Thursday June 5, 2008

Oil palm companies to pay windfall tax from July 1

PETALING JAYA: The Government will impose windfall tax on oil palm companies starting July 1.

An analyst said under the Windfall Profit Levy Act 1998, a windfall levy would be imposed on crude palm oil (CPO) and crude palm kernel oil (CPKO) when the prices are in excess of the threshold of RM2,000 per tonne.

Under the proposed windfall tax framework, palm oil producers in peninsular Malaysia would be charged tax amounting to 15%, and 7.5% for Sabah and Sarawak.

At the same time, the Government is also abolishing the existing cooking oil cess from July 1.

However, the price of cooking oil will remain the same as it will now be subsidised by the windfall taxes.

The Government said plantation companies in Sabah and Sarawak were charged a lower windfall tax as they were already paying sales tax to their respective state governments.

OSK Research plantation analyst Alvin Tai said: ”The lower windfall tax is expected to be a positive move for plantation companies in Sabah and Sarawak. However, we expect the tax will have a slightly negative impact for companies in peninsular Malaysia.”

“The net impact of this move will be neutral but we remain overweight on this sector,” Tai said, adding that most plantation companies had exposure in the peninsula, Sabah and Sarawak.

A local plantation analyst said the imposition of the windfall tax would have minimal impact on the plantation industry.

“I don’t see it derailing profits, moving forward. Net impact on earnings would be minimal, given that the cess has been abolished at the same time.

“It (impact) also depends on the company. Big firms like IOI Corp Bhd which have diversified operations would be least affected while pure planters like IJM Plantations Bhd and Asiatic Development Bhd would be more affected,” the analyst said.

Under the new tax plan, companies in Sabah and Sarawak are expected to pay RM112.50 per tonne of CPO whereas their peninsular Malaysia counterparts would pay about RM225 for a tonne of CPO.

At the same time, all plantation companies would “save” about RM200 per tonne (at the current CPO price of about RM3,500 a tonne) with the abolishment of the cess tax.

This means companies in peninsular Malaysia would still have to fork out RM25 per tonne of CPO while those in Sabah and Sarawak would enjoy savings of RM87.50 per tonne.

Most companies contacted by StarBiz declined comment on the taxes, saying they needed time to study the tax framework before issuing any statements.