17-06-2008: Blanket windfall tax rule may hurt small planters

by Sharon Tan
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KUALA LUMPUR: The new windfall tax introduced by the government would be a burden to the smaller and newer oil palm players, as their high cost of production for crude palm oil (CPO) is already affecting margins.

New oil palm developers would be especially hard hit by the blanket ruling as the gestation period before oil palm trees begin to provide good yields was long, said Multi Vest Resources Bhd group plantation director Abdul Latip Mohd Zain.

“Imposing the windfall tax would not be a big issue with the bigger and more mature producers. For the smaller and new players, the cost of production is high and our yields are not significant,” Abdul Latip said.

For newcomers, the cost of producing a tonne of CPO is not cheap. The production cost would amount to more than RM2,000 in the first year, with fresh fruit bunches (FFB) yield of five to 15 tonnes per hectare.

The production cost takes into account fertiliser, weeding, maintenance of roads and irrigation, harvesting and transportation costs.

“It takes a long time to yield profits from the plantation land. Therefore, to impose a windfall tax across the board would burden small to medium players who also need to pay their debts and borrowings.

“The early stages of the oil palm plantations are like babies. They need nurturing and care before growing into a mature tree that gives good yields,” he told The Edge Financial Daily recently.

Under the windfall tax framework, plantation companies in the peninsula and Sabah and Sarawak would be charged 15% and 7.5%, respectively, from July 1.

Based on Malaysian Palm Oil Board data, total CPO production of some 15.8 million tonnes would amount to almost RM2 billion collection for subsidising cooking oil.

The amount collected would be quite substantial, considering that cooking oil consumption in the country was only between 750,000 tonnes and 800,000 tonnes against the 15.8 million tonnes of total CPO production, said Abdul Latip.

Instead of imposing a tax solely on palm oil producers, Abdul Latip suggested that the palm oil refiners be subjected to the same tax policy. “The tax should be more spread out and include the refiner. It is unfair and the government should analyse the situation before imposing a blanket tax.”

Abdul Latip added that industries benefiting from the boom in rubber and oil prices should be included in the windfall tax regime.

“If the measures are introduced by the government to raise revenues, then the windfall tax should also be collected from rubber plantations and the oil and gas sector,” he said.

A comment : there was no more discrimination against size of planter and no more punishment against low OER ffb.