Malaysia: Effects of windfall profit levy on the palm oil industry

The sustainable palm oil production in Malaysia is the consequence of many people’s long years of suffering and sacrifice. This obvious land-based, capital-intensive, risky and long-haul business had survived world wars, the Great Recession, the Great Depression, as well as numerous natural disasters.

However, due to rising prices and price instability, many private sectors that are dominated by local businesses, particularly small and medium enterprises, are finding it difficult to make ends meet.

Contrary to international investors, this sector of the economy receives little to no support from the government.

Indeed, it is one that is heavily taxed and subject to extensive regulation.

For instance, the Windfall Profit Levy Act (validation) 2023 (Act A1683) and the Windfall Profit Levy (oil palm fruit) order 2023 are recent developments relating to the law that unfairly treats planters under the Windfall Profit Levy Act 1998 or Act 592.

Our members of Parliament (MPs), who failed to argue the matter bravely and gave weak representation of this important issue of grave concern, has disappointed us the most.

We had great expectations as rakyat, thus it was disappointing that we weren’t even consulted before the decision.

The idea of “windfall profit” and what it really means are, at best, vague.

Among many other pertinent laws, the Malaysian Palm Oil Board Act 1998 (Act 582) is the specific legislation that addresses the palm oil sector.

The Plantation and Commodities Ministry which provides the required supports, houses the Malaysian Palm Oil Board (MPOB), which is the key regulatory body.

There is a lot of room for improvement regarding how well they carry out their duties.

The MPOB imposed RM16 per tonne of crude palm oil (CPO) produced with effect from March 1, 2021 by the Malaysian Palm Oil Board (Cess) (Amendment) (No.2) Order 2021.

It used to be RM14.

Strangely, it’s not quite clear how the money is used.

We anticipate that priority relevant research and development, crop protection, and ground-specific productivity and yield growth will continue.

We obviously require immediate assistance to mechanise our fieldwork. Many cooperatives and small estates are in desperate need of help because there is no income during the time when they are replanting their big palm trees. As a result, the government must once again implement the replanting grant programme.

The planters have no control over the current high input prices, such as fertiliser and equipment. All independent smallholders with MPOB licences eke out a living by including cash crops and poultry into their fields at low prices. Without a doubt, adding more burdens to them at this difficult time is cruel.

Despite our familiarity with personal income tax – taxes, especially corporation taxes – are complicated subjects.

Income Tax Act 1967 (Act 53) is undisputed, however in order to comprehend the reasoning behind the Windfall Profit Levy, let’s look at it from a layperson’s perspective.

The Ministry of Finance (MoF) is responsible for administering the Windfall Profit Levy Act 1998 (Act 592) which went into effect on Jan 1, 1999. (MoF) Act 592 is designed to make provisions for the application of a tax on slack profits obtained from the manufacture of goods, as well as for items associated with and incidental to such activities.

The windfall profit levy is administered and enforced by the Royal Malaysian Customs Department, which is part of the MoF. The precise method of spending the funds is unknown.

Acts 582 and 592 are both federal statutes. The phrase “windfall profit” is not regulated by law.

Unfortunately, maintaining agricultural roads in the estate is a crucial cost component that is sometimes disregarded and calls for our immediate attention in order to carry the fresh fruit bunches (FFBs) to the oil palm mills securely and on time.

However, to do that, we need additional cash. Cash flow issues made it difficult for the majority of privately owned estates with bank loans to replace their taller and mature palm trees.

The Employees’ Minimum Standards of Housing, Accommodations, and Amenities Act of 1990 is also putting pressure on many estates to upgrade employee housing and amenities. Even though we don’t get any assistance from the government to give our employees access to facilities like basic housing, power and water, some local councils, nevertheless, charge assessment fees.

We have not yet fully recovered from the destruction caused by Covid-19 , as is well known to humanity.

Additionally, Sabah’s sales tax enactment 1998 and the laws of Sarawak sales tax ordinance, 1998 both possessed the authority to impose sales taxes on specified items.

Sabah and Sarawak are obligated by the Federal Constitution to impose state sales taxes for their respective budgets.

The actual amount of money collected, likely to be in the billions of ringgit, is unknown, and there has been no reinvestment in the estates.

Some isolated estates lack both medical facilities and Internet connectivity. The quality of our produce has consistently been affected by the dangerous road conditions, particularly in Sabah and Sarawak.

In accordance with the Financial Reporting Act of 1997, the Malaysian Accounting Standards Board should regulate what constitutes costs, earnings, and windfall profits. The significant expense of purchasing land for agriculture should not be underestimated.

Depending on the location of the land, there is the payment of the land premium and survey expenses. Also depending on the age of the palm trees, an annual quit rent or cukai tanah is required.

The rent increases in price as the trees get older. The initial development costs of oil palm cultivation are particularly costly in places like Sarawak and Sabah since it costs a lot to establish roads, bridges, terraces, accommodation for workers, buildings, and vehicles.

The costs are largely imported. Planters have no direct control over the rising salaries and earnings for all labour levels. For instance, there is nothing we can do other than put the Minimum Wages Order 2022 into effect.

The regularly proclaimed special holiday, which was not included under the Holidays Act of 1951, abruptly reduced our operational output.

For the most part, many stakeholders are still unsure of the methodology behind the rates of payment and the formula used to determine the windfall profit levy. The planter’s mind is always puzzled by the question of whether anything is done fairly and justly.

Despite the enormous cost and unpredictability of the outcome, some irate growers even turned to the legal system in litigation.

Planters deserve the government’s proper attention.

We also applauded several of our courageous lawmakers who are knowledgeable about the subject and are, when necessary, acting in the Dewan Rakyat and state assemblies in accordance with their primary responsibilities.

The planters look to their MPs for courageous, excellent discourse on topics that directly affect their daily lives, such as the windfall profit levy.

Today, we make a formal request to the government that, whenever new legislation are proposed, the planters be given due consideration and be consulted.

There is no question that the price of crude palm oil (CPO) will continue to fluctuate and be low.

However, the brief period of high prices in 2022 might have encouraged the government to raise taxes like the prosperity tax.

However, a very high CPO price will also have a direct impact on the retail price of cooking oil. As a result, it will have an effect on domestic spending, particularly for the poorest rakyat.

While the Domestic Trade and Cost of Living Ministry seeks to guarantee fair retail prices for the poor, it is anticipated that better management of the Cooking Oil Stabilisation Scheme (COSS), which was previously managed by oil palm and sago division of the MPC will help to alleviate the situation.

However, in practice, the policies and procedures are opaque and have been shown to be utilised unfairly by some parties.

Does the average tax-paying planters benefit from the windfall profit levy? The constitutionality and jurisdiction of COSS are still up for debate.

Datuk Daud Amatzin is the Incorporated Society of Planters chairman. The views expressed here are the writer’s own.

Tags: windfall profit, prices, Production, Malaysia, palm oil, tax