KUALA LUMPUR (Oct 2): The Malaysian Palm Oil Association (MPOA) has shared its wishlist for Budget 2024, including a review of the windfall profit levy, reinvestment allowance for intensifying oil palm replanting, pre-requisite for sufficient workers, mechanisation, levies as well as support for sustainability initiatives. 

Speaking at MPOA National Palm Oil Conference (NPOC23), chief executive Joseph Tek Choon Yee stressed the necessity of thoroughly reviewing the windfall profit levy's price threshold and rate, particularly in Sabah and Sarawak, where it unduly burdens oil palm growers.

He urged the government to raise the windfall profit levy price by RM500 per tonne of crude palm oil (CPO) to RM3,500 per tonne for Peninsular Malaysia, from RM3,000 per tonne currently, and to RM4,000 per tonne from RM3,500 per tonne for Sabah and Sarawak, to account for the higher production cost.

He said the government raised the windfall profit levy price thresholds for the palm oil sector in January last year. It went from RM2,500 to RM3,000 per tonne of crude palm oil (CPO) for Peninsular Malaysia and from RM3,000 to RM3,500 per tonne for Sabah and Sarawak.

However, the levy rate in these two East Malaysian states was also raised, aligning it with Peninsular Malaysia at 3%, up from the previous 1.5%.

“While the plantation industry welcomed the RM500 per tonne CPO raise in the price threshold at that point of time, oil palm growers from Sabah and Sarawak fittingly cried foul over what they deemed to be the unjust doubling up of the windfall profit levy rate since the growers also have to contend with state CPO sales tax of 5% and 7.5% in Sarawak and Sabah respectively.

“The government needs to appreciate the struggles by growers in Sarawak and Sabah that their cost of production is averaging 20% higher than in Peninsular Malaysia due to higher transportation, logistics and input costs. In particular Sarawak, where many land planted with oil palm are in marginal soils and lower yield with oil extraction rates are realised,” Tek stressed.

According to the MPOA chief executive, the government should acknowledge the state sales taxes for Sabah and Sarawak, and reduce the windfall profit levy for the two states from 3%, back to 1.5% in the upcoming budget set to be tabled next Friday (Oct 13).

Stressing on the need to expedite the replanting of old and unproductive oil palm trees in Malaysia, he said MPOA has advocated for tax incentives to support large-scale replanting initiatives, in recognition of its pivotal role in ensuring the sector's long-term productivity, bolstering the supply chain and sustaining competitiveness.

Currently, there are 660,000 hectares (ha), roughly 11.6% of the total oil palm planted area in the country, with trees aged 25 years or older, necessitating immediate replanting. If the current replanting rate, which is less than 2% of the total planted area per year, continues, the aged palm area will expand to 770,000ha by 2027, according to the association.

By 2027, there will be close to two million hectares, constituting 33% of the total planted area, with trees which are 20-years-old and above. These tall and ageing trees are difficult to harvest and have much lower yield, the association said, adding that it is seeking the government’s support for replanting tax to be accorded to the private sector to entice larger footprints of accelerated replanting.

Noting that upstream estates and plantation companies are presently excluded from the present Reinvestment Allowance (RA), MPOA appealed to the government to extend the RA incentive to specifically include replanting of oil palm and to allow utilisation of RA against the companies’ statutory income.

Touching on foreign workers, Tek said the government should lift the freeze on foreign workers’ application, and increase the recruitment quota for foreign workers in the plantation sector.

“Besides, there is a need for G2G (Government-To-Government) intervention to address ‘zero cost recruitment’ at source countries and expedite recruitment process with Malaysian Sustainable Palm Oil (MSPO) certification vis-a-vis other sectors,” he said.

In addition, MPOA emphasised the need for facilitation and governance to unlock the potential of stranded biogas and also promote other sustainable practices in Budget 2024.

Currently, only approximately one-third of palm oil mills, which amounts to roughly 140 mills, have methane capture facilities in place, with stranded biogas due to rural or remote locations.

Tek said to fully unlock the potential of stranded biogas in palm oil mills, it is crucial to implement suitable tax allowances for palm bio-Compressed Natural Gas (CNG). This incentive would not only convert waste into a source of income but also contribute to reducing carbon emissions, in line with the national goal of achieving carbon neutrality by 2050.

“However, for the above to be commercialised, there is a critical need for astute facilitation and governance under National Energy Transition Roadmap (NETR) to promote initiative as well as drive and monitor implementation under the NETR. In addition to tax allowances, equitable pricing between energy developers and off-takers such as Gas Malaysia must be with reasonable payback and bankability,” Tek added.