, well over 50% are eight years or younger and this high percentage of young growing palms as well as rise of production cost and logistic issues faced in the state further affect the industry as a whole. The spokesman emphasised that Sarawak was a latecomer in the industry with a total planted area of only 21% compared to 50% in peninsular Malaysia.
Due to the late entry into the industry, he said many of estates produced less as area of harvest was smaller and young palm trees produced less.
He said Sarawak’s average yield for January to June this year was only 6.6 tonnes per hectare whereas in Peninsular Malaysia average yield was 8.2 tonnes per hectare with Sabah recording 9.8 tonnes per hectare.
“However, investments to develop these young palms are high, especially in terms of fertilizer cost,” he said.
“The Sarawak sales tax was implemented in 1998 and has remained since. Over the last 15 years, average CPO price has increased by 73%. Average yield per hectare has remained more or less constant over the 15 years but cost of production has increased by 187% over the same period, brought about mostly by inflation, fertilizer, wages and diesel costs.
“On average, direct cost of production in 1998 was RM2,170 per hectare compared to the current cost of RM6,220 per hectare. As the sales tax is imposed on sales revenue, it is counted as a cost of production. Using current prices and average yield in Sarawak 2012 of 16.5mt/ha, planters can at best break even when CPO prices reach RM2,400 MT.”
With current price of CPO dipping below RM2,400 MT, the spokesman said many plantation companies were paying taxes despite incurring losses and many were also paying sales tax out of borrowing from banks, thus increasing their financial burden, cost of production and also lengthen the payback period.