Review Sales Tax Due to Rising Cost of Production

KUCHING (Aug 14): The Sarawak Oil Palm Plantation Owners Association (SOPPOA) has called on the government to review the sales tax structure for palm oil industry in the state in view of the current soft prices for crude palm oil (CPO) internationally and rising cost of production. 

 

In a statement today, SOPPOA said the proposed revision was expected to have minimal impact on state revenue but instead will be compensated by the crop's higher productivity. 

 

"In adopting these changes to the sales tax structure will also allow many companies to bridge the difficult financial situation they are currently facing and will result in a win-win situation for the state and nation," it said.

 

SOPPOA said the crop was often cited as the golden crop for Malaysia for its contributions to the economy, jobs creation and food for the people.  

 

It said in Sarawak, the oil palm industry contributed over RM425 million in sales tax to the state last year but the current soft CPO prices were affecting the industry, which did not foresee price recovery in the next six months.

 

Of the 1.1 million hectares (ha) of oil palm planted in the state, over 50 per cent are eight years or younger and this high percentage of young growing palms as well as rising production cost and logistical issues, affect the industry as a whole. 

 

When the Sarawak sales tax was implemented in 1998, the direct cost of production was RM2,170 per ha compared with the current cost of RM6,220 per ha, an increase by 187 per cent over the same period.

 

The increase was brought about mostly by inflation, fertilizers, wages and diesel costs.

 

With the current price of CPO dipping below RM2,400 per metric tonne, many plantation companies in Sarawak are paying taxes despite incurring losses. Many are also paying sales tax funding by bank borrowings, thereby increasing their financial burden, cost of production and also lengthening the payback period.

 

"As such, planters are requesting that no sales tax be imposed when the CPO price is below RM2,400 per metric tonne to offset losses incurred due to the current high cost of production," it said, adding that the federal government even recognised that Sarawak had average low yield and young planted areas by imposing the threshold for windfall profit tax at RM 3,000 per metric tonne for the state. 

 

Sarawak, a latecomer, has a total planted area equal to only 21 per cent of total planted area in the country, compared to 50 per cent in Peninsular Malaysia at present.

 

Many of the estates, due to the state's late entry into the industry, produce less as the area of harvest is smaller and young palm trees produce less. 

 

Sarawak's average yield for January-June this year was only 6.6 tonnes per ha compared with 8.2 tonnes per ha in the peninsula and 9.8 tonnes per ha in Sabah.

 

However, investments to develop young palms are high, especially in terms of fertilizer costs. 

 

In terms of CPO production, Sarawak also falls behind that of Sabah's and the peninsula with the average CPO yield in Sarawak at 1.35 tonnes per ha during the same period of 2013 as compared to 1.63 and 2.05 tonnes per ha for Peninsular Malaysia and Sabah, respectively.

The Star & Bernama