Govt to relook cooking oil subsidy, 26 August 2008

UNDERWEIGHT

The government may relook at the subsidy for cooking oil currently funded by the windfall tax, to ensure the availability of cooking oil and viability of manufacturers, said the NST in a report today. At the current CPO price of RM2,615/tonne, the windfall tax may not be enough to maintain the current level of subsidy for palm-based cooking oil of 5kg and below.

Recall that the windfall tax is based on a CPO price of RM2,000/tonne. The windfall tax rate is 15% on CPO output from peninsular Malaysia and 7.5% on those from East Malaysia.

In short, the formula for the windfall tax payments is (Current CPO price - RM2,000/tonne) x 15% x CPO output from peninsular Malaysia (assuming all output are from peninsular Malaysia).

The government is estimated to have collected RM1.5bil in cess payments in the 12 months ending 31 May 2008 for the Cooking Oil Stabilisation Scheme. These cess payments were subsequently replaced by the windfall tax in the middle of this year.

From the tone of the news report, it appears that the government would be tweaking the formula for windfall tax payments to benefit the cooking oil manufacturers. This is in spite of the fact that there is less need for a subsidy now as weaker CPO prices would translate into lower feedstock cost for the cooking oil manufacturers.

We view this development negatively as it appears that the windfall tax payments would continue even though CPO prices are softening. The windfall tax acts for the plantation companies and IPPs (independent power producers) have already been legislated.

We maintain an UNDERWEIGHT on the plantation sector as uncertainties over CPO prices resulting from supply imbalances and weak crude oil prices, would put a dampener on share prices.

comment by author:
obviously our government have an unlimited desire for stripping planter's wealth. Why they want to revise the windfall tax so excessive? they are trying to suppress the hope they feel, in spite of the reliability of the source.

lets reminisce what is the difference(peninsular),
before: charge 10% thresholding at over RM1500
after : charge 15% thresholding at over RM2000(pko also)

under current circumstance, the peninsular planter even pay less than before.