new cess rate effect on 1 jul 2008 -part2

Windfall Tax Replaces Cooking Oil Cess

The government announced that current cooking oil cess will be removed effective 1st July. At the same time, the government is imposing windfall tax amounting to 15% for West Malaysia plantations and 7.5% for Sabah and Sarawak plantations with threshold CPO price of RM2,000/t.

COMMENTS

Slightly negative for West Malaysia plantations. Taking an average CPO price of RM3,500/t this year, West Malaysia plantations will be taxed 15% on RM1,500/t above the threshold price. This amounts to RM225 per tonne of CPO. The current cooking oil cess at RM2/t of FFB with threshold price of RM1,500/t amounts to about RM40/t of FFB or RM200/t of CPO (assuming oil extraction rate of 20%). Hence, West Malaysia plantations will pay an additional RM25/t of CPO.

Positive for Sabah & Sarawak plantations. For Sabah plantations, the 7.5% windfall tax will amount to RM110/t being 7.5% tax rate multiply by RM3,460 less RM2,000. Compared to the current MPOB cooking oil cess of RM200/t, the new windfall tax scheme is beneficial to Sabah and Sarawak companies as they end up paying less. The 7.5% windfall tax is not to be confused with the existing 7.5% Sabah sales tax which goes to the Sabah government. Including the Sabah sales tax, Sabah plantations will be paying RM369 tax per tonne of CPO before income tax. In total, this amount is still more than the RM225/t which their West Malaysia counterparts are paying but less than what they are paying now.

For companies with estates spread between East and West Malaysia, the impact is negligible. On the whole, the new windfall tax structure is in line with what we said in our sector report titled Windfall Tax: A Clearer Picture issued last month. Earnings impact is very small hence we are maintaining our earnings forecast across the board.




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