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 Call for cut in CPO windfall tax

12/08/2008 (The Star Online), Petaling Jaya - In view of falling crude palm oil (CPO) prices, planters are asking for a higher threshold price that is used to calculate windfall tax on oil palm companies.

“The CPO threshold price of RM2,000 per tonne under the new windfall tax imposed on oil palm plantation companies should be revised to RM2,500-RM2,700 per tonne, given sharp correction in CPO prices, currently below RM2,700 per tonne,” said Malaysian Estate Owners’ Association (MEOA) president Boon Weng Siew

He said: “It is unfair for planters, especially those small players with highly immature estates, to pay (windfall taxes) based on notional or hyphothetical profits when their operational costs have escalated by three-fold.”

Under the Windfall Profit Levy Act 1998 that came into effect July 1, oil palm planters have to pay taxes on the difference between the higher selling price of crude palm oil (CPO) and the threshold price of RM2,000 per tonne.

Boon said: “The RM2,000 threshold price was based on planters’ cost of production (COP) in 1998, which was RM1,000 to RM1,200 per tonne.

“To date, the average COP among local oil palm planters has soared by RM1,200 to RM1,500 per tonne as a result of higher prices of crude oil and fertilizers.”

He added that some small planters with low yields at less than 20 tonnes of fresh fruit bunches (FFB) per ha per year could not afford to pay the tax at the current threshold CPO price of RM2,000. In fact, those with palm trees less than six years old should also be exempted from paying the windfall tax.

According to industry observers, highly efficient planters like IOI Corp Bhd, United Plantations Bhd and Sime Darby with CPO yields of about 25 tonnes per ha per year have lower COP of about RM1,000 to RM1,200 per tonne.Year-to-date, the average CPO price is RM2,700 to RM2,800 per tonne.

Asked whether the imposition of windfall tax was fair to planters, KPMG Tax Services Sdn Bhd executive director Nicholas Crist said: “A characteristic of an acceptable tax is often said to be the ability to pay. On this basis, there would be some justifications for a windfall tax.

However, against this, entities affected by such a tax may feel unduly discriminated against and could argue windfall taxes dampen their entrepreneurial spirit.”

He believes that the fall in the CPO price would not have an impact on the structure of the windfall tax, which is now imposed on FFB unlike the cooking oil cess imposed on CPO and crude palm kernel oil. “However, the lower the CPO price, the lower the windfall tax payable. If the price falls below RM2,000, no windfall tax is payable,” Crist added.

Under the new windfall tax structure, oil palm producers who own holdings of not less than 40.46ha are subject to a windfall profit levy calculated based on 3% of monthly total production of FFB in tonnes multiplied by the monthly average national CPO price in excess of RM2,000 per tonne. The rate is 1.5% for producers in Sabah and Sarawak.

The benchmark third month CPO futures for October closed RM108 lower at RM2,671 per tonne yesterday.

Malaysian Palm Oil Board ( MPOB ) Lot 6, SS6, Jalan Perbandaran, 47301 Kelana Jaya, Selangor Darul Ehsan, MALAYSIA.
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